Oil demand plateaus in late 2030s: BP outlook
The growing efficiency of transport is the key factor in BP's ‘evolving transition' outlook
London, 23 February (Argus) — Global demand for oil, biofuels and other liquid fuels will plateau in the late 2030s under the main scenario of BP's latest Energy Outlook.
BP describes it as the "evolving transition" (ET) scenario, which assumes government policies, technologies and societal preferences evolve in a similar way and at a similar pace to the recent past. The outlook offers a variety of alternative scenarios. This marks a departure from BP's previous outlooks, which focused on a base-case scenario outlining the "most likely" path for energy markets. The ET scenario "is doing the same work as the new policies scenario does for the IEA", BP chief economist Spencer Dale says. "It is giving you a sense of the path we are evolving along, absent a big shock to technology and absent a big shock to policy."
Liquids consumption is 109mn b/d in 2040 under the ET scenario, up by 13mn b/d from 2016. Demand keeps rising for most of the period, driven by growing prosperity in emerging economies. But "we have a very small decline in the final five years of the outlook", Dale says. "The key factor here is transport becoming increasingly efficient," he says. The transport sector accounts for over half the 13mn b/d of demand growth, with non-road vehicles and trucks accounting for most of that. "But the stimulus from transport demand gradually fades as the pace of vehicle efficiency improvements quickens and alternative fuels penetrate the transport system," BP says.
Liquids consumption in the transport sector stops growing towards the end of the outlook period. But non-combusted use of oil — particularly as a petrochemicals feedstock — replaces transport as the main demand driver after 2030. This reflects "the more limited scope for efficiency gains", BP says.
Demand for travel by cars more than doubles by 2040 in the ET scenario. But liquids consumption by cars is broadly flat on 2016, mainly because of tightening emissions standards. The switch to electric vehicles (EVs), together with increased use of shared-mobility cars, reduces consumption by a combined 4.5mn b/d over the outlook period. But this is "not a game-changer for oil demand", Dale says. Other gains in fuel efficiency have a much more significant effect.
This view tallies broadly with that of the IEA, and the long-term outlooks of most big oil firms. But other analysts expect to see more impetus for change from the automotive industry. "EV substitution is the biggest driver of change in oil demand over the next three decades, in our view, and also the biggest source of uncertainty over the path of long-term oil demand," Bank of America Merrill Lynch (BAML) says. Its automotive sector analysts expect EV growth to accelerate rapidly in the early 2020s, potentially rising from 5pc of vehicle sales in 2020 to 40pc by 2030 and as much as 95pc by 2050.
BAML has sharply revised up its outlook for EV sales from its position less than two years ago. That put its base case for EVs at 10pc of sales by 2030, and 20pc by 2050. A more aggressive scenario from 2016 that has oil demand peaking in 2030 "is now closer to our base case", the bank says, adding: "The sentiment on EVs has shifted in just under two years, based on commitment from the auto manufacturers and excitement about EVs among consumers."
This sentiment is unlikely to shift BP's view of the continued investment case for oil. Its latest outlook includes a scenario where sales of all internal combustion engine vehicles, including plug-in hybrids, are banned globally from 2040. This cuts 2040 liquids demand by around 10mn b/d against the ET scenario. But overall oil consumption is still higher in 2040 than in 2016 under this scenario.
Changes in liquids demand from cars
Liquids demand growth
Passenger cars liquids demand