Long-term oil demand is more bullish than you might think

Many investors are questioning the future of oil demand, given the discussions of achieving net zero carbon emissions by 2050. Surprisingly, there is no consensual baseline scenario for oil demand. oil. Other forecasters typically rely on a variety of scenarios rather than a base scenario. Neither the typical “business-as-usual” scenario nor the typical downside scenario are good indicators for long-term oil demand. The status quo scenarios reflect pessimistic attitudes towards major clean technologies such as electric vehicles. On the other hand, the bear scenarios reflect very optimistic assumptions regarding the implementation and effectiveness of the carbon policy. Our base scenario is much closer to the business-as-usual scenarios for oil demand than to the bearish ones. We expect oil demand to drop from 99 mmbp / d in 2019 to 88 mmbp / d in 2050, an 11% drop or 0.4% annual decline.

Our optimistic views on oil demand are not due to electric vehicles, for which we are very optimistic about their adoption. We predict that electric vehicles will reach 57% of the passenger car fleet by 2050 and 59% of freight truck volumes. Yet the switch to electric vehicles will not happen overnight, due to the long lifespan of the average vehicle. For passenger cars, we expect higher demand than the bearish scenarios due to slow efficiency gains for gasoline cars remaining on the road (including hybrids). There has been a yawning gap between actual and official energy efficiency, a fact that most other forecasters fail to appreciate. Ships and planes are not eligible for electrification, so the most promising way to replace oil is the use of green hydrogen and its various derivatives. However, we are skeptical that these alternatives will reach cost parity with oil even by 2050.

We are far from being blindly optimistic about oil. Road freight is an area where we are closest to bears. We are more bullish on electric trucks than most because we believe freight trucks are actually an ideal case for electric vehicle adoption due to their high usage.

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Felix J. Dixon