Soaring electric vehicle popularity in Asia threatens gasoline industry
Asian demand for gasoline could peak significantly earlier than expected due to rising interest in electric vehicles, according to oil and auto company executives.
This could prompt refiners to prepare for a future in which gasoline (petrol), their biggest source of revenue, will be much less of a cash cow.
Change is being prompted by policy moves in India and China, where governments are trying to rein in rampant pollution, cut oil imports, and compete for a slice of the fast-growing green car market.
In January figures showed that China was buying more electric vehicles than the rest of the world combined as prices fall sharply.
In its road map for the automotive industry, released in April, China said it wants alternative fuel vehicles to account for at least one-fifth of the 35 million annual vehicle sales projected by 2025.
India is considering even more radical action, with an influential government think-tank drafting plans in support of electrifying all vehicles in the country by 2032, according to government and industry sources.
“We will see a clear shift to electric cars. It’s driven by legislation so electric cars are coming; it’s not a niche anymore,” said Wilco Stark, vice president for strategy and product planning at German car maker Daimler.
Stark and other executives were interviewed during the Asia Oil & Gas Conference in Kuala Lumpur this week.
Daimler sees electric vehicles contributing 15-20 per cent of its overall sales by 2025 and at least an additional 10 per cent of sales coming from hybrids, he said.
Electric cars currently make up less than 2 per cent of the global car fleet, and any faster-than-expected growth in that percentage will materially impact oil demand and the refining business.
“Technology is moving fast. In 10-15 years... our gasoline market might not be the same as it is today,” said Dawood Nassif, board director at the state-owned oil company Bahrain Petroleum Company (BAPCO).
With gasoline responsible for up to 45 per cent of refinery output, and one of the highest profit-margin fuels, a slowdown or fall in demand will have far-reaching implications.
Credit agency Moody’s says that the fast pace of technological development makes accurate predictions difficult, but warned that direct financial effects from falling oil demand, including gasoline, “could be material by the 2020s”.
The changes are so big that the influential International Energy Agency (IEA) plans to revisit its analysis of electric vehicle trends and oil demand.
“The choices made by China and India are obviously most relevant for the possible future peak in passenger car oil demand,” an IEA spokesman said.
In its current policies scenario, last updated in November 2016, the IEA still expects oil demand from vehicle use to rise until 2040.
Asia’s major car makers, Japan and South Korea, already sell significant volumes of hybrid vehicles – which run on gasoline and electricity – while fuel efficiency gains will continue to cut gasoline consumption for standard vehicles.
There will, though, be some major hurdles before a country like India goes mostly electric. High battery costs would push up car prices and a lack of charging stations and other infrastructure in India means car makers may hesitate to make the necessary investment in the technology.
Refiners also still see strong oil demand from heavy industry.
“Refiners may shift their focus from gasoline to middle distillates,” said KY Lin of Taiwan’s Formosa Petrochemical , a major Asian refiner. “Gasoil is used widely, including in farming/industrial equipment... and also as a marine fuel.”