Red Tesla Model S on Amsterdam canal (Photo David van der Mark 2014)
The major oil companies greatly underestimate the impact electric vehicles will have on their market, write independent energy advisors Salman Ghouri and Andreas de Vries. According to Ghouri and De Vries, the trends currently underway in the auto industry are likely to have a substantial impact on oil demand in the medium term, and even a devastating impact in the longer term.
If there is one event in history that has shaped the crude oil industry, it is the popularization of the internal combustion engine (ICE) by the auto industry.
At the beginning of the 20th century, coal and wood were the dominant sources of energy, together providing more than 90% of global energy consumption. From 1910 onward, however, the Automotive Revolution triggered by Henry Ford spurred on demand for liquid fuels, causing crude oilâs contribution to global energy supply to more than double every decade. Consequently, by 1970 crude oil had taken top-spot in the global energy mix.
Continued growth in the transportation sector ever since has provided the worldâs oil companies with plenty of organic growth opportunities. And judging by the energy outlooks the major oil companies have published, they appear to expect this status quo to continue. For example, BPâs most recent Energy Outlook 2035 assumes that non-oil based transport will grow just 5% per annum for the next 20 years, and that essentially all of this growth will be in the gas-powered transport segment. Similarly, The Outlook for Energy: A View to 2040 published by ExxonMobil assumes that by 2040 âplug inâ electric vehicles (EVs) and fuel cell vehicles (FCVs) will have no more than a 4% market share. Chevron, meanwhile, has indicated that it plans on the basis of the assumption that the auto industry will remain fundamentally the same for at least another 50 years.
Alternative assumptions
However, as we documented elsewhere, the auto industry itself expects its future to be radically different from its present. To assess how the new vision of the auto industry would impact crude oil demand, we have developed an Alternative Energy Outlook (AEO).
The starting point of our AEO is research by Navigant Research, which predicts that by 2035 the total number of vehicles on the worldâs roads will have grown to over 2 billion, from some 1.2 billion today. We assumed this growth to go through three distinct stages: during the period 2016 â 2020 a continuation of the 4% annual growth witnessed from 2010 to 2014, 2.5% annual growth during the period 2021 â 2030 as growth in China and India slows, and finally 1.5% annual growth for the outer period 2031 â 2040.
                        Figure 1: Vehicle pool growth assumptions of the AEO
We have looked at the implications of this growth of the transport sector for crude oil demand, under three sets of assumptions:
- First, that the EV share in the global vehicle pool will increase based on a continuation of the current 50% annual growth rate in EV sales until the end of this decade, after which EV sales growth will slow down to 30% per annum during the period 2021 â 2030 and further slow down to 15% per annum during the period 2031 â 2040. This is the reference case in our alternative outlook.
- Second, that the EV share in the global vehicle pool will increase based on a slightly lower 42% annual growth rate in EV sales until the end of this decade, after which it will slow down further to 25% per annum during the period 2021 â 2030 and 12% per annum during the period 2031 â 2040. This is the low case in our alternative outlook.
- Third, that the EV share in the global vehicle pool will increase based on a 60% per annum growth in EV sales until the end of this decade, after which it will slow down to 36% per annum during the period 2021 â 2030 and further slow down to 18% per annum during the period 2031 â 2040. This is the high case in our alternative outlook.
The Alternative Energy Outlook
Using data from the IEA we estimate that in 2015 the global vehicle pool consumed 42% of the total crude consumption of 93.0 mmbd (million barrels per day), or roughly 39.5 mmbd. This data point enabled us to estimate what global crude oil demand would look like for 2020, 2030 and 2040, if the mentioned growth in vehicles will be entirely in the ICE segment of the transportation, as the conventional energy outlooks of the oil companies assume, and that average vehicle efficiency remains constant.
Our alternative energy outlook uses the same assumption for growth in the global vehicle pool, but assumes that EVs will displace some ICE vehicles. This enables us to assess the number of barrels lost from global crude oil demand due to EV penetration, through performing the following calculation for each of the mentioned periods (where CEO means âconventional energy outlookâ and AEO means âalternative energy outlookâ):
(Total number of ICE Vehicles CEO – Total number of ICE Vehicles AEO) * Average fuel consumption of ICE vehicle 2015 actual
  Figure 2: Vehicle pool compositions of the AEO
In the reference case of our alternative energy outlook, the number of EVs grows from its current 1 million to 8 million by 2020 (1% of the total vehicle pool), to 105 million by 2030 (6%), and to 424 million by 2040 (19%). The displacement of 7 million ICE vehicles by EVs during the period 2016 â 2015 would by 2020 result in a crude oil demand that is 0.3 mmbd lower than the forecast that is based on the assumptions of the conventional energy outlooks.
In the reference case a further 97 million ICE vehicles would be replaced by EVs during 2021 â 2030, and another 319 million during 2031 â 2040. This would remove 3.4 mmbd from the crude oil demand forecasted by the conventional energy outlooks by 2030, and 13.8 mmbd by 2040.
In the low case of the alternative energy outlook the number of EVs grows from its current 1 million to 6 million by 2020 (<1% of the total vehicle pool), 54 million by 2030 (3%), and 167 million by 2040 (8%). Here, crude oil demand would be lower than forecasted by the conventional energy outlooks by 0.2 mmbd by 2020, 1.7 mmbd by 2030 and 5.4 mmbd by 2040.
In the high case of the alternative energy outlook the number of EVs grows from its current 1 million to 10 million by 2020 (1% of the total vehicle pool), 227 million by 2030 (12%) and 1,188 million by 2040 (55%). The oil companiesâ forecast for crude oil demand would then be reduced by 0.3 mmbd by 2020, 7.5 mmbd by 2030 and 38.9 mmbd by 2040.
Figure 3: Crude oil demand losses according to the AEO
 ConclusionsÂ
From an oil industry perspective, the positive news in our Alternative Energy Outlook is that EVs will have no meaningful impact on crude oil demand in the short term, irrespective of the assumptions used.
For the evaluation of the medium term impact of EVs it is important to remember that the recent crash of the oil price was caused by a supply â demand imbalance estimated to be around 2 mmbd. The low case of the AEO would already remove a similar quantity from crude oil demand, meaning that EVs should be expected to have a substantial impact on crude oil demand, and hence the crude oil price, in the medium term.
In the longer term the impact of the trends currently underway in the auto industry could well be devastating for the crude oil industry. The sooner the industry realizes this, the bigger the chances it will find new opportunities for growth in the future that the auto industry intends to create.Â
Editorâs Note
Dr. Salman Ghouri is an oil and gas industry advisor with expertise in long-term forecasting, macroeconomic analysis and market assessments.Â
Andreas de Vries is a strategy consultant in the oil and gas industry, supporting companies to not only develop strategies for success but also execute them.
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Electrical vehickes then will inflate gas demand, because if all EV owners massiveli plug in their cars at 1900 o’clock when they come home. What will deliver this huge peak demand? Solar? N because it’s already dark 50% of the year. Wind? No that is not scalable to peaks and fundamentally supply driven. What can response fast to a peak question? Right: fast gas turbines.
Not necessarily. Most cars actually spend their time parked and it is possibly the most under-utilised asset we own as consumers. It is highly likely that EV owners will having charging possibilities either or both at home and at work. So EVs will be mostly charged at any given point in time and will likely be able to modulate their charging according to loads on the grid. There are potential synergies between with renewables.
Well no, when they have commuted, they want to charge, they immediately plug in, so there will be a huge power demand at 9 oclock and 18 o’clock.in holland currently the total transport energy is twice that of current electricity. So 50 % of future elctricity deman needs to be delivered in just one hour. Where will you get that fast responce power generated from? Fast gas turbines.
Given the very positive response to Tesla 3 (200k preorders in 24 hrs) it reinforces the view that EVs will dominate in the future. The challenge for us then is to engineer a solution. Building peak gas generators is a solution, but unlikely to be the optimum one.
There is no reason why the charging could not be spread out over time or restricted to times when surplus is available. It’s called demand response and new business model that is growing rapidly.
Another solution is the use of local storage units that provide localised peak load. Grid storage provides many benefits to the grid and this is a very active area of research, business development and policy work.
I think this is a very exciting time for new ideas.
I wish US federal government would impose either a carbon tax or better yet a greenhouse gas tax on all greenhouse gas emissions as CO2 equivalent, and use just enough revenue to let our fossil fuel industry come out even on tax by selling fossil fuel as mineral rights to federal government, and a little to reduce deficit. Weather/Earth Observation Satellites can locate methane leaks with close to 10 foot resolution.
Maybe some emissions tax money could go to utilities to store surplus electricity from times of abundance to when needed.
The assumption that EV owners will all plug in and charge upon arrival at home is simply incorrect. As an owner who has been using an EV for all purposes (from daily commuting to vacation travel) for more than three years I would never do that for three reasons:
1) High time-of-use power rates. Our power prices before 9 pm can be up to 14 times the off-peak rate. Using Internet connected demand management we have shifted 96% of our power consumption to the non-peak period, before 3 pm and after 9 pm.
2) The car battery pack functions more efficiently and can accept “regen” power when it is warm. To ensure that it is warm (and topped up) when I and my wife are ready to leave in the morning our cars are plugged in when I arrive home but are set to begin to charge at low amperage rates (15 Amps) starting at midnight and 2 am, respectively.
3) Surge or peak power surcharges (while not currently applicable to us) are used in many jurisdictions to encourage consumers to avoid imposing high peak loads on the infrastructure.
Glad for confirmation of existence of timers on EV charging system so they can be set to use off peak electric supply to charge EV batteries.
I think it’s correct to assume that gas demand will go up with the increased energy demand from the grid, provided that EV’s do very well in the coming years (and I really hope it does). Without any grid storage, there’s no way to sustainably implement renewables. However, Tesla’s initiative to produce more batteries will be a game changer I think.. As they have publicly announced, they’re an energy company more than a car company. If home owners can affordably purchase powerwalls and solar panels, they are much more likely to choose to live off the grid. Though it may not be enough to charge a EV every day, it will certainly move us towards where we need to be.
There is also a possible wild card. Once anyone from Google, Tesla, Apple or whoever will crack the self-driving problem and start to run Uber-like transport service cheaper than personal ownership of the car, the car market will instantly shrink 5-10x and purchasers will be corporations a.k.a. full wallets. Then the end will be quick.
P.S.: Why didn’t you use an adoption (logistic) curve? Why do you do some sloppy exponential curves?
Is an adoption curve sort of s shaped, starting off slow, accelerating to a maximum speed, then leveling off as supply comes close to saturating demand? I am 72 and have forgotten most of the math I had in college.
Self driving will not effect km driven – oil consumption. People will maybe drive even more. Self driving can effect demand for new cars and oil industry does not care that much about that. Self driving will on the other hand, help with charging in best possible time – car will not wait outside office, it will drive itself somewhere where it can be charged. Simillary I believe self driving will help with parking places in big cities.
Self driving can be expected to reduce oil consumption in two ways. First, by enabling electric cars, which are intrinsically less costly to operate, to replace oil powered vehicles (the system will always dispatch vehicles with sufficient battery capacity and charge). Second, by better enabling car pooling (UberPool, but without the cost of the driver).
The self-driving cars will all be taxi-cabs with no human driver? Rather than owned by any one individual commuter? They can be shared by several passengers (maybe even a mini-van full of passengers) on the same ride?
his is exactly the scenario most “peak oil” types have been predicting. The demand destruction hits and causes the already tenuous “wavy plateu” of peak oil production to drop significantly. This destroys exploration and new infrastructure investment and we never recover that peak ever again…
Considering what greenhouse gas emissions are doing to our climate, we need that scenario. I will be glad to see petroleum use decline to lubrication and feedstock for chemical industry!
I think adoption of EV will be faster than high case presented here. Once you reach a breaking point where EV is cheaper over 5-6 years time than ICE, than the market forces will be overhelming.
Well, don’t hope so, as electricity grid will go down totally, not able to cope with this additional demand, especially if put on grid at same time. One good thing will be the case, there will be not a lot of congestion anymore, all cars standing still for long time at gasoline stations to charge their batteries. For normal transport, this will be a hassle, as range is still not capable to supply all needed. However, if Tesla will bring car to market that looks good, not Toyata Prius, and at good price, around 30.000 Euros, than market will grow. Subsidies at present are down, so still will have to take a long time in assessments. Don’t expect that Dutch approach, of Labour Party (PvdA) will be feasible or even commercially sound!
As an air-breather I will be delighted if electric vehicles take over 90% of current market for oil. As a little old lady who gave up driving in 1999, the idea of self-driving cars sounds very interesting.
The study omits all the latest developments in hybrid ice- electrics. For example, the Porsche Panamera diesel hybrid gets 70 m.p.g., and the V.W. XL1, gets a full 250 m.p.g.
A new form of “fuel” is developing- namely “aqueous fuel systems”. Latest developments on brownÂŽs gas systems, have a high water dissociation to hydrogen and oxygen of 900 cubic meters per input kwh, and improving brake energy recycling devices- can generate the extra 2 kilowatts per hour needed to generate 1800 cubic meters of hho gas an hour, enough to provide 50% of the energy to a VW hybrid engine.
Or take another non-hybrid i.c.e. scenario. Equip two wheels with brake energy recycling – to power – in vehicle water demineralisation- to eliminate scale formation, power brownÂŽs gas generation, an extra fuel pump, and EFIE – Energy Fuel Injection Efficiency system which c.n.c. reduces diesel or gasoline injection- according to “aqueous fuel systems” kicking in. The vehicle has a smaller gas tank, and an insulated heatable water tank, and heatable gas lines.
It starts off normal diesel or gasoline, and then phase shifts to hho- browns gas, an after engine heat up, and exhaust manifolds get,hot, pumps demineralized water onto a steaming unit- on the hot exhaust manifold. That steam line then goes through a copyrighted and preliminary patent applied for special, permanently magnetized, – electro-magnetized steel-neodymian pipe with very high Tessla magnetic values of 9 Tesslas, and a high frequency 44 khz piezo resonance- which dissociates the steam to oxygen and hydrogen with very little -brake energy recyclng direct current enery needed.
The brake energy recycling and batteries power both the browns gas generation, and the steam dissociation systems.
The engines start off normal fuel, and then with engine warm up, shift to “all aqueous” mode- resulting in fossil fuel savings of between 90 to 95% in normal driving conditions. To make it even sweeter, the hot steam and minimal coÂČ exhausts go through a carbon recapture unit- where the coÂČ passes through a similar device- dissociating it to oÂČ and carbon. This also takes out the atmospheric carbon dioxide sucked in through the air intake, making the vehicle entirely carbon negative. The carbon goes into special “vacuum cleaner” type bags for normal garbage disposal at waste incineration plants for power and district heat.
The Munich Aqueous Initiative is already in contact with Volkswagen- Lichtblick Utilities- for a stationary version of the “aqueous fuel” otto engine, all aqueous, with brownÂŽs gas and steam dissociation systems kicking in after the warm up- driving generators for power and heat and running off collected, rooftop runoff rainwater stored in tanks that needs no demineralisation.
I estimate the average size of the aqueous fuel chp systems- displacing the heating oil units to be about 15 kw of power and
There are 6.5 million heating oil units in Germany that can be displaced by SMART GRID coordinated “SWARMS” of aqueous fuel powered combined heat power units-running off rainwater- and displacing the heating oil. These can be manufactured in power – heat sĂœstems ranging from 5 kw power- 7.5 kw heat all the way to large factory- commercial building units putting out 1 megawatt of power and 1.5 mw of heat per hour displacing about 3.000 liters of heating oil per annum. That is, when fully built out by 2040, the SMART GRID coordinated SWARMS of aqueus fuel combined heat power systems will produce just over 102 gw of power running at max say in December January evenings- with 150 gw of building heat for the 6.5 million buildings and displace over 122.6 million barrels if heatng oil every season.
The advanced automotive, rail, and ship dual fuel- gasoline-diesel fuel/ aqueous fuel systems will cost effectively slash transportation fossil fuel consumption by over 90%.
We have a surplus of production thanks to “fracking technologies” and more countries producing oil while there has been a systematic, but slow reduction of per vehicle consumption. So, the fracking revolution caused sky high global oil prices to drop from around $140. per barrel – which caused the recession, down to $30 per barrel and now its back to about $40, but I do not expect it to rise much. Saudi Arabia has not cut production to account for fracking and tar sands in the U.S. and Canada,
The two big major discoveries in shale oil have been the “Weald” field west – north west of London, which has an estimated 2 trillion barrels of shale oil, and the Baraschnekov field in SW-Siberia which also has an estimated 2 trillion barrels of shale. Iran is coming back on line, and Kenya, Tanzania, and Mocambique are gearing up conventional oil and gas production.
Add fuel efficiency systems, add E.V.s and Aqueous Fuel Vehicles- E.F.V.s and we can be assured that the days of less than $50. per barrrel oil will be with us a very long time, assuring global recovery from from the oil inflation and real estate inflation- bust – “great recession” for the next decades.
As with electrics, governments wll have to do without fuel taxes. These will be displaced by on board mileae driven, vehicle cell phone monitoring report systems, and receiver stations so governments can charge a “road use tax, based on maximum vehicle weight and the number of axles, similar to the German “Toll Collect” system it has in place for trucks using German autobahns. Electrics and aqueous fuel system vehicles will be mandated to have these systems. What makes it interesting, is that it also makes vehicles theft proof, as they can be quickly located by the same mileage driven cell radio systems.
Not sure whether it was intentional, but the implication seems to be that oil demand will drop as a result. However, it is apparent from your analysis that it will actually rise in almost every case. Your analysis of the impact of EVs is that it will reduce the growth rate of oil demand — not that it will reduce oil demand from current levels. I am not sure this was the impression you left readers because you don’t highlight your projected demand numbers for oil — only the “demand losses.” What I would really rather know is “What is oil demand projected to be under the different scenarios?”
For transportation as well as for everything else we use energy for, due to running out of capacity to dispose of waste faster than we are running out of fossil fuel, we need to replace fossil fuel with renewable energy.
I think that it won’t take so long. Within 10 years or so all new cars will be electric, because once they are cheaper to buy as will as cheaper to run it will be a no brainer. Far from bringing down the electricity grid, they will actually help to stabilise it because they can be programmed to charge when demand is lowest and old batteries have a second life as grid storage.
I certainly hope that using renewable energy for vast majority of our electric demand and electricity for vast majority of our energy will much reduce our demand for fossil fuel.
Great article and very well explained. Thanks for sharing all the information. It was really interesting to read.
Considering effect of use of fossil fuel on human health, I certainly hope something better replaces fossil fuel very soon.