COM­MEN­TARY BY JU­LIAN LEE Elec­tric cars will dis­rupt petrol sooner than you think

Muscat Daily - - BUSINESS -

Elec­tric ve­hi­cles (EVs) aren’t go­ing to de­stroy the fos­sil fuel in­dus­try any time soon, but they don’t need to in or­der to dis­rupt it. And that could hap­pen within a decade, when EVs be­gin to tip an­nual growth in petrol de­mand into struc­tural de­cline.

The scep­tics ar­gue that the bar­ri­ers to mass take-up of elec­tric ve­hi­cles are in­sur­mount­able and that re­cent en­thu­si­asm among pro­po­nents of the tech­nol­ogy - and some Euro­pean gov­ern­ments - is mis­placed. High costs of own­er­ship, lim­ited range, lack of re­fu­elling in­fra­struc­ture are among many draw­backs that will limit their adop­tion, and thus the power of elec­tric­ity to re­place petrol. So re­fin­ers like Valero En­ergy, Marathon Oil and Exxon Mo­bil can breathe easy.

Per­son­ally, an elec­tric car with a range of 150-200 miles would suit me per­fectly. Drive in al­most any di­rec­tion for 200 miles from my home and I would fall off the edge of the coun­try. I also doubt that the UK or French gov­ern­ments will ban the sale of cars with in­ter­nal com­bus­tion en­gines in 2040.

More likely they will fol­low the lead of man­u­fac­turer Volvo AB, which will of­fer only hy­brid or full-elec­tric mo­tors on every new model launched from 2019. And don’t for­get, there are at least four gen­eral elec­tions due in the UK be­fore that pol­icy is due to come into ef­fect, so there’s plenty of op­por- tu­nity for it to change.

The trans­port sec­tor has long been seen as the last bas­tion of oil, with air­planes, cars and trucks sup­port­ing the light end of the bar­rel (petrol and diesel) and ships the heavy end (fuel oil). Re­finer­ies, par­tic­u­larly in the US, have been de­signed - or re-de­signed, as they have been up­graded and ex­panded - to max­imise their out­put of trans­port fu­els.

The En­ergy In­for­ma­tion Ad­min­is­tra­tion (EIA) re­ports that every 42-gal­lon bar­rel of oil re­fined in the US pro­duces 45 gal­lons of prod­ucts, of which 35 are ei­ther petrol, diesel or jet fuel. Al­most 70 per cent of the liq­uid fu­els con­sumed in the US last year were petrol or diesel/gasoil, ac­cord­ing to data pub­lished in the BP sta­tis­ti­cal re­view of world en­ergy.

The fleet of elec­tric ve­hi­cles in use world­wide is on track to dis­place around 100,000 bar­rels a day of road trans­port fuel this year - most of it petrol - ac­cord­ing to a re­port pub­lished last month by Bloomberg New En­ergy Fi­nance (BNEF). They ex­pect that vol­ume to rise to 155,000 bar­rels a day next year.

To be sure, that is a tiny vol­ume com­pared with global petrol con­sump­tion that was re­ported by BP Plc at more than 25mn bar­rels a day in 2016, but that misses the point. It is at the mar­gin where the grow­ing fleet of elec­tric ve­hi­cles will make its pres­ence felt. Take Tesla Inc’s Model 3 as an ex­am­ple. Once de­liv­ered, the cur­rent or­der book of 455,000 cars will dis­place some 18,000 bar­rels a day of petrol de­mand, based on ve­hi­cle miles trav­elled and fuel con­sump­tion data from the US Depart­ment of Trans­porta­tion. That is not far off the EIA’s lat­est fore­cast of US petrol de­mand growth in 2018 of 25,000 bar­rels a day. That fore­cast may al­ready fac­tor in all those new Tes­las. If not, growth could be close to zero.

The tip­ping point is a lit­tle fur­ther away at a global level. The In­ter­na­tional En­ergy Agency sees petrol de­mand in­creas­ing by around 240,000 bar­rels a day in 2018. But by the end of the decade elec­tric ve­hi­cles could dis­place more than 290,000 bar­rels of petrol and diesel, ac­cord­ing to BNEF. And by 2025 year-on-year in­creases in the vol­ume of fuel dis­placed could be enough to tip de­mand growth into con­trac­tion. What hap­pens then? Not the end of the world as we know it, for sure. But petrol re­fin­ers should brace for prof­its to be steadily un­der­mined.

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