Will Electric Vehicles Slash Oil Demand?

The answer to that question is yes, according to Matthew Bey, a Senior Analyst at RANE, who told Rigzone that electric vehicles are poised to have a significant impact on oil demand.

Bey outlined that they are already starting to do so in places like Europe and the U.S. “where they are no longer an insignificant share of new vehicle sales” and noted that total liquids demand has already peaked in Europe and North America “and is likely to continuously decline over the coming decades”.

“However, despite this, continued sales of new fossil fuel powered vehicles, and the long lifetime of new vehicles that results in a lengthy process for vehicle fleet turnover, means that oil demand, at least through 2030, will only fall slowly in the developed world,” Bey said.

“Oil demand will not crater because of the large fossil fuel vehicle fleet. It will not be until the mid 2030s, when Western government’s new requirements on emissions standards come into effect, will we start to see a more sudden drop in demand,” he added.

Bey also highlighted that, globally, electric vehicles “may not result in a significant decline in oil demand over the foreseeable future as higher automobile penetration rates in places like India, China, Southeast Asia and Africa offset declines in fossil fuel demand caused by electrification”.

“Rather than a sharp decline in oil demand, demand is likely to peak for a lengthy period in the 2030s,” he said.

“Nevertheless, electric vehicle adoption will still cut oil demand from what it otherwise would have been globally,” he added.

Bey told Rigzone that, over the next few years, electric vehicle adoption is still going to have a marginal impact on overall global oil consumption, “perhaps on the order of just a couple million barrels per day”.

“The decline in oil demand in the U.S., Europe, and China due to electric adoption will be completely offset and overtaken by overall oil demand growth in India, the Middle East and elsewhere in China,” he added.

Rystad Energy’s Head of Clean Technology Research, Artem Abramov, told Rigzone that the electrification of passenger road transport has already eliminated about 600,000 barrels per day of road fuel demand globally.

“This number grows faster and faster every year as BEV sales pick up,” he said.

“If you add two- and three-wheelers along with the early impact from the electrification of buses and trucks, we are talking about a total displacement impact of close to one million barrels per day,” he added.

A graph sent to Rigzone by Abramov, which showed that Rystad is predicting 600,000 barrels per day of oil displacement from the passenger electric vehicle fleet in 2023, revealed that 360,000 of these barrels are expected to be displaced in China, 101,000 barrels per day in “major European markets”, 97,000 barrels per day in the U.S., and 62,000 barrels in the rest of the world.

According to the graph, 400,000 barrels were displaced in 2022, with China seeing 212,000 barrels displaced, just over 200,000 barrels were displaced in 2021, and just over 100,000 barrels were displaced in 2020.

Back in April this year, in a release accompanying its latest annual Global Electric Vehicle Outlook, the International Energy Agency (IEA) stated that the global auto industry is undergoing a “sea change, with implications for the energy sector, as electrification is set to avoid the need for five million barrels of oil a day by 2030”.

In the release, the IEA said global sales of electric cars are “set to surge to yet another record this year, expanding their share of the overall car market to close to one-fifth”. The IEA’s report shows that more than 10 million electric cars were sold worldwide in 2022 and that sales are expected to grow by another 35 percent this year to reach 14 million, the release highlighted.

“Electric vehicles are one of the driving forces in the new global energy economy that is rapidly emerging - and they are bringing about a historic transformation of the car manufacturing industry worldwide,” IEA Executive Director Fatih Birol said in the release.

“The trends we are witnessing have significant implications for global oil demand. The internal combustion engine has gone unrivalled for over a century, but electric vehicles are changing the status quo,” he added.

“By 2030, they will avoid the need for at least five million barrels a day of oil. Cars are just the first wave: electric buses and trucks will follow soon,” Birol continued.

To contact the author, email andreas.exarheas@rigzone.com