Sparking uncertainty
One significant wild card in predicting when or whether demand for oil will peak is the electric car.
One thing markets hate is uncertainty.
When forecasting longterm supply-and-demand estimates, economists must rely on many uncertain variables, but predicting consumer response to products that are not yet widely available is especially challenging.
That’s one reason why long-term oil demand forecasts vary so broadly.
Long-term oil price projections increasingly have focused on peak demand, a point where energy efficiency combined with fuel switching could cause global oil demand to slow for the first time since 1859. One significant wild card in predicting when or whether demand will peak is the electric car.
Economists discussed the future of oil demand and how electric vehicles could disrupt it during the Federal Reserve energy conference in Oklahoma City last week.
McKinsey & Co. senior partner Scott Nyquist projected demand to peak around 2035, assuming about 35 percent of global cars to be electric by that point. But Nyquist pointed out that the tipping point could move several years in either direction based on consumer behavior.
“Underpinning all of this is a microeconomic judge of how it all plays out,” he said. “An interesting question is what happens in the transportation sector and how will people think about using electric vehicles and autonomous vehicles.”
Self-driving cars could lead it increased demand because it would be cheaper and more convenient, Nyquist said. Autonomous electric cars could steer demand away from oil, but autonomous gasoline-powered cars could increase demand for the fuel.
BP PLC, however, has minimized the potential disruption of electric vehicles.
The energy company projects global oil demand to grow by 15 million barrels per day by 2030 despite a slowdown in transportation fuels. The company projects that by that point 100 million electric cars will be on the road worldwide, up 50-fold from today, but still a small percentage of active vehicles worldwide.
“We believe electric vehicles are unlikely to be a game-changer for oil demand over the next 25 years,” said Mark Finley, BP’s general manager of global energy markets.
Finley, however, pointed out that if battery costs drop more quickly than expected, electric car demand could grow at a much faster pace.
Jill Cremer, senior director of Flint Hills Resources, agreed that electric vehicles are an unpredictable wild card.
“It’s a business model that doesn’t exist today,” she said. “The range of outcomes is wide and is based on areas that are very difficult to predict, including government policies and technology.
“Autonomous vehicles will be disruptive, but the impact is unclear at this point.
While electric vehicles dominated much of the discussion, a decreased use of plastics could be an even bigger factor because plastics and other chemicals represent an even larger portion of global oil demand, Nyquist said.
“Our European friends have noticed there’s a lot of plastic in the ocean,” he said. “Many countries have put in regulations to drive recycling.
“If you’re in the oil industry, you might worry about chemical demand growth. This is one of your biggest sources of demand growth, and if plastic recycling increases, it will lower demand growth going forward.”