Movers and SHAKERS
Does a green light for electric cars mean a red light for oil?
(Note: companies that could be impacted by the content of this article are listed at the base of the story (desktop version). This article uses third-party references to provide a bullish, bearish and balanced point of view; sources listed in the "Balanced" section)
Electric cars are no longer a novelty. There were more than 5.4 million electric vehicles (EVs) as of January 1, 2019, including hybrids. China represents more than half of the market followed by the US, Norway, Germany and the UK. The number of electric vehicles grows by more than 50% each year and the growth rate has shown no signs of slowing down. Every electric vehicle purchased means less demand for gasoline and thus oil. While it is true that oil is used to generate electricity, oil’s market share of generation is small and decreasing. It is reasonable to ask then, “will electric vehicle growth dampen the demand for oil and cause downward pressure on oil prices?”
Electric vehicle use is growing exponentially. Greg Archer, UK director of Transport & Environment, indicates that it took over 20 years to sell the first million electric cars and now a million cars are sold every six months, and sales are accelerating. Tom Randall of Bloomberg believes electric cars will cost the same as internal combustion counterparts by 2022, causing electric vehicle sales to soar. Future forecasts are all over the board but generally call for growth rates to be maintained or grow over the next ten years. The International Energy Agency, for example, predicts that EV ownership will balloon from 5 million to 125 million by 2030.
Electric buses and trucks are starting to get attention. There are some 500,000 electric buses on the ground with almost all of them in China. Urban electric buses have certain advantages over diesel. Frequent starting and stopping means that electric buses can use braking to recharge batteries. Additionally, buses are typically operated over short distances, which limits the range anxiety often associated with electric cars. Electric trucks are less common given their long-haul nature. However, garbage trucks, postal trucks and trucks used for short-distance deliveries are excellent candidates to run on electricity as well.Reduced demand for gasoline won’t be offset by generation demand for oil. Oil represents only a fraction of electric generation. In 2018, fossil fuels represented 64% of all generation by source. However, fossil fuel generation was predominately natural gas (35%) and coal (27%). Petroleum represented less than 1% of power generations. Consequently, a major shift from gas vehicles to electric vehicles could provide a major disruption in the demand for oil. Tom Randall believes electric vehicles could displace 2 million barrels of oil a day by 2023. This would create a glut of oil equivalent to what triggered the 2014 oil crisis.
Growing demand for oil far outweighs any lost demand associated with vehicles. Fatih Birol, the head of the International Energy Agency (IEA) believes global oil demand will increase by 1.3 million barrels per day annually. He estimates the effect of adding 5 million electric cars will only reduce demand by 50,000 barrels per day, far below the projections of Tom Randall.
Although EV sales are growing, their market share is still small. The IEA expects there to be 2 billion vehicles by 2035 meaning the lofty projections from EVs still represent less than 10% of all vehicles. While acceptance of electric vehicles is growing, at this point, it is merely reducing new demand, not cutting into existing demand.
Market dynamics are never steady. A drop in oil demand causing oil prices to decline could improve the economics of gasoline-powered cars versus electric cars. Future reductions in drilling costs due to technological advancements could have a similar effect.
The electric slope. Although electric vehicles represent a small share of the vehicle market, they are growing in importance every year. Currently, the impact of EVs on oil demand is small and outweighed by rising demand caused by the global economic expansion. However, it would be wise for energy analysts to keep an eye on electric vehicle growth and the impact it could have on oil demand in the future.
'No peak' in oil demand yet, despite electric cars, IEA says, Matt Egan, CNN, March 11, 2019
Electric cars will not stop rising oil demand, says energy agency chief, Natalie Sauer, Climate Home News, January 22, 2019.
The impact of electric vehicles on electricity demand, Fereidoon Sioshansi, Energypost.eu, November 6, 2018
Here’s How Electric Cars Will Cause the Next Oil Crisis, Tom Randall, Bloomberg, February 25, 2016
Number of Electric Cars Rises from 2 Million to More Than 3 Million, T&D World, February 28, 2018
Global EV Sales for 2018 – Final Results, Roland Irie, EV-volumes.com,