In this video, we look at the rise of electric vehicles, a topic which is increasingly grabbing the headlines as a so- called 'disruptive technology' set to shake up not just the automobile sector but the energy markets and beyond.
Is there a consensus emerging on EVs' impact on oil and power demand, and what kind of time frames are the impacts to be felt? And, can the supply of base metals rise to meet the demand outlook for lithium-ion batteries and at what price?
S&P Global Platts Robert Perkins, senior writer for EMEA oil news, is joined by Ross McCracken, editor of Energy Economist, Mark Schwartz, head of scenario planning at Platts Analytics, and Diana Kinch, editor of Steel Markets Daily, to discuss the implications of EVs for the global oil, metals, and power markets.
How soon could electric vehicles growth hit the oil sector?
With Robert Perkins, Ross McCracken, Mark Schwartz, and Diana Kinch
ROBERT PERKINS: Hello and welcome to Platts Commodity Pulse. I'm Robert Perkins, senior writer for EMEA oil news. Today, we're looking at the rise of electric vehicles, a topic which increasingly is grabbing the headlines as a so-called 'disruptive technology' set to shake up, not just the automobile sector, but the energy markets and beyond.
To discuss the implications of electric vehicles, or EVs as they're often called, for the global oil, metal and power markets, I'm joined by Ross McCracken, editor of Platts Energy Economist, Mark Schwartz head of scenario planning at Platts Analytics, and Diana Kinch editor of Platts Steel Markets Daily.
Ross, it seems almost a week doesn't go by before we see another headline number in terms of the penetration of EVs, electric vehicles, and their impact on the oil markets, and there seems a wide divergence. Often, some are quite bullish, some are more conservative. Is there any consensus emerging now on what the likely impact of the growth of EV cells will be on the oil markets, and is there any particular timeframe that these impacts are going to be felt?
ROSS MCCRACKEN: Well, you're right. There's a huge (sort of) range of forecasts out there at the moment. And the reason for that is there are a lot of assumptions that have to go into making an assessment of how EVs will affect the oil and power markets. It's not just the number and rate of EVs which are bought and sold over the next coming years. You also have to consider what type of technology is adopted, and you have to make assumptions about how far we'll be travelling in future. At the moment, most forecasts really see no major impact on oil demand out till about 2030 at least, if not further beyond.
ROBERT PERKINS: Right, so so quite some time. Mark, let me turn to you. I know recently you've done a deep dig into electric vehicles and their impact on oil markets. What have you seen in terms of the potential impact on, on fuels specifically, so gasoline and diesel. Are there any particular regional differences that, well, geographical differences that you should be looking for in the way this plays out in the oil sector.
MARK SCHWARTZ: Well, overall we have, you know, we agree with Ross. We don't have much of an impact prior to 2025, although you can begin to impact expectations even if you're not impacting bottom line fuel. In the PIRA reference case outlook, we have penetration getting up to about 30% or so by 2040, our terminal year. Now, that may not seem like a lot, but the hybrid vehicles have been around for almost 20 years and have had a difficult time piercing 3-4%. So, under that scenario, we have oil demand slowing long-term, not quite hitting a peak, although we have road transport use of oil hitting a peak some time in the 2030-2040 range.
As far as where, you know, it makes sense that we'd see the initial high penetration in markets like Europe, where you have both policy incentives and high fuel prices, you know, to encourage a switch over. But, in the important markets, long-term, will be the very high growth/high volume sales markets like China and India. And, if they choose to, they can put in incentives to really push this along, and these are clearly the markets that we have to keep a close eye on.
You know, for most of the world, the impact looks to be on gasoline, with the exception of Europe, and you know, we could have a situation where in high growth scenarios, gasoline demand might peak as early as, as 2030, but we are keeping an eye on diesel markets as well. There is a potential if governments really want to push our buses and short haul transportation via truck, we might have a bit of an impact on diesel as well.
ROBERT PERKINS: Interesting. Let's turn to metals now, Diana, something that you look at very closely. Of course, a big part of electric vehicles is the battery. They consume a significant put in in a hole in terms of resources and we've seen some of the metal prices, the key ingredients of batteries, start to head north over recent months. Talk us through that. Is there capacity in these key metal components for the batteries, and at what price, to meet future demand at current expectations.
DIANA KINCH: Well, exactly. Many analysts are now saying there won't be enough metal supply, at the right price, to meet the kind of demand to make the lithium-ion batteries that the planners are now talking about for the EV revolution. Especially with China, India and the EU all rushing headlong into the EV space. Tesla is apparently already behind with its EV production schedule because Panasonic can't produce the batteries quickly enough.
The mineral reserves are there, the problem is getting them out of the ground quickly enough and at the right price. Typically, it takes 5-10 years for a new mine project to come onstream. Lithium, of course, is the most talked about battery metal. Investors are piling into this space. A lot of hedge funds, Chinese, Japanese investors in particular. There's a lot of junior projects, junior miner projects. Even the big boys are coming in: Rio Tinto has a project in Serbia.
The problem is many of the lithium deposits are in the so-called 'lithium triangle': Chile, Argentina and.Bolivia, where infrastructure may be lacking. Lithium prices have risen 50% over the past year, and analysts are saying supply will only keep pace with demands to about the early 2020s.
ROBERT PERKINS: Is lithium the key metal people are looking at or are there other products.
DIANA KINCH: Well, there are certainly others as well. Cobalt, nickel, manganese and graphite have all benefited from the EVs boom. There's a lot of geopolitical concern over cobalt because 70% of the world's supplies come from the Democratic Republic of Congo. Prices have more than doubled over the past year, so about $60,000/mt.
ROBERT PERKINS: That's a considerable rise, yeah.
DIANA KINCH: Nickel prices have also risen 7.5% and the search is on, in fact, for alternatives to the typical NCA battery, which contains both cobalt and nickel. It seems as if metals supply, and prices, could put some kind of restraint on the speed that the EV revolution moves forward.
ROBERT PERKINS: Interesting you mention the constraints. Ross, coming back to you, some of the naysayers in terms of the outlook for EV penetration and sales, have been those that point out that the local (or) regional power networks -- power markets -- may not be sufficient to supply a sudden boom in electric cars, the recharging in homes and other places in these big markets in Europe or China. Is that a real concern, and where specifically could that be a real issue?
ROSS MCCRACKEN: I don't think it's an immediate concern. As with oil, the impact on power demand of EVs is sort of gradual and incremental. If you look at China, which has the most EVs in the world at the moment, the actual electricity that they're consuming is less than 0.5% of total generation on an annual basis; and China has a lot of excess generation capacity as well. And, if you look at the West, we've actually got very low electricity demand growth overall.
So, I think that sort of gradual incremental increase in load over time, as EV numbers get larger, is something which most power systems will be able to adjust to. But, there are a couple of potential problems and the first one is: can you meet that increasing load with clean energy, or do you have to revert to fossil fuel power generation in order to meet the demand for EVs as the numbers rise?
And the second one is more about grid investment: if it's at the low voltage end of the distribution network, how will a local substation cope with a sort of very heavy concentration of EVs in one sort of residential area. It's not clear whether the sort of low voltage grid network is sufficiently robust to cope with that kind of change.
ROBERT PERKINS: It could be sort of a lumpy supply issue in terms of the networks on the ground I suppose. As you say, it's not a uniform...
ROSS MCCRACKEN: If you imagine a housing estate, say a modern housing estate, of 500 houses and we have 30/40% EV penetration: so that's three or four, maybe 350 cars in that housing estate state. They all come home at six o'clock in the evening, plug them in; that's something which the local substation is not built to do. Would be worse than everyone putting a kettle on for a cup of tea in the middle of the World Cup.
ROBERT PERKINS: Something that I think happens quite a lot, in England at least. Thanks, Ross. So, with so much at stake, clearly the pace and impact of a shift away from conventional cars or trucks in the transport sector is going to remain a central theme for market watchers in the coming years. This concludes today's Commodity Pulse. For the latest news and analysis across the global commodity markets, please visit Platts.com.