Enormous growth in electric cars over the next two decades will not stem global demand for oil, BP has predicted. This is due to two billion people particularly in Asia moving to middle incomes and buying their first motor car, with demand not set to peak until the mid-2040s. However, oil demand growth is slowing, and rivals such as Shell are looking to hydrogen to plug the gap as oil supply increasingly outstrips demand, and producers race to ensure their resource does not get left in the ground.
The enormous 100-fold increase in the number of electric cars BP predicts over the next two decades will not stop oil from growing, even as numbers of electric cars rise to 100 million over the period – 5-6% of the global car fleet.
However, the electric car boom could ultimately halve demand for oil from vehicles, but only after it rises to 23 million barrels per day in 2035, from 19 million in 2015. This drop, BP says, is due to the uptake of new, energy efficient technologies being quicker than they originally expected, due to government support and due to shifts towards car sharing and self-driving vehicles that increase usage but reduce the number of cars needed.
BP boss Bob Dudley said: ‘Traditional centres of demand are being overtaken by fast-growing emerging markets. The energy mix is shifting, driven by technological improvements and environmental concerns.’
He added that the energy industry ‘more than ever’ needs to adapt to changing energy needs. The extremely slow pace of change in the oil industry is finally starting to show a hint of moving in the direction of the rest of the world. BP is increasingly shifting its activities away from oil production towards gas, in part due to the expected rise in world gas-fired power stations – by far the most cost-effective way to vastly reduce emissions by replacing dirty coal plants.
Traditionally, BP has focussed 60% on oil and 40% on gas but they are expected to switch positions, with gas becoming the core focus for the first time. Notably, gas (methane in particular) can also be used to make hydrogen for fuel cell cars, which could future-proof their automotive industry role.
It is also wise to take BP’s predictions as very conservative forecasting, as over the past six years BP has consistently underestimated its long-term estimates for renewable energy uptake, this time raising it by 15% year on year. Its 100 million figure for the number of electric cars by 2035 has also risen from 70 million last year.
Similarly, BP has said oil demand is unlikely to peak until the mid-2040s, a view shared by the International Energy Agency, but this is much later than many arguably more impartial observers. For example, analysts Wood Mackenzie expect oil demand to ‘peak well before 2035’, rather than in the mid-2040s.
Perhaps even more tellingly, BP’s major oil rival Shell has talked about peak oil being in as soon as five years’ time. With actions being louder than words, Shell has acted accordingly, becoming one of the founding members of the Hydrogen Council, announced two weeks ago in Davos, that is set to pour billions into the hydrogen car industry over the coming years.
Hydrogen is seen by many as a natural progression for the core business of oil majors as oil is no longer used as an automotive fuel. Oil will always be used to make plastics (although the increasing recycling pressures will dampen this market somewhat too), but oil majors will certainly be looking very seriously to invest heavily in alternative fuels to counteract declining revenues from decreasing automotive use of oil, with hydrogen mooted as their preferred choice.
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