Oil giants doomed as China pushes for electric vehicles, says BNP Paribas
A seismic shift from petrol and diesel vehicles to electric ones, especially in China, could mean the world would enter an era of oil surplus in as early as a decade, says French bank BNP Paribas.
The planned initial public offering of Saudi Aramco could be the first of a series as more oil giants turn to alternative growth drivers, it predicts.
“It might be there, one last cycle of oil demand. After that I won’t be talking about oil anymore, I would be talking about electric vehicles,” said Yongliang Por, head of APAC energy research at BNP Paribas.
The bank predicts global oil supply to exceed demand from 2022, and that oil demand growth could turn negative from 2027 onwards. Aggressive push for electric vehicles by China, the world’s biggest and fastest growing electric vehicle market, is a major reason.
China, which could become the world’s biggest oil importer this year, is eager to reduce its reliance on oil and oversupply of electricity.
Por said even though oil demand would continue to grow and outstrip supply in the next two years, it would see an annual excess of one to two per cent in six years because of diminishing demand from transport, which would make oil prices “very difficult to be sustained at over US$80 a barrel”.
“Oil prices above US$100 a barrel may be something we will never see again,” he said.
Transport accounted for 64 per cent of global oil demand in 2013, with light vehicles being responsible for nearly half of all transport demand, according to the US energy information administration.
Electric vehicles, which are seeing the fastest growth in China because of the government’s aggressive subsidies and adoption targets, currently account for a mere 0.8 per cent of global fleet. Insufficient charging infrastructure, high prices and range limits are the main hurdles.
Por predicts the global electric vehicle fleet would grow to be 10.5 per cent of the total fleet by 2027, by which time Chinese petrol demand would peak. “Once it peaks, that’s it, that is one big driver of oil demand gone,” he said.
Other analysts, however, disagree.
“Gasoline is only 24 per cent of global oil demand. Even if we completely electrify the passenger fleet, we still got ships, trains, planes, and trucks that use a lot of oil,” said Neil Beveridge, senior oil and gas analyst at Bernstein. He predicts oil demand would only peak before supply around 2030-35.
While electric vehicles are increasingly important and clouding the outlook for oil demand, he said, they are expected to account for less than 5 per cent of the global fleet by 2025 because of high costs, infrastructure challenges and range limits, he said.
Beveridge also said oil demand growth through 2020 will actually be stronger than the previous decade, in part due to low oil prices. “The cure for low prices is low prices,” he said.
He agrees oil prices may never return to above US$100 a barrel anytime soon, but there could be “a final super-cycle” between 2020 and 2030.
Electric vehicle sales in China saw exponential growth last year to surpass figures for the EU and the US, even though media reports suggest it may be largely due to a combination of fake sales and policy imperatives. For example, purchasing an electric vehicle makes it a lot easier to obtain a licence plate in Beijing and Shanghai.
Peter Yu, head of technology at BNP Paribas APAC, estimates “around 30 per cent” of the electric vehicle sales figures in China last year were fake.
Por said Saudi Arabia’s plan to list state-owned Aramco and invest in other sectors is “the example of a very forward-looking company” and could be the start of many more such deals to come.
“I am personally very surprised that a Saudi company is taking the lead in this. For once all the Western majors are going to be five steps behind,” he said. “So, more spin-offs, more corporate activities...the landscape is going to significantly change from now,” he said.