How will electric vehicles affect oil demand?

Date: 9 December 2016

More than half a million new electric cars hit the world’s roads last year, making it a question of how, not if, energy demand will be affected in the future. So, what will this mean for traditional resources such as oil? BP Magazine considers the possibilities with chief economist Spencer Dale

Imagine a time when electric cars could outsell gasoline cars by ten to one. It may seem unlikely, but that era has been and gone. This was actually a reality in the United States at the turn of the 20th century, when 600 electric taxis roamed the streets of New York and an electric car held the land speed record. 

Then, in 1908, gasoline-powered Model T Fords began rolling off the production line in their thousands, making motoring more affordable and stifling the progress of electric vehicles. 

Today, electric vehicles are back. What was once the aspiration of one or two niche car makers has become a central element in the strategies of virtually all of the world’s major manufacturers. With improving technology, falling battery costs and the need to improve urban air quality on its side, the electric vehicle is well placed to increase its share of the global car fleet.
Here, BP’s chief economist Spencer Dale talks through the numbers, contemplating what electric vehicles might mean in the future.

Will more electric vehicles on the roads mean lower demand for oil?

The world currently consumes 95 million barrels of oil per day (Mb/d) overall, with the global car fleet accounting for 19 Mb/d, or around one fifth of that total.

BP’s Energy Outlook 2035 forecasts growth in electric car numbers over the next two decades from around 1.2 million vehicles today to around 70 million in 2035 (see graph below) – nearly a 60-fold increase. Meanwhile, the total global car fleet will only double – but that means adding about another 900m cars to the 900m on the world’s roads today (shown here, left). 

So, demand for oil from cars will continue to increase – by about 5Mb/d by 2035. But the increase will be less than double, despite the numbers of cars doubling. Some of that mitigation is down to increasing electric vehicle numbers, but much more will come from gains in the fuel efficiency of gasoline engines.
Overall, global oil demand is projected to grow by around 20 Mb/d over the next 20 years, driven by increasing prosperity in fast-growing Asian economies. In short, electric vehicles will have an impact on oil demand over the next 20 years, but not a game-changing one.

What if electric vehicles grow faster than you think?

Anything is possible. In its ‘450 scenario’, the International Energy Agency (IEA) sets out a pathway for the entire energy system consistent with limiting carbon dioxide emissions, such that there is a better than evens chance of global mean temperatures increasing by less than two degrees Celsius by 2100. In this forecast, the IEA assumes 450 million electric vehicles on the roads by 2035, some 380 million vehicles more than we envisage in our Outlook. This is at the very top end of the range of external forecasts I have seen, consistent with significant changes in technology or policy.

In this scenario, growth in oil demand would be almost 5Mb/d lower relative to the case in which electric vehicles didn’t grow at all. This will dampen oil demand to some extent, but it won’t stop it from increasing overall. We have to keep in mind that 80% of oil demand comes from other parts of the transport sector and from industry which are likely to continue to expand.

Are there other factors that will curb the growth in oil demand?

Efficiency is a key factor, and one that could dwarf the impact of electric cars. Over the past 20 years, passenger vehicles have become increasingly efficient, moving from a typical car range of 25-30 miles per gallon (mpg) to 30-35 mpg today. This process will continue to evolve over the next 20 years, with the potential for vehicles to reach up to 50 mpg. This would lead to a huge saving in oil consumption of up to 15Mb/d – compared to a prospective 1-5 Mb/d drop in demand due to electric vehicles.

This suggests we should perhaps place more attention on the pace of gains in vehicle efficiency and less on the growth of electric vehicles.

Will more electric vehicles mean lower carbon dioxide emissions?

There is no straightforward answer to that question.

Electric vehicles are likely to dampen the growth in oil demand and hence carbon dioxide emissions.

But, during the phase when electric vehicles account for a minority of passenger cars, which could last for decades, the emissions benefits could be outweighed by the potential gains associated with oil-powered cars becoming ever more efficient.

And, of course, there is the question of the fuels used to produce the electricity used to charge the batteries of the electric vehicle. In some parts of the world where the power sector is heavily reliant on coal, reductions in overall carbon emissions may be minimal – or worse: it is tantamount to switching from an oil-fuelled car to a coal-powered one.

Does this mean electric vehicles are a bad idea?

Of course not. They are a very good idea for a variety of reasons, not least the need to improve urban air quality and reduce carbon emissions. All of this will be coupled with a rapid evolution of the transportation sector as autonomous driving, shared-car ownership and ride sharing change our relationship with cars.

Electric vehicles will form a foundation for a lower carbon future, but it would be wise for us to pay as much attention to improving car efficiency and using more gas, and less coal, in power generation. These two factors alone could generate carbon savings over the next 20 years many times greater than that associated with the expansion of electric vehicles. Of course, in an ideal world, all of these things will advance at once. But in the real world with limited resources, choices have to be made.

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