How electric vehicles could take a bite out of the oil market

car, electric car

When will cars powered by gas-guzzling internal combustion engines become obsolete? Not as soon as it seems, even with the latest automotive news out of Europe.

First, Volvo announced it would begin to phase out the production of cars that run solely on gasoline or diesel by 2019 by only releasing new models that are electric or plug-in hybrids. Then, France and the U.K. declared they would ban sales of gas and diesel-powered cars by 2040. Underscoring this trend is data from Norway, as electric models amounted to 42 percent of Norwegian new car sales in June.

European demand for oil to propel its passenger vehicles has been falling for years. Many experts expect a sharper decline in the years ahead as the shift toward electric vehicles spreads across the world. And that raises questions about whether surging electric vehicle sales will ultimately cause the global oil market, which has grown on average by 1 to 2 percent a year for decades and now totals 96 million barrels per day, to decline after hitting a ceiling.

Energy experts call this concept “peak oil demand.” We are debating when and if this will occur.

A forecast with caveats

The International Energy Agency (IEA), which represents 29 oil-importing industrial countries, produces bellwether forecasts that foresee electric cars phasing in slowly. Its baseline projection envisions 150 million electric vehicles on the world’s roads by 2030, or about 10 percent of all passenger vehicles at that point. In comparison, only two million electric vehicles are operating today – 0.2 percent of the 1.2 billion on the road. The IEA estimates this shift will save nearly two million barrels per day of oil, relative to its business-as-usual projection of the world using at least 70 million barrels of oil per day for transportation by 2040. That consumption level would mark a 30 percent increase from roughly 54 million barrels now.

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