As the role of the electric vehicle in the future is brought into the fore – many are questioning what impact this could have on oil demand going forward and how it will affect oil markets and the role of tank terminals. Jasmin McDermott reports
The rise of the electric vehicle has delivered some startling headlines in recent months.
The UK is the latest in a string of countries to acknowledge the growing popularity of EVs (electric vehicles) by pledging to ban the sale of all diesel and petrol cars and vans from 2040.
It is part of the British government’s clean air plan, which is needed due to the ‘unnecessary and avoidable impact’ that poor air quality has on people’s health.
It follows a similar pledge by France, driven by the country’s plan to meet its targets under the Paris climate accord.
Likewise, India is also planning to phase out all diesel and petrol cars, however it aims to do this eight years earlier, by 2032. Global energy driver China is also embracing the EV phenomenon by pushing for 8% of car sales to be electric as early as next year – a quota that is pushed to 12% by 2020. By 2025, seven million electric vehicles will be on the country’s roads.
And it is isn’t just countries that are moving away from traditional fossil-based cars. Volvo has announced that all cars produced from 2019 will be either hybrids or fully electric while other major car manufactures such as BMW, VW and Renault-Nissan have declared plans for electric cars, supported by government grants.
The IEA’s 2016 World Energy Outlook has also noted the growing appeal towards EVs. In 2015, the worldwide stock of electric cars reached 1.3 million, almost double of 2014 volumes. In its main energy scenario, the IEA envisages more than 30 million EVs by 2022, exceeding to 150 million in 2024 and reducing
oil demand in 2040 by 1.3 million barrels per day.
Stanford University economist Tony Seba and James Arbib have a more radical view on the future of petrol and diesel cars and the oil industry as a whole. Their report, Rethinking transportation 2020 – 2030, envisages that no petrol or diesel cars, buses or trucks will be sold anywhere in the world by 2025 – a mere eight years away.
In fact, the report goes further and suggests that people will stop driving altogether, instead switching to on-demand self-drive EVs.
‘We are on the cusp of one of the fastest, deepest, most consequential disruptions of transportation in history. Internal combustion engine vehicles will enter a vicious cycle of increasing costs,’ the report says.
Global oil demand will drop from 100 million barrels per day in 2020 to around $70 million barrels per day in 2030. The long-term price of oil will drop to around $25 per day and oil prices might ‘collapse’ as soon as 2021.
The report notes: ‘The TaaS (transport-as-a-service) poses existential threats to the oil industry.
‘The effects of such a dramatic decrease [in oil demand] will ripple through the whole value chain, causing systematic disruption from oil fields to pipelines to refineries.’
Delving deeper into the report, the authors’ state that oil prices of $25 per barrel by 2030 will see ‘certain high-cost countries, companies and fields oil production entirely wiped out in this demand scenario’. More than half of the oil production in Canada, Brazil, Mexico, Angola and the UK will be stranded.
In such a case, they project that investment in exploration, production, shipping, refineries and infrastructure will begin to dry up.
Looking at the impact on pipelines and refineries, the report says the Dakota Access Pipeline and Keystone XL pipeline projects will be stranded.
It summarises: ‘Oil companies, as well as companies throughout the oil supply chain, have little room to manoeuvre as oil demand drops, with few strategies open to them given the speed of the disruption.’
OIL: A DIVERSE PRODUCT
On the face of it, it paints a bleak picture for future oil demand given that up to 50% of a barrel of oil is refined to produce petrol for motor cars.
However, Ratio Group MD Ellen Ruhotas believes that the report does not take into account that half of a barrel of oil is used to produce jet fuel, fuel oil for ships and heating, bitumen for roads, LPG for cooking and a range of petrochemicals.
‘I would not be so quick to write off the importance of oil, or so pessimistic in its pricing,’ she says in an interview with Tank Storage Magazine.
‘I don’t see the growth in demand for electric vehicles as a threat to oil markets. There is no doubt that as the cost of electric vehicles decreases and governments support the change over to EVs, we will notice a real difference in the type of vehicles we see on our roads, but the rate of uptake of new vehicles and rates of disposal of older vehicles will be key.’
Ruhotas says that the ‘threat’ to oil markets is not from the EVs themselves but rather from improved fuel efficiency for private cars, trucks, ships and aviation. ‘There is no doubt that there will be continuing year on year increase in demand for transportation, but this increase in demand will be offset by efficiency
in vehicle and engine design,’ she explains.
Figure 1 from Barclays Research highlights that despite an increase in demand for vehicles, with increased fuel efficiency and some switching to EVs, total oil consumption for passenger vehicles increases by 6.7% by 2030.
A MIXED VIEW
The growing trend towards EVs – whether for technological or environmental reasons – is starting to be acknowledged more by oil majors and their future business strategies.
Shell’s strategy, for example, has moved towards producing fuel for electricity, such as natural gas and renewables. According to a recent report by the Wall Street Journal, the company now produces more gas than oil and has plans to heavily invest in developing new energy sources, such as renewables.
In its second quarter financial results, the company said it is preparing for a ‘lower forever’ oil price, where crude prices will never return to the precrash levels and where petroleum demand eventually declines as a result of national government initiatives to phase out combustion engines in favour of EVs.
On the other hand, Norwegian-based Statoil says there will continue to be a need for big investments in oil and gas due to a natural decline in supply from existing oil fields and that despite the growth of EVs, oil demand in other sectors will continue to drive demand.
Statoil’s chief economist Eirik Waerness says: ‘Electric cars and plug-in hybrids could account for around 90% of private cars in 2050, and efficiency will be much higher than today.
‘Still, with heavy duty and maritime transport, aviation and petrochemical industry growth, oil demand will be above 60 million barrels per day.’
Exxon Mobil has a different forecast for future uptake of hybrids and EVs. In its outlook until 2040, it projects that in 2040, 15% of all cars globally will be hybrids and that only 10% of new car sales in the US will be EVs.
It says that oil will remain the world’s primary energy source, with the 2040 energy mix comprising 32% oil, 25% natural gas, 20% coal with nuclear, wind and solar and other sources making up the rest.
THE STORAGE PICTURE
Looking at the possible impacts on the tank terminal industry, Ruhotas says there will remain a need for storage tanks for petrol, diesel, gasoil, fuel oil and jet fuel, however any new greenfield developments will be concentrated in key markets rather than a global increase in tankage, which has been the case in the past.
‘We won’t see demand for storage significantly decrease – we will always have a base load demand for oil used in transportation, petrochemical, gases and bitumen.
‘For storage terminals to see a significant decline, economically viable electric/LNG ships, long haul trucks and jets will need to be widely accepted.’