WoodMac: Demand For Oil In Transportation Sector To Peak In A Decade | OilPrice.com
Interesting to see that WoodMac and others within the oil industry now acknowledge that demand for transportation fuels will likely come by the second half of the next decade. So the timing seems a little more credible, 2025 to 2030. But notice that they are not acknowledging that demand for crude itself will peak in that time frame, jut transport fuels. At least this includes diesel along with gasoline and heavy distallates.
Naturally if transport fuel demand is declining but not demand for petrochem this creates an imbalance in how the whole barrel of crude is consumed. Hence, an adaptive strategy is needed.
“Many oil production and refining companies are emphasising chemicals - particularly olefins and aromatics - as a key target area for future crude oil long-term demand growth,” wrote Steve Zinger, Senior Vice President, Petrochemicals, at WoodMac.
Major oil firms, including ExxonMobil, Saudi Aramco, and Sabic, are developing crude-oil-to-chemicals technologies, while many traditional oil refineries will consider retrofitting to maximize production of chemical feedstocks rather than transportation fuels, the energy consultancy said.
So adapt they must, but even this is couched as something after 2030.
WoodMac is now acknowledging that electric vehicles are coming as the cost of batteries decline.
According to a WoodMac
analysis from a few months ago, the EV share of the global car fleet is still miniscule, considering that the world’s stock of cars is 1.2 billion units. But battery costs and range are less and less the stumbling blocks in EV adoption. Battery is one third of the cost of an EV today. Yet, costs have already declined by 80 percent this decade and will fall further. Battery pack prices will drop below US$200/kWh this year and then fall by around 10 percent each year, WoodMac said in July.
They seem to be following BNEF analysis here, but through the vagueness of round numbers, "decline 80% this decade", they obscure just how fast the decline has been. BNEF has the pack cost falling 20% per year from $1000/kWh in 2010 to about $168 in 2018. Continuing at this pace leads to $109/kWh in just two more years. But BNEF and now WoodMac want to suggest that the decline rate will immediately slow from 20% to 10%. In the case of WoodMac this leads to a really bad estimate on the timing to the magic price of $100/kWh.
“The critical threshold is US$100/kWh – that’s when EVs will compete on commercial terms with ICE vehicles. We think we’ll get there by 2027,” WoodMac says.
This 2027 target is a joke. Let's assume their assumptions of $200 in 2018 and an annual decline rate of 10%. This leads to $77/kWh by 2027 or $106/kWh by 2024. So WoodMac is just inventing a number they and their clients can feel "comfortable" with. Rounding $168 up to $200 is also a big mistake. Starting at $168 in 2018 and declining 10% annually gets to $99 by 2023, and declining by 15% gets to $103 by 2021. So even if the decline rate slows a little from 20% per year, we are still talking about hitting $100 in 2.5 to 5 years from 2018. The idea that it could take as long as 2027 is wishful thinking on the part of an industry that is at risk of disruption.
Let me reiterate that I do not believe that $100/kWh is the magic number that suddenly transforms the dynamics of EV adoption. The EV fleet grew by about 64% in 2018, inspite of pack costs well above $100/kWh. Rather we are on a learning curve where prices fall as production doubles. Thus the growth of 64% last year is also fueling the decline of battery costs this year, and those reductions will fuel further growth in the EV fleet. Any sort of argument that we must wait for some magic cost threshold like $100 is simply overlooking just how rapid the uptake of EVs has been.
So increasingly, WoodMac and the oil industry will be confronted with just how fast disruption is happening. Year after year they will have to move their up their estimates.