Syed Rashid Husain

 The writer is Vice President of Al-Khobar-based Al-Azzaz Est., eminent journalist and energy analyst. He writes a popular weekly column   ‘Energy Outlook’ for Saudi Gazette and also contributes to Pakistan’s Dawn and the BBC.

Oil Demand Could go Down by 8M bpd

by shariff mohammed | Oct 01, 2017

A revolution is in the air. The world is on the cusp of a giant leap – from internal combustion engines to electric vehicles – carrying immense implication for the global energy order of the day. As per some a Bloomberg report, oil demand could go down by eight million bpd. This is not too big a dent in the global crude consumption, yet the crude equation is changing. And Saudi economy managers are aware of it. Hence is the urge to diversify away from the crude based economy.

The Netherlands plans to ban the sales of new petrol or diesel cars from 2025. As part of an ambitious plan to meet the targets set by the Paris climate accord, French President Emmanuel Macron’s administration has also announced ending sales of petrol and diesel vehicles by 2040 and becoming carbon neutral by 2050.

Interestingly, US President Donald Trump’s decision to withdraw from the Paris climate change agreement was explicitly named as a factor in France’s new vehicle plan.

While making the announcement, Nicolas Hulot, the country’s new ecology minister underlined the move was a ‘veritable revolution’.

Other targets set in the French environmental plan include ending coal power plants by 2022, reducing nuclear power to 50 per cent of total output by 2025, and ending the issuance of new oil and gas exploration licenses.

Norway is the world leader in electric cars. 35pc of cars being sold today in the country is a plug-in. Norway’s Road Traffic Information Council (OFV) has reported that electric cars represented 17.6pc of new vehicle registrations in January and hybrid cars 33.8pc. Moving quickly towards electric only vehicles, the country has a target of zero emissions for all new cars by 2025.

The UK too has an aspiration of all new cars being electric or ultra-low emission by 2040.

China today is the most important market for cars. Now, China’s Ministry of Industry and Information Technology (MIIT) is targeting that most of the new car sales growth until 2025 are to be in electric vehicles (EVs).

The Chinese ministry is predicting that by 2025, car sales will have hit 35 million. However, it has set a target of 20pc of this volume to be the so-called New Energy Vehicles (NEVs). That equates to around 7 million electric cars, representing quite a shift given that fewer than 2 million are estimated to have been sold globally last year.

Germany has also pledged to ban new petrol and diesel car sales by 2030. India, where scores of cities are blighted by dangerous air pollution, is mulling the idea of banning the sales of petrol or diesel cars by 2030.

The auto industry is taking the cue too. Beginning 2019, all new Volvo models will be hybrids or battery-powered, the company announced, making it the first major traditional automaker to set a date for phasing out vehicles powered solely by the internal combustion engine.

BMW also plans to introduce an electric version of its popular 3-series in September to meet the challenge from Tesla, Handelsblatt reported last month. Volkswagen is working on introducing 30 electric, plug-in models, and hopes to sell 1m of them by 2025.

Until recently, high battery costs have been restraining car makers for making a move in the ‘green’ direction. However, battery costs are plunging, with prices falling by almost 80 percent, between 2010-16. With manufacturers in China and elsewhere preparing to dramatically to boost battery production, one could expect economies of scale to push prices down even more over the next few years.

And if battery prices continue falling, one would eventually reach a point where electric cars – with their relatively simple electric motors and low-cost electric power — could cost less. One 2016 study projected that we could reach this point as early as 2022.

In a recent report, Bloomberg concluded: “EVs are on track to accelerate to 54pc of new car sales by 2040. Tumbling battery prices mean that EVs will have lower lifetime costs, and will be cheaper to buy, than internal combustion engine cars in most countries by 2025-29.”

What does all this mean for the fossil fuel industry? An executive at Royal Dutch Shell is predicting demand for oil could peak in as little as five years. However, one needs to understand that, at least for the time being, petrol and diesel would still be required for long-haul trucking, airplanes, rail, and shipping.

Despite losing some intensity, the fossil fuel era is definitely not coming to an immediate end. 

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