With the global energy transition in full swing, few clean energy sectors, if any, are expanding faster than the electric car market. A decade ago, a grand total of 130,000 EVs were sold globally; fast forward to the present, and nearly a similar number are sold in just a week.
Last year, EV sales accounted for 10% of the global light-duty new vehicle sales, compared to just 2.5% in 2019. Electrifying America’s vehicles is regarded as a critical part of combating climate change since the transport sector is known to be one of the biggest polluters on the planet, contributing 25% of total GHG emissions.
But oil and gas bulls are not losing sleep over the EV revolution–at least not yet.
Over the years, there’s been no shortage of blue-sky forecasts from EV enthusiasts who have predicted an apocalypse for the oil industry that will be dished out by the EV revolution.
That includes Stanford University economist Tony Seba who has declared that EVs will obliterate the global oil industry by 2030 while Bloomberg News’ Akshat Rathi is on record claiming that ‘every F-150 Lightning destroys 50+ barrels of oil demand forever.’ The F-150 Lightning is Ford Motors’ (NYSE:F) electric equivalent of the marquee Ford-150 truck. Meanwhile, back in 2016, Bloomberg itself predicted EVs will trigger a global oil crisis.
It’s not hard to see why these EV punters have been going ballistic. The transportation sector is responsible for nearly 60% of global oil demand, with passenger vehicles and trucks guzzling the lion’s share. EV sales are surging thanks to a combination of new compelling models from automakers, improvements in battery technology, policy support and more charging infrastructure. Electrification is also beginning to spread to new segments of road transport.
While there’s no denying that rapid adoption of EVs is bad news for global oil demand, the reality is probably nowhere near as dire as analysts like Seba have claimed. BNEF estimates EVs are currently displacing only 1.5 million barrels of oil demand per day, good for slightly over 1% of global oil demand consumption.
But make no mistake about it: the EV and clean energy revolution will eventually crush oil demand.
Forecasts for the penetration of EVs to total passenger car sales by 2030 range from 11% at the low end to 63% at the high end while projections for 2050 range from 31% to nearly 100%. The lower end of these forecasts suggests minimal to gradual displacement of oil demand while the higher end suggests quite severe oil demand destruction. Indeed, internationally accredited registrar DNV has predicted that oil demand for the transport sector will be cut in half by 2050, with even hard to decarbonize sectors like the maritime sector seeing its energy mix comprising at least 50% low- and zero carbon fuels by the time the century is halfway gone.
But it’s not just companies like Tesla Inc. (NASDAQ:TSLA) that will be doing the damage to the oil industry; synthetic fuels will also play a big role in decarbonizing the sector.
Synthetic fuels are liquid fuels produced from natural gas, coal, peat, and oil shale, and include synthetic diesel, synthetic kerosene and green methanol. According to the IEA, synthetic fuels are vital in the decarbonization of transport and industry by 2050.
Sustainable aviation fuels (SAF), including synthetic or bio-based jet fuels, are so far the
most promising option for the decarbonization of the carbon-heavy aviation sector. The IEA has predicted that by 2030, 15% of total fuel consumption in aviation will be SAF, a figure that will shoot up to 75% by 2050. Two years ago, the Netherlands made history after becoming the first ever country to host the first passenger flight powered by synthetic fuels with an energy density only marginally lower than that of fossil-based kerosene.
No Consensus
Predicting oil demand nearly a decade out is no mean task let alone projecting demand three decades away.
Energy experts at Energy Intelligence Group has predicted that not only will oil demand grow in 2023 but it will continue doing so till the end of the decade. According to the analyst, global oil demand is expected to grow by 1.5 mb/d in 2023, with China accounting for 650,000 b/d after the country abandoned its rigorous zero-Covid policy. Global oil demand will hit 101.2 million barrels per day in the current year and will continue growing to hit 106 mb/d by 2030. Indeed, this year’s average is expected to exceed the previous high of 100.6 mb/d set in 2019.
While this is great news for the oil bulls, the Energy Intelligence Group says that growth will primarily be driven by petrochemicals rather than transport fuels. Energy Intelligence Group has also said that its base case is a plateau rather than a decline. Actually, Energy Intelligence is not the only bull here. Below is a table that compares oil demand predictions by 28 organizations including a handful of Big Oil companies.
| Oil Demand to 2050 | |||||
| (million b/d) | Peak | 2030 | 2040 | 2050 | 2021-50 |
| Energy Watch Group (0 Gt) | <2021 | 72 | 31 | 0 | -100% |
| UNPRI 1.5 (2 Gt) | 2025 | 88 | 46 | 20 | -79 |
| IEA Net-Zero (0 Gt) | <2021 | 72 | 43 | 24 | -74 |
| BP Net-Zero (2 Gt) | <2021 | 90 | 55 | 24 | -74 |
| UNPRI Forecast Policy (9 Gt) | 2026 | 99 | 63 | 37 | -61 |
| IPCC 1.5°C Low Overshoot (1 Gt) | <2021 | 86 | 63 | 41 | -56 |
| Total Rupture | <2021 | 88 | 59 | 41 | -56 |
| Equinor Rebalance (9 Gt) | <2021 | 88 | 61 | 46 | -51 |
| BP Accelerated (10 Gt) | 2025 | 96 | 72 | 47 | -50 |
| IPCC 1.5°C High Overshoot (6 Gt) | <2021 | 99 | 78 | 53 | -44 |
| DNV (19 Gt) | 2024 | 85 | 69 | 49 | -48 |
| IEA Sustainable Development (8 Gt) | <2021 | 88 | 65 | 57 | -39 |
| Total Momentum | <2021 | 94 | 74 | 63 | -33 |
| IPCC 2°C (14 Gt) | 2030 | 100 | 88 | 70 | -26 |
| IEA Announced Pledges (21 Gt) | 2030 | 96 | 84 | 77 | -18 |
| BP New Momentum (31 Gt) | 2030 | 101 | 92 | 81 | -14 |
| Equinor Reform (24 Gt) | 2030 | 100 | 92 | 84 | -11 |
| Shell Sky 1.5 (18 Gt) | 2025 | 100 | 94 | 85 | -10 |
| IPCC 2.5°C (29 Gt) | 2040
|
105 | 107 | 99 | +5 |
| Shell Islands (34 Gt) | 2040 | 102 | 104 | 102 | +8 |
| IEA Base (34 Gt) | 2040 | 103 | 104 | 103 | +9 |
| IPCC 3°C (38 Gt) | 2040 | 104 | 108 | 106 | +13 |
| Exxon | >2040 | 104 | 107 | 107 | +14 |
| Opec (34 Gt) | >2045 | 107 | 108 | 108 | +15 |
| Equinor Rivalry (32 Gt) | >2050 | 107 | 110 | 110 | +17 |
| IPCC 4°C (52 Gt) | 2040 | 107 | 111 | 111 | +18 |
| Shell Waves (35 Gt) | 2040 | 111 | 119 | 111 | +18 |
| US EIA (43 Gt) | >2050 | 109 | 117 | 126 | +34% |
| Projected oil demand to 2030-50 in million barrels per day in a range of scenarios. When available, projected CO2 emissions in billion tons are shown in parenthesis (2021: 34 Gt). Source: BP, DNV, Equinor, EWG, Exxon Mobil, IEA, IPCC, Shell, TotalEnergies, UNPRI, US DOE | |||||
Source: Energy Intelligence Group
You will notice that no less than 10 organizations, including OPEC, Exxon Mobil (NYSE: XOM) and the Energy Information Administration (EIA), have predicted that global oil demand will actually grow as we go along and not shrink as most analysts have forecast.
The big takeaway here is that whereas EVs are likely to pose a substantial threat to the fossil fuel industry over the long-term, other sectors like petrochemicals might still give it a new lease on life.