I often meet friends who are under the impression that oil demand is doomed because of the proliferation of electric cars and the announced policies in some countries to help in that direction. This view is largely created by the media, which is either very enthusiastic about the electrification of transport or have an agenda to spite oil producers.

Whatever be the case, transportation will continue to be the main consumer of oil for a long time. There is no doubt that the electrification of car fleets will affect oil demand in future. The road transportation sector will no longer be the main growth area for oil demand and will be overtaken by aviation and shipping sectors, on the one hand, and by industry and petrochemicals on the other.

8mbpd

growth in total oil demand attributable to the transportation sector by 2040

Let us not forget that the electrification of railways has been a reality for decades but its effect on oil demand has been gradual and continues to be so.

According to Organisation of Petroleum Exporting Countries (Opec) and International Energy Analysis (IEA) analyses, the total oil demand attributable to the transportation sector is forecast to grow by over eight million barrels per day (mbpd) by 2040.

Both agree that there will be a significant increase in electric cars, from about three million in 2017 to 300 million plus vehicles by 2040. (About half of these cars are expected to be purely electric, while the rest are plug-in hybrids.)

All countries are not equally bent on electric cars. While 39 per cent of new car sales in 2017 in Norway were electric, only 1 per cent of Japan new car sales were electric, while in the US, it was only 1.5 per cent.

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In its energy outlook, the IEA says “oil use in cars in 2040 is only marginally higher than today despite an 80 per cent expansion in the global car fleet to over 2,000 million vehicles”. However, oil use in trucks is expected to increase by 4 mbpd, with the number of trucks to increase from 230 million to 444 million units.

We have to remember oil demand will not be impacted by electric cars only, but by other alternative fuels such as natural gas and hydrogen-powered vehicles, which may contribute an increase of some 80 million units. Without these alternatives, oil demand in 2040 of 111 mbd may has been forecast at about 8 mbd higher.

The mandated efficiency improvement measures in developed countries may have avoided a further 9 mbd of oil demand growth by 2040, according to the IEA. That is to say the impact of efficiency measures on oil demand far exceeds that of electric cars, but hardly gets a mention in the media.

But there is so much uncertainty on all the above and change in policy would have a major impact on the forecasts. Almost half of the global electric vehicle revolution is in China and any slowdown there would have its consequences.

All countries are not equally bent on electric cars. While 39 per cent of new car sales in 2017 in Norway were electric, only 1 per cent of Japan new car sales were electric, while in the US, it was only 1.5 per cent.

Electric cars, and other alternative fuel vehicles, have been encouraged by discounts and deduction of taxes and other incentives. But governments thrive on taxes and cannot forgo for a long time.

US President Donald Trump recently said that coal is the future and that automakers who go all-electric will fail. His administration is planning to end the electric car federal tax credit altogether.

With current battery technology, every electric vehicle requires 5-10 kilograms of cobalt and there is doubt whether reserves are sufficient to meet demand, especially as it is a by-product of mining nickel and copper.

In Norway, the world’s electric vehicle capital, the government is already clawing back some of the incentives, but over 20 per cent of new registrations in 2017 were electric.

Only the UK and France have proposals to end sales of fossil-powered vehicles by 2040. Buyers are eligible for grants of £4,500 in the UK and ₤6,000 in France when buying an electric vehicle.

In contrast, Germany’s desire of one million electric cars by 2020 has only achieved so far around 100,000 and only half are pure electric.

There is definitely progress for advocates of electric vehicles, but 1 billion by 2040 forecast by IEA remains a remote possibility.