02 September 2016
The world uses almost 100 million barrels of oil1 every day. One quarter of those barrels are consumed by light vehicles and when you combine all road, water, rail and air traffic, transportation’s share of oil demand is more than 50%.
Oil is vital for powering the transport systems that underpin our mobile lifestyles and sponsor the globalisation of economic activity.
So what impact will electric vehicles2 (EVs), and the batteries that power them, have on this oil-centric status-quo?
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Today there are about 1.1 billion cars in the world’s light duty vehicle fleet, of which approximately 1 million are EVs. By 2035, we think there will be around 140 million EVs on the roads, or 8% of the total fleet of 1.8 billion.
Our EV projections require sales to grow by around 25% per annum between now and 2035, lifting their share of sales from approximately 0.5% today to 13% in 20 years. This would displace 2.3 million barrels of oil demand per day in 2035, approximately 2% of current demand. Our projections in this regard put us firmly at the ‘green’ end of the spectrum, well above the levels projected by ‘traditional’ industry consultants.
By 2035, we think that 8% of cars on the road will be electric vehicles.
The major impediment to greater penetration of EVs to date has been the high cost of batteries. Currently it costs approximately US$15k for the battery pack of a mid–size car to deliver the range expected by a typical American consumer. This compares with the average price of a Toyota Camry (the best–selling US light passenger vehicle) at around US$25k. For the compact vehicle segments, which dominate the European, Chinese and Indian markets, the higher share of the battery cost in the total vehicle price is even more prohibitive. Our assumption is that these costs can be cut in half in the coming decade.
While EVs undeniably get most of the media attention, the greatest impact on oil demand displacement in road transport will actually be the rising fuel efficiency of the current internal combustion engine (ICE) fleet. We forecast that the average light vehicle will become one third more fuel efficient by 2030, displacing more than nine million barrels of daily oil consumption in that year– or the equivalent of 10% of current global demand. ICE vehicles are still expected to form more than 93% of the total fleet in 2030. Their efficiency gains will have a much larger impact on oil than the aggressive move towards EVs that we project.
1. This figure refers to all ‘petroleum liquids’, which amount to about 96 million barrels per day, of which the majority is crude oil.
2. The term EVs refers only to pure battery powered plug-in vehicles. Hybrids are considered part of the conventional fleet.