The electric vehicle (EV) revolution is reaching a fever pitch. Bolstered by skyrocketing sales, plummeting battery costs, and an influx of new models, EVs are poised to transform transportation as we know it. In 2022, EV sales surged by 60% to over 10 million vehicles worldwide, and growth is projected to accelerate further this decade. The implications of this shift are profound and far-reaching, but perhaps none more so than for the oil industry.
For over a century, oil has reigned supreme as the lifeblood of the automotive age. Gasoline and diesel-powered cars have been the dominant form of personal mobility, consuming roughly half of global oil production. But with EVs on the rise, that dominance is now under threat like never before. By running on batteries and electric motors instead of internal combustion engines and petroleum fuels, EVs stand to wipe out a huge chunk of oil demand in the decades ahead.
So will the rise of EVs ultimately mean the demise of Big Oil? As an expert in digital technology and an EV owner myself, I‘ve been digging deep into this complex and critical question. The short answer is that EVs are likely to put an enormous dent in oil demand but unlikely to completely collapse the oil industry, at least not anytime soon. The reality is more nuanced than that. Let‘s break it down.
EVs Are Slashing Oil Demand
There‘s no question that EVs pose a serious threat to oil use. Whereas the average gas car consumes nearly 600 gallons of gasoline per year, EVs consume none. That represents a direct loss of oil demand for every internal combustion engine that gets replaced by an electric motor. And as more car buyers make the switch, the oil displacement is adding up quickly.
In 2021, EVs reduced global oil consumption by 1.5 million barrels per day—tripling their impact from just two years prior [1]. That may sound modest compared to the roughly 100 million barrels of oil the world burns through each day currently. But if EV sales continue their torrid pace, the impact will become impossible to ignore.
One analysis by BloombergNEF found that if EVs hit 31% of new car sales by 2030 and 95% by 2040, as their analysts expect, oil demand from road transport would drop by 21 million barrels per day [2]. For perspective, that‘s equivalent to the current daily oil consumption of the U.S. and Europe combined.
The oil industry itself has acknowledged the looming disruption. In 2016, Fitch Ratings warned that EVs could have a "substantial credit impact" on oil companies and even spark "investor death spirals" for firms like Exxon Mobil and Chevron [3]. As recently as last year, the head of oil markets research at S&P Global said: "We would be mistaken to believe that oil is going to be unaffected by this train that is slowly leaving the station and gaining speed."
Oil‘s Vulnerability Extends Beyond Cars
The threat posed by EVs exposes just how dependent on automotive consumption the oil industry has become. Passenger vehicles currently account for over 25% of total oil demand, making it the single largest segment by far [4]. That means that for every 4 barrels of oil extracted, 1 goes into cars. As that market share gets eaten away by EVs, it will leave a gaping hole in oil balance sheets.
But the disruption risk isn‘t limited to gasoline and passenger cars. Trucks and buses are rapidly electrifying too, jeopardizing the 20% of oil that goes into diesel. The number of electric buses on the road worldwide has exploded from just 2,000 in 2013 to over 600,000 in 2022 [5]. Similarly, electric trucks are gaining steam, with major fleet operators like Amazon, PepsiCo, Walmart, FedEx, and UPS placing big orders to electrify their delivery vehicles.
Even oil‘s stranglehold on aviation and shipping, which account for a combined 16% of demand, is coming under fire from next-generation batteries and sustainable fuels.
And then there are petrochemicals and plastics, which make up over 16% of oil consumption and have long been viewed as a reliable growth market for petroleum. But the rise of EVs, coupled with increasing environmental awareness, could dent demand there too. A typical EV requires just half as much plastic as an internal combustion car thanks largely to the elimination of fuel systems [6].
All told, if analysts at Carbon Tracker are right, EVs and clean technologies could be displacing nearly 80% of current oil demand by 2050.
Oil Demand Is More Resilient Than You Think
Despite these challenges, completely killing off the oil industry will be easier said than done. Oil‘s remarkable versatility as an energy-dense liquid fuel and chemical feedstock means it won‘t disappear overnight, even if much of its usefulness for cars, trucks, and buses dries up.
For starters, oil will remain a key input for manufacturing EVs themselves, from the synthetic rubbers and plastics in their frames, tires, and interiors to the lubricants and thermal fluids needed for their motors, batteries, and transmissions. One analysis found that manufacturing an EV requires 77 liters of petroleum products on average—enough to fill two bathtubs [7].
Additionally, many of the roads and parking lots that EVs drive and park on are made from asphalt, which comes from refined crude oil. 94% of U.S. roads are surfaced with asphalt, requiring 350-500 million barrels of oil per year to construct and maintain [8].
The electricity that powers EVs also remains reliant on oil and gas to some degree. Nearly half of global electricity still comes from burning fossil fuels, and 3% of all oil goes directly into power generation [9].
Meanwhile, dozens of essential industries like aviation, shipping, defense, agriculture, chemicals, and manufacturing are likely to remain large oil consumers for decades to come, even as alternative technologies emerge.
The EV Transition Will Be Uneven
It‘s also important to recognize that the transition to EVs is going to be a gradual and uneven process globally. Wealthy, early-adopter nations like the U.S., E.U., and China are leading the charge, but many developing regions are just beginning their motorization booms and will take longer to electrify.
EV sales currently make up just .2% to .5% of new vehicles in large emerging economies like India, Brazil, Mexico, and Indonesia that are home to billions of people [10]. Inadequate charging infrastructure, unreliable electricity, and cost barriers all pose roadblocks to widespread EV adoption in those markets. As their populations and middle classes grow, their oil demand is likely to keep rising in the near term even as wealthier nations move in the opposite direction.
Ultimately, oil demand is likely to peak and decline at very different times in different parts of the world. Rystad Energy projects that oil demand in the EU and U.S. will max out in 2027 and 2028 respectively, while Asia Pacific‘s demand grows until 2038 [11].
Even within leading EV markets, it will take time for the vehicle fleet to turn over to electric. With the average car, SUV, and pickup truck on U.S. roads being nearly 12 years old, much of the existing fleet will keep burning gasoline and diesel for some time after EV sales dominate [12].
Oil Giants Aren‘t Going Down Without a Fight
Lastly, it would be naïve to think the oil industry will sit idly by as EVs eat their lunch. With trillions of dollars of assets and revenue on the line, oil majors are already mobilizing to defend their turf and adapt their businesses to remain relevant in an increasingly low-carbon world.
Leading oil firms like Shell, BP, and TotalEnergies have all announced plans to reduce oil production and rapidly grow their clean energy investments in the decades ahead [13]. Their strategies involve diversifying into areas like EV charging, batteries, biofuels, carbon capture, and renewables to replace lost revenue from gasoline.
Some are even getting directly into the EV value chain. Aramco, Saudi Arabia‘s state-owned oil behemoth, recently led a $139 million investment round in EV battery startup Anovion [14]. Valero and Phillips 66, major U.S. refiners, are retrofitting facilities to produce green diesel and sustainable aviation fuel. BP says it will grow its global EV charging network from 11,000 points in 2021 to over 70,000 by 2030 [15].
While these pivots have been criticized as too little too late by some climate advocates, they point to an oil industry striving to remain viable even as its core businesses shrink. Smarter oil companies are likely to be the ones that use their vast resources and expertise to help accelerate the clean energy transition rather than cling to the fossil-fueled status quo.
"The companies that thrive will be those that recognize now the strategic challenge and opportunity the energy transition presents," said Nick Butler, former VP for Strategy and Policy Development at BP.
The Bottom Line
In summary, the evidence suggests that EVs will take a huge bite out of oil demand in the coming decades but are unlikely to completely eradicate the oil industry. Petroleum‘s diversity of uses across vital economic sectors, combined with the uneven global pace of decarbonization, means it‘s likely here for the long haul, albeit in a more diminished form.
That said, the importance of transitioning away from oil as rapidly as possible cannot be overstated. The latest UN climate report warns that global emissions must peak before 2025 and fall 43% by 2030 to have any hope of limiting warming to 1.5°C and avoiding the worst impacts of climate change. Replacing oil-powered cars and trucks with EVs is one of the most potent ways to slash emissions this decade.
Ultimately, the "death" of oil may be too strong a term, but its dethronement is well underway. And not a moment too soon. The EV revolution may not kill the oil industry completely. But by spurring the clean energy transition, it just might help save the planet.
References
- International Energy Agency (2022). Global EV Outlook 2022.
- BloombergNEF (2022). Electric Vehicle Outlook 2022.
- Fitch Ratings (2016). Electric Vehicles Won‘t Kill Oil, But They‘ll Seriously Dent Demand.
- U.S. Energy Information Administration (2022). Oil and petroleum products explained.
- Bloomberg New Energy Finance (2022). Electric Buses in Cities.
- IHS Markit (2021). Reinventing Plastics.
- Argonne National Laboratory (2019). Material Flows in the Manufacture of Automobiles.
- National Asphalt Pavement Association.
- International Energy Agency (2021). World Energy Outlook 2021.
- International Council on Clean Transportation (2021). A Global Snapshot of the Air Pollution-Related Health Impacts of Transportation Sector Emissions in 2021 and 2030.
- Rystad Energy (2022). Oil Demand by Region Towards 2050.
- IHS Markit (2022). Average Age of Cars and Light Trucks in the US Rises to 12.2 years, according to S&P Global Mobility.
- Reuters (2021). Factbox: Big Oil‘s Climate Targets.
- Bloomberg (2023). Saudi Aramco Backs EV Battery Maker Anovion at $1.4 Billion Value.
- BP (2021). From IOC to IEC: BP sets out strategy for decade of delivery towards net zero ambition.
