China, In­dia plans for elec­tric cars threaten to cut ga­so­line de­mand

Ex­ec­u­tives of au­to­mo­bile firms pre­dict that de­mand for ga­so­line, the big­gest source of rev­enue for the oil in­dus­try, will shrink as mil­lions of peo­ple switch to elec­tric cars in In­dia and China

Daily Sabah (Turkey) - - Money -

DE­MAND for ga­so­line in Asia may peak much ear­lier than ex­pected as mil­lions of peo­ple in China and In­dia buy elec­tric ve­hi­cles over the next decade, threat­en­ing wrench­ing change for the oil in­dus­try, oil and auto com­pany ex­ec­u­tives warned.

They said re­fin­ers should pre­pare for a fu­ture in which ga­so­line, their big­gest source of rev­enue, will be much less of a cash cow.

Change is be­ing prompted by pol­icy moves in In­dia and China, where gov­ern­ments are try­ing to rein in ram­pant pol­lu­tion, cut oil im­ports, and com­pete for a slice of the fast-grow­ing green car mar­ket.

In its “road map,” re­leased in April, China said it wants al­ter­na­tive fuel ve­hi­cles to ac­count for at least one-fifth of the 35 mil­lion an­nual ve­hi­cle sales pro­jected by 2025.

In­dia is con­sid­er­ing even more rad­i­cal ac­tion, with an in­flu­en­tial government think-tank draft­ing plans in support of elec­tri­fy­ing all ve­hi­cles in the coun­try by 2032, ac­cord­ing to government and in­dus­try sources in­ter­viewed by Reuters late last week.

“We will see a clear shift to elec­tric cars. It’s driven by leg­is­la­tion so elec­tric cars are com­ing, it’s not a niche any­more,” Wilco Stark, vice pres­i­dent for strat­egy and prod­uct plan­ning at Ger­man car maker Daim­ler, told Reuters.

Stark and other ex­ec­u­tives were in­ter­viewed dur­ing the Asia Oil & Gas Con­fer- ence in Kuala Lumpur this week.

Daim­ler sees elec­tric ve­hi­cles con­tribut­ing 15-20 per­cent of its over­all sales by 2025 and at least an ad­di­tional 10 per­cent of sales com­ing from hy­brids, he said.

Elec­tric cars cur­rently make up less than 2 per­cent of the global car fleet, and any faster-than-ex­pected growth in that per­cent­age will ma­te­ri­ally im­pact oil de­mand and the refin­ing busi­ness.

“Tech­nol­ogy is mov­ing fast. In 10-15 years... our ga­so­line mar­ket might not be the same as it is to­day,” said Da­wood Nas­sif, board direc­tor at the state-owned oil com­pany Bahrain Pe­tro­leum Com­pany (BAPCO).

With ga­so­line re­spon­si­ble for up to 45 per­cent of re­fin­ery out­put, and one of the high­est profit-mar­gin fu­els, a slow­down or fall in de­mand will have far reach­ing im­pli­ca­tions.

Credit agency Moody’s says that the fast pace of tech­no­log­i­cal de­vel­op­ment makes ac­cu­rate pre­dic­tions dif­fi­cult, but warned that di­rect fi­nan­cial ef­fects from fall­ing oil de­mand, in­clud­ing ga­so­line, “could be ma­te­rial by the 2020s.”

The changes are so big that the in­flu­en­tial In­ter­na­tional En­ergy Agency (IEA) plans to re­visit its anal­y­sis of elec­tric ve­hi­cle trends and oil de­mand.

“The choices made by China and In­dia are ob­vi­ously most rel­e­vant for the pos­si­ble fu­ture peak in pas­sen­ger car oil de­mand,” an IEA spokesman told Reuters.

In its cur­rent poli­cies sce­nario, last up- dated in Novem­ber 2016, the IEA still ex­pects oil de­mand from ve­hi­cle use to rise un­til 2040.

It’s not just China and In­dia that are chang­ing fast.

Asia’s ma­jor car mak­ers, Ja­pan and South Korea, al­ready sell sig­nif­i­cant vol­umes of hy­brid ve­hi­cles - which op­er­ate off ga­so­line and elec­tric­ity - while fuel ef­fi­ciency gains will con­tinue to cut ga­so­line con­sump­tion for stan­dard ve­hi­cles.

There will, though, be some ma­jor hur­dles be­fore a coun­try like In­dia goes mostly elec­tric. High bat­tery costs would push up car prices and a lack of charg­ing sta­tions and other in­fra­struc­ture in In­dia means car mak­ers may hes­i­tate to make the nec­es­sary in­vest­ment in the tech­nol­ogy.

Asia has long been the main driver of fu­ture oil de­mand thanks to su­per­charged growth in sales of au­tos.

China sells more than 2 mil­lion new cars a month and is chal­leng­ing the United States as the world’s big­gest oil con­sumer. In­dia now is the world’s third-big­gest oil im­porter, ahead of Ja­pan.

More than a third of the world’s re­finer­ies are in Asia, up from just 18 per­cent in 1990.

For re­fin­ers, the growth of ve­hi­cles that run on elec­tric­ity and other al­ter­na­tive fu­els is a wake-up call. They can tweak the prod­ucts they make from crude oil to an ex­tent, but still mostly rely on ga­so­line con­sump­tion for rev­enue.

“Ris­ing pres­sure on mar­gins and cash flows will po­ten­tially lead to stranded as­sets,” Moody’s warned, us­ing a term for as­sets that no longer pro­vide an eco­nomic re­turn be­cause of changes in the mar­ket or reg­u­la­tory en­vi­ron­ment.

The oil in­dus­try is tak­ing note. Royal Dutch Shell said this week that it “is look­ing into ... the po­ten­tial to in­tro­duce elec­tric ve­hi­cle charg­ing points at our re­tail sites in sev­eral coun­tries.”

Oil ex­ec­u­tives say it is still premature to ex­pect over­all oil de­mand to fall soon.

“Our in­dus­try will not dis­ap­pear,” said Ab­du­laziz al Ju­daimi, se­nior vice pres­i­dent for down­stream at Saudi Aramco, the world’s big­gest oil ex­port com­pany.

They are en­vis­ag­ing a shift towards pro­duc­ing more petro­chem­i­cals like plas­tics or house­hold chem­i­cals, ar­eas where con­sump­tion is soar­ing.

Saudi Aramco is jointly devel­op­ing the huge Malaysian RAPID re­fin­ery and petro­chem­i­cal com­plex with state-owned Petronas, and the two said this week they are ex­plor­ing an ex­pan­sion of its petro­chem­i­cal ca­pac­ity.

Exxon Mo­bil this week said it would buy a petro­chem­i­cal plant in Sin­ga­pore.

Re­fin­ers also still see strong oil de­mand from heavy in­dus­try. “Re­fin­ers may shift their fo­cus from ga­so­line to mid­dle dis­til­lates,” said KY Lin of Tai­wan’s For­mosa Petro­chem­i­cal, a ma­jor Asian re­finer. “Gasoil is used widely, in­clud­ing in farm­ing/in­dus­trial equip­ment... and also as a marine fuel.”

An elec­tric car charg­ing at a sta­tion in Bei­jing.

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