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The Oil Sector Will Survive The Arrival Of The Electric Car Just Fine

- Mar 23, 2018 -

Proponents of electric vehicles writing the oil industry’s obituary should put down their pens. There’s no denying that electric cars will significantly change the transportation landscape in the coming decades, but the transformation will be gradual and poses no “clear and present” danger to global oil demand through mid-century.

Electric vehicles won’t be the disruptor to oil products in the same way that digital technology was to photographic film or iPhones were to cellular phones. There will be no Kodak moment for Big Oil. That’s because electric vehicles and conventional gasoline- and diesel-powered automobiles will co-exist. It won’t be a zero-sum game, with ample room for growth on both sides, particularly as internal combustion engines become increasingly efficient.

Even under the rosiest forecast for electric vehicles, oil demand will remain robust through the mid-century. Modeling by U.K. oil major BP shows that even a worldwide ban on new internal combustion engine vehicles would create a 10 million barrels a day dent in oil demand by 2040. Considering the oil market is closing in on 100 million barrels a day of demand this year, that equates to a 10% hit to the oil industry – hardly a death blow.

Why is oil so resilient? Because demand growth for oil in sectors like petrochemicals, heavy industry, aviation and other heavy transport keeps expanding significantly. And these segments are largely insulated from fuel switching.

It’s not just Big Oil that believes this to be true. The International Energy Agency (IEA), the watchdog for large, developed energy-consuming economies, agrees. According to the IEA, an estimated 50 million electric vehicles will be in operation by 2025, and 300 million by 2040, compared to about 2 million vehicles currently on the road. That growth is expected to reduce global oil demand by 2.5 million barrels a day or about 2%. A factor of 6-to-1 easily offsets that reduction with increased demand from petrochemicals, trucks, shipping and aviation – areas the IEA says could lead to net demand growth of up to 14 million barrels a day.

All told, the IEA expects net oil demand to be 12 million barrels a day higher in 2040 compared to 2016, pouring water on the new “peak demand” movement that has sprung up among industry watchers and is as misguided as the “peak oil” supply predictionsof a decade ago.

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