Electric Vehicles are a long long way from mattering.

It will take 21.4 million electric vehicles to reduce oil consumption by 1 million barrels a day.  The math is straightforward and simple.  

According to Auto News Magazine the average U.S. car gets 25.5 mpg. and according to the U.S. Department of Transportation that average car is driven 13,476 miles per year.  That mileage with that efficiency requires the purchase of 528 gallons of gas per year.    Now the average refinery can turn one barrel of oil (which is 43 gallons) into 31 gallons of transportation fuel (that’s gas and diesel).  So 528 gallons of transport fuel per year at 31 gallons per barrel means one car uses 17 barrels of oil per year.  To reduce 1 million barrels of daily oil production means a gross 365 million barrels of oil which, based on our above math, yields 21.4 million cars.  Right now in the entire world there are roughly 1.2 million EVs on the road or 6% of the total needed.

This is only the beginning of the story so let’s continue:

Last year, 2016,  777,497 Electric Vehicles (“EVs”) were sold.   This year, based on production rates at the end of April, we can extrapolate that 1 million EVs may be sold globally. (Insideevs.com).   So we know where we currently stand and we know what the magnitude of sales must be to impact existing oil demand.  Let’s look at some of the predictions.

In a Bloomberg article titled This Is What the Demise Of Oil Looks Like, published May 31, 2017, journalist Jess Shankleman quotes the BP Chief Economist Spencer Dale “if electric cars attain a “cool factor” on a par with the iPhone, the global fleet could expand to 450 million by 2035, from about 1.2 million currently.”  Nope, not possible.  Someone needs to explain to Spencer that 450 mm vehicles would be 100% of total global auto sales for five years running!   This is so wildly absurd I am not going to get started.

But what I will do is look at an extremely aggressive projection that if all the stars align for EVs where could we get to?  Well, if global electric vehicle sales grow 20% a year for 15 years and we assume a 5% annual fleet retirement (for background the average age of a car in the U.S. is 11.4 years) we would potentially have enough vehicles on the road by 2025, to displace 1 mm barrels of oil per day.  And in 2025 Global EV sales would be 4.3 mm per year.  Holding these assumptions steady to 2035 we get to annual production of 26.6 mm vehicles and total EVs on the road equal 148 mm displacing 6.9 mm barrels a day of oil by the year 2035.  Take a look at my snappy chart below:

Growth Fleet net of Implied Oil
Rate Cumulative  retirements  Destruction
Year 20%  Total @ 5% in MM BBLs
2017           1.00                  2.00                      1.90                32.30
2018           1.20                  3.20                      3.04                51.68
2019           1.44                  4.64                      4.41                74.94
2020           1.73                  6.37                      6.05              102.84
2021           2.07                  8.44                      8.02              136.33
2022           2.49                10.93                    10.38              176.52
2023           2.99                13.92                    13.22              224.74
2024           3.58                17.50                    16.62              282.61
2025           4.30                21.80                    20.71              352.05
2026           5.16                26.96                    25.61              435.38
2027           6.19                33.15                    31.49              535.38
2028           7.43                40.58                    38.55              655.38
2029           8.92                49.50                    47.02              799.37
2030         10.70                60.20                    57.19              972.16
2031         12.84                73.04                    69.38          1,179.52
2032         15.41                88.44                    84.02          1,428.34
2033         18.49             106.93                  101.58          1,726.93
2034         22.19             129.12                  122.66          2,085.23
2035         26.62             155.74                  147.95          2,515.20

But just hold on before you go opening that polar bear food store.

Even under the most aggressive Electric Vehicle growth assumptions it will take 18 years before annual EV sales will equal current annual oil demand increases. 

Here is the punchline:  According to the BP Statistical Review oil demand has grown very consistently over the last ten years at 1mm barrels a day.  Even during the financial crisis when it did not grow, it caught back up in the ensuing years to even out at 10 mm barrels of growth over 10 years.  While it is sometimes ill advised to look back in an effort to look forward, that growth is very consistent and provides annual oil consumption growth that dramatically offsets the most aggressive assumptions around EVs and the coming destruction of oil demand.

I’m going to leave it here for now.  The arguments around increasing fuel standards and ride sharing as yet another reason for oil demand destruction are even more fallacious so I will address them in my next post.  For now here’s the teaser – annual oil production declines are 2X annual demand increases.  So you have to find and develop 2 million barrels of oil each year just to keep production flat.    If you don’t yet smell the actionable investment opportunity you are not paying attention.  There are very few places in the world where it makes any economic sense to develop oil at $50 a barrel and we are looking at 1 mm barrels a day of annual demand increases and 2 mm barrels a day of annual production declines…where will the missing 3 mm barrels come from?  What price of oil will be needed to stimulate oil companies to go after more oil?  How long will it take those folks to bring that oil to market?  Is there a massive oil production shortfall coming our way?  Great wealth has never been created by swimming with the crowd or believing the consensus.  When global oil inventories begin to fall it will be too late to act.

Anyway, if you enjoyed this post please consider a $10,000 donation, just kidding, sign up for my updates and I will continue to try and share more facts with you in the coming weeks.  Thanks for reading.

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