Exploring Hydrocarbon Depletion
Page added on February 12, 2017
Fast growth in electric vehicles (EVs) coupled with increased carpooling/sharing and autonomous driving may force peak oil demand by 2035, said the Bank of America Merrill Lynch (BofAML) in its latest research report Global Energy Weekly.
Even so, the incoming Trump Administration could well reverse some policies. An aggressive descaling of EPA’s (Environmental Protection Agency) fuel efficiency targets past 2020 coupled with reduced support to EVs may push peak oil demand back to 2050, the study said.
“For now in our oil demand forecast to 2022, we see consumption expanding by 1.1 million barrels per day (b/d) per annum on average, driven entirely by EMs. Our projections factor in a significant slowdown from the average annual 1.75 million b/d growth in 2015/16, as the transport demand effect of lower oil prices starts to fade,” said BofAML.
Oil demand should keep growing by 1.1 million b/d p.a. to 2022
The efficiency effect (i.e. car choice) of oil prices on oil demand growth is much more long-lasting compared to the transport effect (i.e. miles driven). The collapse in oil prices initially caused a shift in favour of larger and less fuel efficient cars like SUVs, from India to China to the US.
Yet, the overall effect of the initial price drop on oil demand growth may fade materially in two years as short-term transport effects wear off and only long-lasting efficiency effects remain. A major risk to the positive view on oil demand to 2022 comes from a possible reversal of globalization, as oil fuels trade and transport. DM demand may keep contracting on mandated efficiency policies already in place.
Net, an expected US oil demand drop is mitigated by new petchem plants starting up in 2017, but overall US demand still contracts on transport efficiency gains to 2022.
EM buyers like big cars – EM policymakers, not so much
Car penetration rates in EMs remains far behind DM peers, leaving plenty of room for transport demand to grow for decades to come. Also the share of SUV sales in India and China remains lower than in the US
Importantly, the EM shift in new cars sold toward SUVs started in 2010 long before prices collapsed, suggesting a strong consumer bias for large vehicles. Still, we see EM policymakers attempting to curb less efficient vehicles due to pollution and foreign fuel dependency fears.
“Over the medium term, we also expect EM demand to get a cyclical lift predominately from Brazil and Russia, both major oil producers, but we see a much more muted demand response from the Middle East,’ said the BofAML report.
Overall, about 69 per cent of global demand growth to 2022 comes from Emerging Asia, with oil producing regions including FSU, Middle East, and Latin America accounting only for 28 per cent of the growth compared to 41 per cent in 2010-14.