This week the UK’s conservative Daily Telegraph newspaper published an interesting perspective from their world economy editor.
“Saudi and OPEC officials self-evidently do not believe their own claim that world oil demand will keep growing briskly for another generation as if electric vehicles had never been invented, and there was no such thing as the Paris Accord.”
OPEC had to slash output last October in order to shore up prices. It had to cut again in April. The Saudis then stunned traders with a unilateral cut of one million barrels a day (b/d) in June. All told, the OPEC-Russia cartel has had to take 2m b/d of production off the table at a high point in the economic cycle, after China’s post-Covid reopening and at a time when the US economy has been running hot with a fiscal expansion roughly equal to Roosevelt’s world war budget.
That 2m b/d figure happens to be more or less the amount of crude currently being displaced by EV sales worldwide, according to Bloomberg New Energy Finance.
Yet the mood was all defiance and plucky insouciance at the 24th World Petroleum Congress in Calgary this month… This skips over the awkward detail that EVs are already on track to reach 60pc of total car sales in the world’s biggest car market within two years (not a misprint). The cartel is being hit from two sides. Petrol and diesel cars are becoming more efficient, gradually displacing 1.4bn vintage models disappearing into the scrap yard. BP says that alone will cut up to a tenth global oil demand by 2040. With a lag, EVs are now starting to take a material bite, with an S-curve trajectory likely to go parabolic this decade.
China’s EVs sales hit 38pc this summer, even though subsidies have mostly been scrapped. This is far ahead of schedule under Beijing’s New Energy Vehicle Industry Development Plan. China’s Chebai think tank says the emerging consensus is that EV sales will hit 17m or 60pc of total Chinese share by 2025, rising to 90pc by 2030, assuming that the grid can keep up… Vietnam is a few years behind but with similar ambitions. Its EV start-up, VinFast Auto, became the world’s third most valuable carmaker after it launched on Nasdaq last month, briefly worth as much as the German car industry before the share price came back down to earth…
OPEC’s central premise has long been that the rise of a billion-strong middle class in emerging Asia will more than offset declining oil use in the OECD bloc. That notion is ‘withering under scrutiny’… The International Energy Agency (IEA) says global oil demand will peak at 105.5m b/d in 2028 and then flatten for a few years before going into decline… The IEA pulls its punches. The Rocky Mountain Institute argues in its latest report — End of the ICE Age — that half of global car sales could be EVs by 2026, reaching 86pc later this decade.
The article closes by citing “the breathtaking pace of global electrification. The decline of oil in car and bus transport may be closer than almost anybody imagined. OPEC as we know it may be on the cusp of a death spiral.”