Comments: How Big a Threat?
Authors: Donnelly John 
Published: February 2017

Editor's column

As the oil industry begins to emerge from one of the worst downturns in decades, some see a new threat on the horizon: the growing use of electrically powered vehicles, which could cut seriously into future oil consumption.

Automobile manufacturers and oil companies are trying to estimate the growth potential of these vehicles, which currently make up only 1% of the global transportation market but have surprised automakers with a quick uptake in demand over the past 2 years. There are now more than 1 million electric cars on the road, up 70% from 2014, according to the International Energy Agency. Transportation currently accounts for more than half of oil consumption worldwide. The oil recession of the past 2 years underscored the critical importance of the balance between global supply and demand. As oil supplies swamped consumption with US shale output sky-rocketing, Saudi Arabia increased production to try to drive high-cost producers out of business, and demand in places such as China cooled off.

Automakers and many prominent companies in the oil industry apparently see different futures for electric vehicle growth. Both the widely watched ExxonMobil and BP annual energy outlook surveys have paid little attention to potential disruptions from electric vehicles, although both have noted the growing efficiency of the traditional combustion engine as a factor in reduced demand. In a survey of top oil executives attending the Oil and Money Conference in London in November, only 12% saw electric vehicles as a serious threat to the industry, ranking lower than such issues as a potential looming supply shortage, lack of capital investment, and break-even price points for production. “Electric cars, they can grow, but I don’t think that is a problem for us,” ENI Chief Executive Officer Claudio Descalzi said at the conference.

Notably, Statoil and BHP Billiton have a different take. Statoil Chief Executive Eldar Saetre said at the same event that global oil demand could peak in the 2020s as the rising use of electric vehicles will “shrink” the industry. And BHP said in a blog on its website that “2017 could be the year when the electric car revolution really gets started.”

Automakers believe that as batteries become cheaper and can support longer driving ranges, consumption of electric vehicles will soar. They are also banking on the preferences of millennials and the coming prospect of driverless vehicles to enhance electric transport demand. Executives of Mercedes, BMW, and Ford all recently predicted a strong uptake in electric vehicle use over the next decade.

Oil analysts are just starting to put serious research to the question and predictions vary widely. Wood Mackenzie believes that electric vehicle use could take 1–2 mil-lion B/D of oil consumption out of the market within 20 years. IHS Markit is embarking on a major study, predicting that electric vehicles could account for 15% to 35% of all vehicle sales by 2040, which “could bring about the greatest transformation since the dawn of the automotive age.” Others predict that energy efficiency and government regulations pushing a low-carbon future will have the most impact on future demand, but the rapid uptake of technologies that are disrupting long-term business models should bring this issue to the surface in the next couple of years.