Global energy dynamics are undergoing a major metamorphosis. Electric vehicles (EVs) are on the horizon, significantly impacting energy consumption patterns.
The transportation sector contributes some 60 per cent to the world’s total oil consumption, with passenger vehicles and trucks guzzling the lion’s share. With 26 million EVs on world streets last year, up from 12m in 2021, transportation trends are evidently shifting.
Remarkably, EVs made up 14pc of all new car sales in 2022, a significant increase from 9pc in 2021 and a mere 5pc in 2020. Some reports say that by 2030, over half of passenger cars sold in the US will be electric vehicles.
This is going to significantly impact the global oil consumption. By 2027, the increasing number of electric vehicles on streets will force a reversal to the era of rising demand for oil used in transportation, says a BloombergNEF report.
As the world shifts towards electric vehicles, global oil demand could drop, putting downward pressure on oil prices in the long term
David Doherty of Bloomberg is of the view that a combination of EVs, fuel efficiency, and shared mobility is affecting demand for road fuels. The demand decline, which starts with peak demand just four years away, is set to get further exacerbated after 2030, the BloombergNEF report underlined.
The report added that EVs are expected to displace a staggering 20m barrels per day (bpd) in oil demand by 2040, up from 2m bpd. As per the projection, the demand for road fuels will peak at 49m bpd in 2027. Then, the demand (for road fuel) will decline structurally.
Bloomberg analyst Vandana Gombar stresses that the demand for gasoline and diesel for road transport has already peaked in the US and Europe, while demand in China is set to peak in 2024. Demand in other major consuming countries is also projected to decline later in the 2030s.
The International Energy Agency (IEA) is of the view that global oil demand will peak over the next few years, slowing to just 0.4pc by 2028. The International Monetary Fund (IMF) says global oil demand is expected to peak around 2040 or “much sooner”.
McKinsey also says that after more than 30 years of stable growth of more than 1pc per year, oil demand growth is expected to slow down in the late 2020s, peaking in 2029.
With the strengthening of EV markets, competition in the sector is heating up. Traditional car manufacturers, including General Motors and Ford, are now eyeing a pie in the cake. Alex Kimani of Oilprice.com, quoting Mary Barra, the CEO of General Motors, says that GM plans to produce approximately 400,000 electric vehicles from 2022 through the first half of 2024 and that the company will be capable of annual EV production of more than 1m in North America in 2025, overtaking Tesla in just two to three years.
All this is bad news for global oil demand.
BloombergNEF estimates EVs are currently displacing 1.5m barrels of oil demand per day, some 3pc of total road fuel demand. But to be fair, the projections of the rapid growth of EVs are making it difficult to accurately estimate the impact of the growth in the sector on future oil demand. Thus, the forecasts vary.
Projections for the penetration of EV to total passenger car sales by 2030 range from 11pc at the low end to 63pc at the high end, while projections for 2050 range from 31pc to nearly 100pc. In carbon-constrained forecasts, passenger vehicle oil demand is expected to fall from about 25m bpd today to 3–6m bpd by 2050.
Not everyone agrees. An op-ed in CNBC on August 30 said that the 2022 World Energy Report, published by the UK-based Energy Institute and consulting firms KPMG and Kearney, noted that fossil fuels constituted 82pc of global energy in 2022. This is comparable to the Organisation of the Petroleum Exporting Countries’s latest world oil outlook and represents a similar level to 30 years ago. CNBC thus asserts that the argument that EVs are replacing conventional cars doesn’t appear very strong.
A recent analysis from the US National Automobile Dealers Association quoted by CNBC also says almost the same. ‘Sales of hybrids, plug-in hybrids and battery electric vehicles (BEV) accounted for only 12.3pc of all new vehicles sold in the US in 2022, while the total sales of BEVS also made up only 19pc of new car sales in China last year. Similarly, in the EU, petrol or diesel vehicles still accounted for around half of all car sales in 2022.’
And with the world adding another 1.6 billion people to its total population by 2045, with more than 700m still lacking access to electricity and almost one-third of the global population using inefficient, polluting cooking systems, the world needs more oil, not less, some assert.
OPEC is also of the view that the global energy demand will increase, and not diminish, to around 110m bpd from the current 102m bpd over the decade.
The debate is on. Yet to be fair, the EV era has dawned. The transition has begun, and global energy dynamics are in flux.
Countries like Pakistan do not seem prepared to be part of the coming revolution. Pakistan has two major issues. Lack of cheap electricity and a dearth of recharging stations are major impediments to the growth of EV car markets in the country.
Electricity generation in Pakistan is largely dependent on fossil fuels. And this makes the country exposed to the upheavals in the market. The only consolation for countries like Pakistan is that the drop in global oil demand could lead to intense competition for market share among the producers, resulting in price wars. In such a scenario, internal combusion engine vehicle owners and oil consumers stand to benefit. Pakistan could be one of them.
Published in Dawn, The Business and Finance Weekly, September 11th, 2023