Benefits of electric vehicles to lead downstream for oil-producing countries such as the UAE

The oil majors say electric vehicles should not affect their businesses for another two decades.

Mohammad Al Gergawi, Minister of Cabinet Affairs, interviews Elon Musk as a moderator for the World Government Summit. Tesla on Monday announced its launch in the UAE. Jeffrey E Biteng / The National
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The adoption of electric vehicles (EVs) will eventually allow more crude to be used for export and for value-added petrochemical products, supporting the diversification efforts of oil-producing countries such as the UAE.

There were more than 1 million electric cars on the road in 2015, according to the International Energy Agency.

Yet there is a growing disconnect between what car makers and oil majors say, according to Colin McKerracher, the head of advanced transport at Bloomberg New Energy Finance (BNEF). Oil majors agree that the EV market will grow but assert that it will not have any real effect on demand over the next 20 years. However, car maker timelines are more aggressive.

“Most automakers now agree that EVs will play a major role in their vehicle line-ups. That is increasingly at odds with what several of the global oil companies say,” Mr McKerracher said, adding that someone was going to be wrong to the tune of billions of dollars.

A major part of this expansion is a result of Elon Musk’s company Tesla, which yesterday announced its launch in the UAE.

“What Tesla has done has dragged the timeline forward for other car makers investing significantly in electrification,” said Mr McKerracher.

BNEF puts EV growth rates at between 40 and 60 per cent year-on-year, but it will take close to another decade for the hydrocarbon sector to be affected.

“There’s definitely an impact coming from EVs on oil demand, but it’s not as soon as some EV enthusiasts would hope,” he said.

Mr Musk said that he agreed that EVs are still an emerging technology.

“EV will happen slower than self-driving vehicles, the transition to EVs will take about 40 years,” he said yesterday at the World Government Summit in Dubai.

But when that time comes, it can be a win-win for oil-based economies. The amount of fuel that is displaced as a result of EVs can allow more oil for export or even help to increase the downstream sector’s product offerings, such as high-value petrochemicals.

Mr McKerracher said that the biggest wild card will be if India’s transport system begins to lean to more electric in the 2020s, which will have a more dramatic impact on the oil market.

He said: “Once that starts, the producers and refiners who have optionality in what they can do with their resources – for instance, push more in petchems – they’ll have an advantage.”

Alan Gelder, the energy consultancy Wood Mackenzie’s vice president for refining, chemicals and oil markets, said that EVs have the potential to significantly reduce future petrol demand if there is a technology breakthrough.

“The opportunity for petrochemicals could be large, [with] global gasoline demand of almost 25 million barrels per day,” he said. “Large-scale EV penetration could be disruptive to the outlook for petrochemical feedstocks.”

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lgraves@thenational.ae

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