Energy Stat of the Week by J. Marshall Adkins

Energy Stat: How Real is the Electric Vehicle Threat to Global Oil Demand?

September 18, 2017

“Electric vehicles are going to kill oil demand growth”. This myth has become one of the main pushbacks that we have heard from investors arguing against our above-consensus stance on oil prices for next year. While we addressed this very topic in March, the reverberating noise and misinformation surrounding “peak oil demand” is now forcing us to revisit the issue. In addition to detailing why passenger car EVs will not have any meaningful impact on global oil demand anytime soon, we will broaden our analysis to encompass electric buses, a below-the-radar but relevant component of the electric mobility landscape. Our central conclusion is that fears about EV-related oil demand displacement have been way overblown. Yes, Teslas are cool cars, and global EV sales are growing, but even with aggressive assumptions for market share gains, there is no plausible scenario over the next decade under which EVs would lead to a peak in global oil demand. In the chart below, we show our best guess at the impact of EVs on global oil demand growth through 2025. If anything, we have tried to err on the side of faster EV adoption rather than slower. Assuming that global oil demand (ex-EVs) continues to grow at the same (very consistent) 1.4% annual pace as the norm of the past 30 years, and also assuming a 15x jump in EV market share, we would still expect global oil demand in 2025 to be 11.5 million bpd higher than in 2016. That implies average global oil demand growth of 1.3 million bpd (or 1.3%) annually through 2025, even assuming that EV sales grow at a massive 40% annual pace during this timeframe.