Tipping point for electric vehicles still some way off

▶ Petrol-powered cars will not become extinct just yet, with the process occurring gradually

Electric vehicles (EVs) are not going to destroy the fossil fuel industry any time soon, but they do not need to of they are 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 EVs are insurmountable and that recent enthusiasm among proponents of the technology – and some European governments – is misplaced. High costs of ownership, limited range and lack of refuelling infrastructure are among many drawbacks that will limit their adoption, and thus the power of electricity to replace petrol.

An electric car with a range of 300km to 350km would suit most people perfectly. It also seems unlikely 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 Volvo, which will offer only hybrid or full-electric motors on every new model launched from 2019. And there are at least four general elections due in the UK before that policy is due to come into effect.

The transport sector has long been viewed as the last bastion of oil, with aircraft, cars and lorries supporting the light end of the barrel (petrol and diesel) and ships the heavy end (fuel oil).

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.

The fleet of electric vehicles in use worldwide is on track to displace about 100,000 barrels per day of road transport fuel this year according to Bloomberg New Energy Finance (BNEF). It expects that volume to rise to 155,000 barrels per day next year.

That is a tiny volume compared with global petrol consumption that was reported by BP at more than 25 million barrels per day in 2016, but it is at the margin where the growing fleet of EVs will make its presence felt.

Take Tesla’s Model 3 as an example. Once delivered, the current order book of 455,000 cars will displace some 18,000 barrels per 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 forecast of US petrol demand growth in 2018 of 25,000 barrels per day.

The tipping point is a little farther away at a global level. The International Energy Agency expects petrol demand tp increase by about 240,000 barrels per day in 2018. But by the end of the decade, EVs could displace more than 290,000 barrels of petrol and diesel, according to BNEF. And by 2025 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.