If there is one singular event in history that we can say has greatly shaped the oil industry, it has to be the popularization of the Internal Combustion Engine (ICE) by the automotive industry. At the turn of the 20th century, Wood and coal were the dominant sources of energy, together accounting for 90 percent of the global energy consumption. This was however cut short in 1910 when the automotive revolution set off by Henry T Ford increased the demand for liquid fuels, which in turn made the global demand for crude oil to more than double every decade. So inevitably, crude oil had to dethrone coal and wood as the number 1 source of energy globally. Continued growth in the transport sector ever since has seen the world’s oil companies make huge gains and if we go by the analysis these companies have published, they expect the status quo to remain. But would the status quo really remain? Oil prices have been down these past few years following the advent of shale oil which has led to a glut in the market, but the prices are even set for further ruffling as Electric cars enter the fray.

Electric cars are increasingly becoming popular by the day. Just some few days ago Tesla unveiled its latest model of electric cars, Volvo has announced that from 2019 going forward gasoline-only cars would not be manufactured by it, Uk, France & India have all given deadlines to ban the use of fossil powered cars, Australia just announced 2 days ago that it is building the world’s longest highway dedicated to electric vehicles. So, all in all, ICE cars are being threatened, and if ICE cars are threatened, global oil demand is threatened and if global oil demand is threatened, oil price is threatened.


Impact of electric vehicles on global oil demand

The global oil demand stands at roughly about 98mb/d in 2017. Cars account for about 20Mb/d of the 98Mb/d global consumption. This represents about one-fifth or 20 percent of the global oil demand. The global car fleet is around 1.2 billion cars presently. Of this, there are more than 2 million electric vehicles on the world’s roads now. The market share of EVs is about 0.00167 percent which is somewhat insignificant.

Now let us project to 5 years from now, 2022. Bloomberg predicts that by 2022, EVs will cost the same as their Internal Combustion counterparts. The major reason why EVs are costly is because of the battery. Battery cost makes up a third of the total cost of an EV. Battery costs have been coming down and the trend is expected to continue. BP, ExxonMobil and other analysts have predicted increased global demand for oil at a rate of roughly 0.7 percent pa. This means that by 2022, Global daily demand for oil will stand at about 137mb/d. The total number of cars on the roads by 2022 are also expected to increase from around 1.2 billion in 2017 to 1.35 billion by 2022. By this time, EVs on the roads would be around 40 million. (I think it may be more if we go by the policies of India, France, UK and increasing popularity of EVs in Norway, Netherlands and China, which has the largest market share of EVs). So, 40 million out of 1.35 billion is still less than 1 percent, but the percentage has risen from 0.00167 to 0.03 percent.

Let us even take it further, say 2030-2040. The number of cars on the world’s roads would be 1.8 to 2 billion cars. Analysts have estimated that by 2040, EVs will represent 35% of new light duty vehicle sales, hitting 41 million vehicles sold. So, by 2035-2040, BP and IEA expect the number of EVs on the roads to be between 100-400 million cars (which could be much higher). In fact, Bloomberg predicts that if current growth rate of EVs is maintained, 2 mb/d of oil would be displaced by 2023. 2 million barrels per day is the current glut in the market today.

The rate at which EVs penetrate the auto market depends on a number of factors.

1. The improvement in the fuel economy of vehicles. Car manufacturers have improved Fuel economy of manufactured vehicles as a result of tightening of fuel economy standards. If manufacturers continue to improve on fuel economy, then consumers are likely to tilt towards conventional cars.

2. The pace at which battery prices continue to fall. Analysts have predicted that battery prices are set to fall and this will make EVs more affordable progressively each year.

3. Size and durability of Government incentives/Policies as in the case of China, India, UK and France.

4. Another key factor is Consumer preference toward EVs or internal combustion engines.

MY Take
Just to emphasize, my analysis is based on an oil price of 50 dollars because if oil goes to say 20 or 10 dollars, then it will phase out EV mass production due to lower gasoline and fuel prices.
• Oil companies face a negative threat from growth of EVs. Widespread adoption can lead to mass hysteria as investors will panic and try to sell out of oil companies. This will make debt and equity much more expensive and low investment means companies may find it harder to finance projects.
• Rising incomes & improved road infrastructure will give rise to the number of cars increasing to 1.8 billion by 2035. However, improvements in the area of fuel economy means that growth in the number of cars will not necessarily mean increased global liquid fuel consumption. In fact, it is estimated that improvements in fuel efficiency/economy will cut global demand by 17mb/d by 2035 (BP). This is because car manufacturers face pressures and tightening standards due to emission issues (Volkswagen diesel-gate is an example).
• Between 2025-2040, EVs will displace about 13mb/d of oil from the global market. But this also means 2700Twh of Electricity will be needed to achieve that. This will give rise to new electric power generation plants that will be majorly dependent on natural gas to drive them. So, this loss of 13mb/d of liquid fuels will be gain for gas. Could this be a major blow for the refining sector?
• About 1 billion people in the earth presently do not have access to electricity, most of them from Africa. With population expected to increase and GDP to even double between now and 2040, there will be a major demand for electricity. New homes will be built in Africa, China and developing Asia which would be powered by electricity. I expect Nigeria (the most populous country in Africa) to lead the development of power infrastructure within the next decade to meet its power requirements. It will be unwise not to consider gas-powered plants since Nigeria has more gas than oil. This in turn means more demand for sources of energy like oil, gas, coal and Nuclear. Now, rising income and GDP coupled with population growth globally will mean more air travel, more cargo to be shipped in order to meet growing demands. I personally think that the 13mb/d displaced liquids may be offset by the demand for liquid fuels to power cargo ships and passenger planes. Surely, there isn’t about to be electric ships or planes, is it? Increased Industrialization in India, China, Asia and Africa will also mean increased demand for energy.
• The decision by UK, France, and India to sell EVs by the next decade will mean Africa/developing Asia will serve as a ‘dump ground’ for conventional cars because let us face it, I don’t see any African government banning the sale of conventional cars in the near future. This reason, coupled with rising income and prosperity, population increase, better roads infrastructure and relative low cost of the conventional vehicles due to glut across these regions will mean more people owning conventional cars. I foresee Africa being one of the largest markets for ICE cars in the near future.
• The efficiency of the ICE is its biggest advantage. EVs are yet to match the efficiency of ICEs and only time will tell if they can. Moreover, a good number of EVs in the next decade or 2 will still be hybrids (meaning they will be powered by both electric and liquid energy) so even at that, liquid fuels will still be used as an alternative for hybrid EVs.
Importantly, I am looking forward to seeing how the independent E&P companies, The Nigerian state owned NNPC, NLNG and downstream companies like Oando, MRS and the likes respond to this in terms of their long-term targets and investments. Also, if Africa becomes a big market for Conventional cars in the near future, does it signify huge gains for Dangote Refinery? What about the 3 state-owned refineries and modular refineries? What is their future? How well positioned are the NLNG and the Federal government to benefit from increased demand of natural gas in decades to come (that’s an article for another day)? Most importantly, do you think that EVs will lead to the next oil crisis? What is your take?


Kudos to Bloomberg, ExxonMobil,BP,OPEC,IEA & FT for the relevant data. I consulted them for my piece

Let the. Electric car come so that nigeria will find way backto their root( agriculture)

Oil will be around but for a short time. I am not sure there will be 100 dollar per barrel oil again.

majekdom2:
Oil will be around but for a short time. I am not sure there will be 100 dollar per barrel oil again. I am

I am not sure there will ever be 75 dollar oil sef, 100 is never happening. Except there is a major war that threatens supply in the middle east. The rate at which oil is being discovered is more than the rate at which it is being depleted due technological breakthrough in shale and deepwater

larryUG:

I am not sure there will ever be 75 dollar oil sef, 100 is never happening. Except there is a major war that threatens supply in the middle east. The rate at which oil is being discovered is more than the rate at which it is being depleted due technological breakthrough in shale and deepwater

so so so valid.

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