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The move towards electric vehicles and how this is impacting the downstream industry

There are now 44% more electric vehicles on UK roads than there were three years ago. With tax breaks and the ever-reducing cost of running an electric car – as well as the impact of environmental concerns – there’s no doubt that the electric car market is increasing in size. However, the immediate effect on the oil and gas sector is minimal and many question whether there will be any kind of seismic impact for many years to come.

Why are electric cars becoming more popular?

Although, initially, many of those in the industry wrote off electric vehicle owners as simply making a political statement, there is now acceptance that the motivation to buy electric can be broader than this. Electric vehicles are much more economical than they used to be as the price of batteries drops and more models enter the market, including designs by major global car manufacturers. They also have increasingly more range and can travel over further distances before requiring a recharge. However, although there is no doubt that this is an expanding industry, in comparison to gas-consuming vehicles electric cars still make up a very small proportion of the market. Out of 26 million cars on UK roads, only around 37,500 are alternatively fuelled i.e. not using petrol.

Where is this impacting on the downstream industry?

Although electric vehicles are gaining ground, there is still unlikely to be a drastic impact on the oil industry as a result. Experts have highlighted that electric vehicles are not going to do the same damage to oil as the digital industries have done to film and books – instead it’s believed that both electric and gas fuelled vehicles will co-exist. Modeling by BP has established that even a worldwide ban on new internal combustion engine vehicles will create just a 10% reduction in demand in terms of barrels per day. According to the International Energy Agency there will be roughly 300 million electric vehicles on the road by 2040 but this is only likely to create a 2% reduction in oil demand as a result. There is also consistently significant demand for oil from industries such as petrochemicals, heavy industry and aviation, which to a certain extent provides insulation against the choices that consumers are making when it comes to cars.

Why is the industry so resilient?

Currently, it’s much cheaper to buy traditional combustion engine cars than it is for consumers to invest in electric vehicles – and fuel efficiency is continually being improved in traditional cars. There are also issues surrounding how cleanly the energy to power electric vehicles is produced and whether, for example, coal powered energy to power electric vehicles might actually be more polluting. This is a key consideration as alternative, clean energy sources such as solar or wind power are not yet readily available enough to avoid this. And then there is the range issue – while electric vehicles may provide sufficient range for city journeys, few currently offer anywhere near the range of the traditional combustion engine vehicle for cross-country or longer drives.

The market for electric vehicles is growing at a significant pace. However, the impact on the oil industry has yet to be felt in any real way. Get in touch with Euro Petroleum Consultants today to find out more about growing trends in the oil and gas sector.