The huge drop-off in demand for oil because of the coronavirus pandemic has some analysts talking about Peak Oil, something we’ve been talking about in these parts for what seems like forever. It still doesn’t seem likely to happen anytime in the near-term, though because of the slow rise of electric cars, we are getting ever closer.
By one oil consultancy’s estimate, Peak Oil will be here by 2028, or two years sooner than it previously had predicted, according to Reuters. That ceiling would be somewhere north of 100 million barrels per day, just above the rate hit in 2019. And while normally one might dismiss this as a mere educated guess, it’s telling that even oil executives admit that because of the pandemic, everything is on the table.
In April, Ben van Beurden, chief executive of Anglo-Dutch oil major Royal Dutch Shell (RDSa.L), said the company did not expect oil demand to recover in the medium term, saying the industry was living in a “crisis of uncertainty”.
Bernard Looney, chief executive of BP (BP.L), was later quoted in the Financial Times as saying he would not “write off” the possibility the world had reached peak oil.
The story also contains this (dubious?) proposition:
Looking ahead, cuts in capital spending forced upon energy companies as their revenues crumble could tighten supply enough to cause a spike in oil prices, making electric vehicles more attractive just as automakers ramp up production, analysts say.
“We think this will lead to a tipping point, accelerating the switch to electric vehicles in many more countries around 2023-24,” Per Magnus Nysveen, senior partner at Rystad Energy, a consultancy in Oslo, told Reuters.
“We will start to see that this starts to dig into global oil demand in a very significant way,” he said.
I say dubious because if you look at the actual sales numbers for electric vehicles in places that have been pushing them a lot harder than the U.S. has, they remain stubbornly low, even in normal times with higher gas prices. Alternative fuel vehicles, including electric cars, were just five per cent of car sales last year in China, according to CNBC, while in Europe electric car sales are four per cent of the market, according to Reuters.
Still, those numbers are inching up, and Reuters also reported Tuesday that while internal combustion-engined car sales are projected to fall 23 per cent in 2020 during the pandemic worldwide, electric car sales are projected to fall less, by 18 per cent.
The outlook for far into the future for electric remains strong:
[Analysts BloombergNEF] forecast electric models would reach 31% of the overall car fleet by 2040 and account for 58% of new passenger car sales by that date, as combustion engine cars gradually decline from their peak in 2017.
Reuters says that about half of crude oil goes toward powering things on the road, which tells you how big of a mountain it is to climb to move beyond oil altogether and also gives a good sense of the proportions involved. Fifty-eight per cent of new cars being electric would certainly represent progress, but it’s still just a fraction of the bigger picture.