22
Oct

Electric vehicles ‘won’t kill oil demand’: BP

An unexpectedly aggressive take-up of electric cars will hardly dent oil demand by 2040, according to Spencer Dale, chief economist of Britain-based energy major BP, meaning trillions of dollars of investment is needed in new supply to avoid acting as a drag on world economic growth.

“The idea that rapid growth in electric cars will kill oil demand is just not born out by arithmetic,” Mr Dale said.

He said the call on investment to develop new fields – even in a scenario consistent with meeting the Paris climate goals – was a point often misunderstood by critics.

BP’s analysis has found that even in that Paris-consistent scenario, which would see oil demand peak in the mid-2020s, “enormous” investment is needed in new oil because of the declining rate of production from new fields and demand that would still be in the vicinity of 80 million-85 million barrels a day by 2040.

That compares with demand of close to 100 million barrels a day now.

“Think plateau not peak in terms of oil demand,” said Mr Dale, a former chief economist on the Bank of England’s Monetary Policy Committee, referring to expectations that while global consumption is set to peak some time over the next five to 25 years it will not go into sharp reverse.

BP is anticipating rapid growth in electric vehicles from about 4 million today to just over 300 million by 2040 in its “evolving transition” scenario, which assumes an evolution in technologies and policies in a similar manner as in previous years.

Emissions impact ‘almost nothing’

That growth would see electric cars account for 15 per cent of the global car fleet of about 2 billion by 2040, although electricity is expected to power about 30 per cent of car kilometres by that time because EVs are expected to be more intensively driven than conventional cars due to the rise of driverless cars.

BP envisages fully autonomous cars becoming increasingly available from the early 2020s, with most sold to fleet companies offering shared mobility services such as Uber, Lyft and DiDi because of their cost. But the expected much lower cost of of a ride in a shared mobility, fully autonomous car is expected to boost demand.

Still, the net impact by 2040 in that scenario is still only an erosion of oil demand of 3 million-4 million barrels a day by 2040 compared to what it would be otherwise.

Mr Dale said that in an “extreme” scenario, where the world banned all internal combustion engine cars from 2040 and allowed only full battery cars, the EV fleet could surge to more than 1 billion by 2040. That is about twice the forecast of the most bullish mainstream forecaster, Bloomberg New Energy Finance, which is forecasting about 500 million EVs by 2040.

But even then the total level of oil demand by that time is still higher than today, even though consumption in car transportation is lower, he said.

In sobering findings for the climate, BP assesses the impact of huge growth in EVs is negligible on carbon emissions. Even in the super-bullish scenario of 1 billion EVs by 2040, and assuming 100 per cent of those cars were powered by renewable energy, the impact on carbon emissions is “almost nothing”, Mr Dale said.

“It just does not move the dial in terms of carbon emissions,” he said, noting that in this scenario, carbon emissions would still rise by 7 per cent by 2040, compared to a 10 per cent increase under the evolving transition case. That still leaves a huge gap to the 50 per cent cut in emissions seen in the scenario where the Paris climate goals are met.

“Cars only account for a relatively small proportion of total carbon emissions and so even if you reduce carbon emissions from cars by a half it is still only a very small fraction of the big falls we need to see in terms of getting on the road to Paris.”

Mr Dale said improvements in efficiency of fuel use in vehicles is “an order of magnitude more important” than EVs in reducing oil demand.

 

Extracted from AFR