Ameer Randolph
The demand for fuel-powered cars is decreasing as consumers are increasingly opting for electric vehicles (EVs). This shift is influenced by various factors, including the growing concern for the environmental impact of traditional fuel sources, advancements in EV technology, and the increasing availability of EV models. In addition, the rising cost of living and high fuel prices are contributing factors to the decline in demand for fuel cars. While the transition away from gasoline and diesel-powered vehicles is already underway in the US and Europe, with demand in China expected to peak in 2024, other countries like India will follow suit in the coming decades. This shift in consumer behaviour has significant implications for the automotive industry and energy markets, with oil and gas companies preparing for a future that requires lower volumes of their products.
| Characteristics | Values |
|---|---|
| Demand for road fuels | Peak at 49 million barrels per day in 2027 |
| Demand for gasoline and diesel for road transport in the US and Europe | Likely to have already peaked |
| Demand for gasoline and diesel for road transport in China | Set to peak in 2024 |
| Demand for gasoline and diesel for road transport in India | Set to decline in the 2030s |
| Demand for road fuels in 2040 | 20 million barrels per day |
| Demand for road fuels in 2040 | 35 million barrels per day |
| Factors influencing demand for car travel | Income, demographics, driver behavior, vehicle fuel efficiency, and other structural factors |
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What You'll Learn
Electric vehicles (EVs) and fuel efficiency
The demand for fuel cars is likely to decrease as electric vehicles (EVs) become more prevalent. This is because electric vehicles are more fuel-efficient than their conventional counterparts. EVs are powered by rechargeable battery packs and electric motors, and they can convert over 77% of electrical energy from the grid to power at the wheels, compared to only 12-30% energy conversion efficiency in conventional gasoline vehicles. This higher efficiency means that EVs consume less overall energy to travel the same distance as a gasoline-powered car, reducing the demand for road fuels.
The efficiency of EVs is due in part to their lack of thermal losses from combustion engines, which are present in conventional cars. In EVs, the electrical drive system uses about 20% of its energy, accessories use around 4%, and there is an average of a 10% energy loss when charging the battery. Additionally, EVs benefit from regenerative braking, which recaptures and reuses around 17% of electricity that would typically be lost during braking. This combination of factors allows EVs to make more efficient use of their fuel source, reducing the overall demand for road fuels.
The environmental benefits of EVs are also significant. They produce zero tailpipe emissions, improving air quality and reducing greenhouse gas emissions from the transportation sector. The flexibility of charging EVs at home, work, or public charging stations, as well as their quiet and smooth operation, are additional advantages that contribute to their appeal. However, it is important to consider the source of electricity used to power EVs, as power plants may still emit pollutants.
Despite the advantages of EVs, there are some challenges to their widespread adoption. Currently, EVs have a shorter driving range than most conventional vehicles, although this is improving, with some models offering over 200 or 300 miles on a single charge. Additionally, the cost of replacing EV batteries, which typically last 8 to 15 years, can be high if they fail outside of the warranty period. Nevertheless, with the declining demand for gasoline and diesel in major markets like the US and Europe, oil companies are anticipating a future where lower volumes of their products will be needed.
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High fuel prices
While price elasticities can be difficult to interpret, the general rule is that an increase in price leads to lower demand. However, demand for car travel has been found to be relatively unresponsive to changes in fuel prices. This unresponsiveness to price changes may be due to a variety of economic factors, demographics, driver behaviour, vehicle fuel efficiency, and other structural factors. For example, the slowing of per-capita vehicle miles travelled (VMT), the retirement of the baby boomer generation, population migrations to urban areas, and declines in licensing rates for teenagers have all been observed to contribute to a decline in gasoline price elasticity.
Despite this, high fuel prices can still have a significant impact on consumer behaviour. In the UK, the Office for National Statistics (ONS) has developed real-time indicators to understand the change in consumer demand given the growing cost of living pressures and consistently high fuel prices. By combining card spending data with total average road fuel sales data, the ONS can gain quantitative and behavioural insights into how consumers are responding to high fuel prices.
In addition, high fuel prices can make electric vehicles (EVs) more competitive compared to conventional combustion vehicles. This is particularly true when oil prices are elevated, as they have been recently due to the concerted push by the Organization of the Petroleum Exporting Countries. As a result, demand for gasoline and diesel for road transport may have peaked in the US and Europe, with a decline in demand expected to begin after 2030.
Furthermore, high fuel prices can encourage fuel switching, such as from gasoline to diesel fuel, natural gas, or biodiesel. Fiscal policy measures that affect the prices of vehicles and fuel can also have a significant impact on the long-term composition of the vehicle fleet and its energy consumption, climate footprint, and general environmental impact. For instance, a 1% increase in the price of liquid fuel can reduce the average type approval rate of CO2 emissions from new passenger cars.
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Consumer behaviour
One significant factor is the price of fuel. Typically, an increase in fuel prices leads to a decrease in demand for fuel cars, as consumers may opt for more fuel-efficient vehicles or alternative modes of transport. However, the relationship between fuel prices and demand for car travel is complex and influenced by various other factors. For instance, in the US, gasoline prices have been found to have little effect on the demand for car travel. This could be due to factors such as the slowing of per-capita vehicle miles travelled (VMT), with retirees driving less, population migrations to urban areas, and declines in licensing rates for teenagers.
The introduction and growing popularity of electric vehicles (EVs) is another critical factor influencing consumer behaviour. The increasing adoption of EVs is contributing to a decline in the demand for fuel cars. This trend is expected to accelerate in the coming years, with BloombergNEF predicting that peak demand for road fuel will occur in 2027, followed by a structural decline in demand. The competitiveness of EVs compared to conventional combustion vehicles is also influenced by fuel prices, with higher oil prices making EVs more attractive to consumers.
To understand consumer behaviour and the demand for fuel, various indicators and data sources are utilised. These include fuel price data, card spending data, surveys, and transaction data. By analysing these data points, insights can be gained into how consumers are responding to changes in fuel prices and their overall fuel demand.
In summary, consumer behaviour plays a crucial role in the demand for fuel cars and their fuel. The interplay of various factors, including fuel prices, the emergence of EVs, income levels, and demographic changes, influences consumer choices and ultimately shapes the demand for fuel cars.
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Oil production and consumption
Upstream, also known as exploration and production, involves the complex and technologically advanced process of searching for potential reserves, drilling exploratory wells, and developing commercially viable sites. The downstream sector takes the crude oil and refines it into petroleum products for commercialisation, including gasoline and diesel for end users or the petrochemical industry.
However, the demand for oil, especially in the transportation sector, is facing challenges due to the rise of electric vehicles (EVs) and the push for net-zero emissions. According to BloombergNEF, the growing fleet of electric cars, vans, trucks, and buses has already displaced 1.5 million barrels of oil per day in 2022. They predict that peak demand for road fuel will occur in 2027, with a more rapid decline after 2030. By 2040, EVs are expected to displace over 20 million barrels of oil per day, significantly impacting oil consumption.
The transition to EVs and alternative fuels is not uniform globally, with demand for gasoline and diesel in the US and Europe likely already reaching its peak, while China's demand is projected to peak in 2024, and India's demand starting to decline in the 2030s. Oil companies are preparing for a future with lower demand, and organisations like the IEA are also planning for potential disruptions in the global oil market due to unforeseen events.
While the long-term outlook for oil demand is uncertain, it is expected to remain a significant component of global energy demand for the coming decades, especially with oil's role in the production of plastics and other chemicals. The world currently consumes approximately 97 million barrels of oil per day, and with proven reserves equivalent to 46.6 times annual consumption, there is an estimated 47 years' worth of oil left at current consumption levels.
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$39.96
Government policies and legislation
The demand for gasoline-powered cars in the US and Europe has likely peaked, while China's demand will peak in 2024. This shift is influenced by a combination of factors, including the growing popularity of electric vehicles (EVs), improvements in fuel efficiency, and the shared mobility trend. The increasing competitiveness of EVs compared to traditional combustion engines is also influenced by oil prices, with higher prices making EVs relatively more attractive.
Market interventions and government policies can significantly alter the pace of this transition. For instance, the Organization of the Petroleum Exporting Countries' efforts to increase oil prices may have unintended consequences, further accelerating the shift towards lower-emission alternatives.
In the case of Norway, research analysed 1.8 million new passenger car transactions between 2002 and 2016 to understand the market demand for various powertrains. The own-price elasticity of gasoline-powered cars was estimated at -1.08, indicating that a 1% increase in the price of gasoline would lead to a 1.08% decrease in demand for such vehicles. Diesel-powered cars showed a similar elasticity of -0.99, while battery electric cars had a higher elasticity of -1.27, indicating that demand for these vehicles is more sensitive to changes in their price.
These findings highlight the potential impact of fiscal policy measures on the environmental footprint of the automotive industry. By influencing vehicle prices and fuel costs, governments can shape consumer choices and accelerate the transition towards a more sustainable future.
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Frequently asked questions
Yes, the demand for fuel cars has decreased. This is due to a combination of factors, including the rise of electric vehicles (EVs), fuel efficiency improvements, shared mobility options, and high fuel prices.
Higher fuel prices lead to a decrease in the demand for fuel cars as consumers seek more fuel-efficient options. This is particularly evident in the shift from larger, less-efficient vehicles like SUVs and trucks to smaller, more fuel-efficient cars.
Electric vehicles are directly contributing to the decline in demand for fuel cars. The growing fleet of EVs, including cars, vans, trucks, and buses, has already displaced a notable amount of demand for road fuel, and this trend is expected to accelerate in the coming years.
