Demand for oil will continue to increase in the coming decades despite a surge in electric vehicle (EV) sales, a new report from IHS Markit says.
Released on Tuesday (November 14), the report indicates that more than 80 percent of the vehicles sold worldwide in 2040 will still use some form of petroleum-fueled combustion engine, with oil remaining key in the space.
“Oil’s monopoly as a transport fuel will erode as a new era of multidimensional competition takes hold — but it will remain a major player,” said Jim Burkhard, vice president, global energy markets and mobility, at IHS Markit. “Many of its advantages as a fuel … will persist. And the size of the current automotive ecosystem will moderate the pace of change.”
IHS Markit forecasts that 43 million barrels a day of new oil production will be needed by 2040 as overall demand rises. Daniel Yergin, vice chairman at the firm, told Reuters that it was surprising to see oil demand increasing rather than going down, noting that cars only account for a third of oil demand.
However, higher fuel economy and emissions standards, plus the reduction in gasoline’s share of new vehicle sales, will lead to a decline in aggregate gasoline demand during the 2020s, the report says.
“The move from ICEs to EVs offers one example of the big impacts that will result from coming changes in the automotive industry,” said Anthony Palmer, vice president, chemical consulting, for IHS Markit.
Electric cars, including plug-in hybrid cars, will account for more than 30 percent of new cars sold by 2040 in key markets, up significantly from just 1 percent last year. Battery-powered all-electric vehicles will account for about 19 percent of those sales.
In contrast, cars powered solely by gasoline or diesel will have fallen below 50 percent of new cars sales by 2031. According to the report, a key tipping point will be a decline in battery pack costs, expected in the 2030s, that will make EVs cost competitive with internal combustion engine vehicles.
“[A] large share of [the new cars sold by 2040] will have internal combustion engines that run on refined crude products. But the future of automotive transport will be an era defined by multidimensional competition,” said Tom De Vleesschauwer, transport and mobility practice leader at IHS Markit.
The report calls for global vehicle sales to decline to 54 million in 2040, down from 67 million currently, as the use of on-demand ride services continues to rise.
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Securities Disclosure: I, Priscila Barrera, hold no direct investment interest in any company mentioned in this article.