The world would still need oil over the next few decades— and the demand would have shifted from fuel to petrochemicals.
By Mike Banach
In 1900, about 38% of the cars on the road were electric vehicles (EVs), while 40% of the cars were powered by steam and only 22% were running on gasoline. The fastest car of the time was an electric car, and even the first Porsche was an electric vehicle. By 1914, Thomas Edison and Henry Ford were collaborating to build a cheap and practical electric car for mass production. In this early era of motor transportation, electric vehicles were the future. However, when Ford developed the Model T, it was powered by a gasoline engine, and the rest is automotive history.
Today, EVs account for less than 1% of the vehicles on the road. But they are catching the imagination of the world, spawning a universal campaign to bring in a battery-powered revolution. Carmakers are announcing higher production targets and governments are publishing plans to phase out sales of diesel and petrol-powered cars over the coming decades.
India is at the forefront of this EV initiative, with its commitment to the Paris Agreement, to go all-electric by 2030. But, if the efforts on the ground are any indication, the EV targets are ambitious. Just last month, Union minister of heavy industries & public enterprises, Anant Geete, revealed in Lok Sabha that, of the 47 proposals from 44 cities in 21 states seeking government support of Rs 4,055-crore for 3,144 e-buses, 2,430 e-taxis and 21,545 e-rickshaws, the Centre has sanctioned just about a tenth of the amount— Rs 437-crore—for only 390 e-buses, 370 e-taxis and 720 e-rickshaws.
For encouraging a fledgling EV industry—given the high dependency of manufacturers on government subsidies for production viability—much more needs to be done. The formulation of a policy roadmap for the switchover to EVs by 2030 could be a major step towards that.
There are some important questions for refiners—how many EVs will hit the road in the years to come, how quickly will they be here, how will this affect demand for fossil fuels, and how should they plan their investments to meet that demand?
The answer for the future may well be in the past. Though EVs have been around longer than petrol automobiles, the last 100 years have belonged to the internal combustion engine. EVs were limited by their batteries, which couldn’t provide enough power, range or refueling speed to compete with liquid fuels. Their batteries are still bound by those limits today.
Where petrol and diesel automobiles enjoy ubiquitous supply infrastructure, EVs will require not just the installation of millions of quick-charging stations, but the construction of new generation/distribution capacity for those charging stations.
Electricity is a medium, not an energy source, so something will have to generate the additional electricity needed to meet the new demand from EVs. This could cause news sources of pollution, since more than 80% of India’s electricity is generated from fossil fuels. The electricity generated also will require a new infrastructure to distribute it—not just to fueling stations, but to homes, parking lots and everywhere these cars rest.
Again, this will happen, but it will take time. Due to the limitations of range and power, EVs are being adopted first as city cars, perfect for local errands and short trips, and where the ratio of recharging time to driving time is high. At least for the foreseeable future, EVs probably won’t be taking long-distance road trips. At the same time, over the next 30 years, while the world’s population will grow by nearly 2 billion people, the population of the middle-class will grow from 2 billion to 5 billion. Global GDP is expected to double, and India will be among the world’s fastest-growing big economies. This growth will bring increased demand for personal transportation and commercial vehicles.
The world today produces about 97 million barrels of oil every day, and that number rises by about a million barrels every year. Subtracting about 14 million barrels of NGLs, about a third of what remains is converted into gasoline, another third becomes diesel and 10% becomes jet fuel and kerosene. What’s left goes to make petrochemicals, lubricants, pet coke, and residual fuel oil.
By 2035, the growth in global population and economic prosperity would drive roughly a 23-million barrel per day increase in the consumption of oil used to make automotive fuels—if there were no improvements in fuel efficiency, or replacement by other vehicle types. While EVs will reduce this growth by about 1.2 million barrels, more efficient, cleaner-burning internal combustion engines will reduce it by at least another 11 million barrels. So, rather than falling, total demand for automobile fuels will rise by about 11 million barrels by 2035.
And still, fuel is only one destination for oil; this is the critical message for refiners. In addition to more transportation, the 10 billion people on the planet at the middle of this century will have greater demand for food, plastic resins and fibres, detergents, consumer products, pharmaceuticals, packaging, and countless other chemicals.
All these things will require increased production of petrochemicals. While the volume of refined products will continue to rise, the ratio of fuel to petrochemicals will continue to move in favour of petrochemicals. We may even see a new generation of refineries designed to produce only petrochemicals.
While EVs will capture a growing share of the automobile market, we believe liquid fuels will remain the largest source of power for personal, commercial, air and marine transportation. Those fuels will need to burn cleaner and produce more power per barrel. For refineries, this will mean new investments to produce efficient, higher-octane fuels, and integration with new petrochemical manufacturing.
(The author is General Manager, Honeywell UOP)