The Effects of Electric Vehicles on the Petroleum Industries

As you all know electric vehicles or EVs don’t need combustion engine because they run on electricity. EVs don’t use any fossil fuel like petrol or diesel to power their engine, they use electric energy stored in the battery to power their engine.EVs don’t emit carbon dioxide or any other greenhouse gases in the atmosphere.

EVs are very easy to drive because of their smooth power transmission and control. They are also very silent as their electric engine doesn’t make any noise.

Moreover with rising fuel prices, because of wars and geopolitical tensions, EVs fair better than petrol or a diesel car. There are many advantages that makes EV a much better choice for personal transportation than a fuel car. More and more people are buying Electric Vehicles these days. This growth of EVs around the world is affecting oil and gas industry.

It is quite obvious upstream and downstream energy companies will be impacted by EVs growth. Upstream companies will limit their exploration and drilling operations and downstream companies will have less crude oil to refine into petrol or diesel.

The growth of EVs will have profound effect on energy sector. In the following article we will learn how EVs are going to affect petroleum industry.

Will More Electric Vehicle Mean Lower Carbon Emissions? If you see as a layman than you might think EVs will help lower carbon emissions.

To be honest, there is no straightforward answer to this question. Still it is going to take more than a decade to replace fuel cars with EVs. As a matter of fact EVs account for a minority of passenger cars in most of the countries. Moreover oil powered cars are also getting more fuel efficient.

Secondly, Where the electricity is going to come from for recharging EVs? Countries where electricity is generated from coal or furnace oil, carbon emissions will get even worse. Now they have to generate more electricity to meet the demand. Therefore how much EVs are going to lower carbon emissions is still debatable.

Aggressive EV Adoption Could Reduce Our Oil Consumption. Independent and oil industry experts confirm that EV adoption could eat into the oil demand by the transportation sector. The oil demand totally depends upon how strong government policies are towards reducing carbon emissions.

For example if Indian government or any other government decides to end the use of fuel car by the end of 2040 then car manufacturers have to oblige to the government. However this is unlikely to happen by 2040 especially in developing countries, but it is quite possible in European Union (EU) countries where policies are very environment friendly.

Another reason why oil demand is going to plunge is fuel car manufacturers will be forced to meet emissions standards and implement technologies that will increase efficiency and reduce oil consumption substantially.

How EVs Sales Doing? If you read the data published by the International Energy Agency (IEA), EVs sales are increasing exponentially through 2021 and trend is going to continue in 2022-23. Globally, two million EVs were sold in the first quarter of 2022, which is 75% increase.

In China 7.5 million EVs were sold, in Europe 5.5 million and in US over 2.5 million. IEA report says 5 times more EV models were available in 2021 than 2015. These figures tell you EV sales are surging by every passing year.

By 2050 EV Will Dominate Auto Market Reducing Oil Demand by 25% in US .

If present EV sales trend continues till 2050 then oil demand is going to reduce by 25%. Moreover fuel efficiency standard and technological development for fuel cars will help reduce oil demand even further.

According to the IEA report the oil demand in 2050 will plunge to 15 Million of barrels per day from 20 Million barrels per day in 2019. However, in the near term effect of EVs on fuel cars appears negligible.

EV is not the Silver Bullet for Reducing Oil Consumption According to Exxon Mobil even if EVs come to dominate entire automobile space there will be very negligible change in global oil demand. Use of oil for transportation will decline very slowly but overall demand for crude will continue as it is required by petrochemical industry for other purposes.

Moreover of many countries national interest is supreme over international climate change pledges on cutting greenhouse gas emissions. In developing countries growth is more important than cutting greenhouse gas emmisions. Although many developing countries have undergone electrification of their transport system but it is still in its infancy. In near term, effect of EVs on oil and gas industry is going to be negligible.

Oil Consumption by Transportation Remains Elevated Despite EV Adoption Despite above figures about EV sales, oil demand from transportation sector remain elevated in 2023.

By the year 2050, in USA the demand for petroleum for transportation sector is going to be above 26 qaudrillion Btu. The demand will come from new customers entering the market. EV sales are also going to increase however still it won’t affect the oil demand.

Opportunities for Natural Gas Producers The demand for Natural gas like LNG (Liquefied Natural Gas) is going to increase as transportation industry transition to EVs. Increasing EV adoption will drive the demand for electricity. This will result in higher LNG demand in the near and medium future. Half of the power demand will be met by natural gas.Natural gas producers will benefit from this transition.

Adverse Affect of EV Adoption on Environment For the production of EV battery, Lithium is required. Lithium’s price has increased 7 times since 2021. Moreover supply of 75% of all lithium-ion batteries comes from China. US-China trade wars can affect the supply chain and prices can go even higher. Moreover extracting too much lithium from earth’s surface can cause soil degradation, biodiversity loss, damage to ecosystem functions and an increase in global warming. Demand for more electricity for EV charging can further increase emissions in many developing countries.

After reading this balanced article, you will get an idea how electric vehicles are going to affect petroleum industry in coming future.