ELECTRIC VEHICLES AND OIL DEMAND

In recent years, there has been a lot of conjecture over the possibility of a drop in oil demand as a result of the
transition to electric modes for transportation and mobility purposes.

Recently, the International Energy Agency (IEA) predicted that overall demand for energy is set to increase by 1%
per every year until 2040, however, the demand for crude oil will plateau in 2030, ten years earlier than it had
previously predicted, due to a rise in the use of Electric Vehicles (EVs).

The think-tank, which boasts of 30 major energy-consuming nations among its members, proposed in its World
Energy Outlook 2019 that under certain scenarios and policy conditions, annual EV sales could shoot up to 10
million by 2025 and more than 30 million in 2040, from the 2018 sales level of 2.1 million.

That would mean an EV global stock on the road adding up to above 330 million by 2040, which is a considerable
increase compared to the current stock of just over 5 million, resulting in the displacement of around 4 million
barrels per day (bpd) of oil consumption.

According to McKinsey, the EV sales figures recorded in 2017 were overtaken by an over 60% uptick on numbers in
2018 and is expected to more than double in the coming years.

CHINA LEADS THE WAY

China may prove to be the biggest disrupter to the future of oil. China’s electric vehicle sales are three times higher
than the United States. Tesla has just broken ground on a massive gigafactory that will have capacity to
manufacture 500,000 cars per year.

Tesla will now be able to build locally and bypass tariffs as tariffs have driven up the price of importing such
vehicles. In addition, a handsome investment was made by BP Ventures in the Chinese electric vehicle (EV) charging
start-up PowerShare, recently.

China has a sales target of more than 7 million EVs by 2025, up from just 350,000 in the previous year(2019). By
2030, it is expected that China will overtake the United States to become the consumer of oil with net imports
reaching 13 million barrels per day, (the U.S. currently consumes about 20 million barrels per day).

At 1.1 million EVs, or 51% of global unit sales in 2018, China’s market size is now almost three times that of the
European and U.S. markets each. Although EV sales on the European continent account for less than 2% of market
share in large markets like France, Germany, and the U.K., smaller markets like Norway (40% market share), Iceland
(17%) and Sweden (7%) continue to display valuable results supported by subsidies.
Strict regulations regarding CO2-emission are also to most likely lead to "significantly larger market shares" for EVs
across Europe through 2020–21 and beyond, according to McKinsey and the IEA.

In terms of original equipment manufacturer (OEMs), Tesla is leading and is presently the world's largest EV
producer, followed by two Chinese automakers, BYD and BAIC Motor. Also, over 100 EV models from a plethora of
global manufacturers are on the horizon in the next couple of years, including several being launched by luxury
carmakers such as Lexus by Toyota, Porsche,Jaguar, BMW, and Land Rover.

TRANSPORTATION STILL DOMINATES THE DEMAND FOR CRUDE OIL

Forecasts hold that global oil demand shall go down within the next decade and the rise of EVs may contribute to
the decrease in demand. According to the Energy Information Administration, global oil consumption will average
101.45 million b/d in 2019 and 102.93 million b/d in 2020. However, there may be a peak in growth already. The
EIA's estimate is a reduction of around 100,000 from its previous outlook.

The composition of these 101/102 barrels is approximately 80 percent crude oil and 20 percent natural gas liquids.
According to EIA, transportation accounts for about 55 percent of the crude oil demand, while 35 percent is for
industrial use and the remainder in other categories such as electricity. Also, an estimate by IHS shows that roughly
a third of global oil demand is from cars: 40 percent of the growth since 2000 has come from cars. This number
again may be affected due to the growth of EVs, especially in China.

Even though EVs and Plug in Hybrid Electric Vehicles (PHEVs) account for only about 1% of the 95 million vehicles
produced globally every year, leading auto industry analysts are gradually coming to the conclusion that EVs will
consequently change the auto landscape known to us.
For example,in a report published by Bernstein, a well-regarded Wall Street research firm that closely monitors the
industry, there was a detailed analysis of what it calls the coming Electric Revolution.The reliable 262-page report
talks about declining technology costs and an expansion in charging infrastructure, among other factors, as the
principal reasons why EVs are quickly gaining traction. Bernstein also predicts that in the next couple of decades,
EVs are likely to compose as much as 40% of all of the vehicles sold globally, causing extensive changes throughout
the supply chain.

However, the general response from the industry has been somewhat slow ,saving for a few outliers. Tesla
undoubtedly has been leading the Electric Revolution, with others following suit. Volvo’s promise to phase out
vehicles powered solely by an ICE as early as 2019 was a pleasant surprise. It also stated that all of its car models
launched after that date would be EVs or PHEVs.

WHAT FUTURE HOLDS

The conditions of the global auto market are closely reflected by China and the demand for gasoline is likely to be
impacted in the coming 10-20 years. This may result in a devastating hit to the oil industry due to the anticipated
decline in future demand for oil and gasoline. On the basis of previously mentioned figures, it is estimated that an
increase in demand for EVs as opposed to gasoline-powered autos may reduce oil consumption by approximately 5
million barrels per day, i.e, almost 5 percent of the daily production. According to IHS, about 50,000 barrels of the
100 million per day global demand were supplanted due to EVs in 2017-18.
With the breakeven for EVs still a few years away, operating pressure on OEMs is inevitable and not just in China.
"Any way you look at it, you'll need wealthy governments to get behind and encourage EV development. That's
perhaps easier to do within G7 or OECD economies but less so when we are talking about huge parts of emerging
Africa, Asia and Latin America," said Regina Mayor, Global Sector Head, Energy and Natural Resources at KPMG.

DISRUPTIONS IN THE AVIATION SECTOR THAT MAY CHALLENGE OIL DEMAND IN FUTURE

The onset of electric planes is another disruption in the oil industry.

An announcement by Boeing and JetBlue Airways stated their plans for selling a hybrid-electric commuter aircraft
by 2022.The brainchild of a start-up Zunum Aero, the small plane would seat up to 12 passengers and drastically
lower the time and cost of trips under 1,600 km.

According to Toni Seba, a futurist and clean energy expert, the global oil demand will peak at 100 million barrels
per day by 2020 and then drop to 70 million. If considered authoritative, this would mean the price of oil
plummeting to $25 a barrel.

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SAUDI’S ATTEMPT AT REDUCING DEPENDENCE ON OIL

Saudi Arabia has been in the spotlight for its announcement of an enterprising agenda, Vision 2030. The policy
aims to overhaul the structure of its economy, mainly by reduction of historically high dependence on oil. This shall
be achieved by transformation of the kingdom's income generation and expenditure, as well as management of its
vast resources.
Although the rationale for such reforms has been around for long, the steep fall in international oil price has been
the immediate trigger for economic restructuring. In Saudi, the public sector is the predominant employer and the
government generates the majority of its revenues through oil sales. This lack of economic diversity places its
long-term financial growth at risk.
Firstly, the plan seeks to improve the generation of non-oil revenues by an increment in fees and tariffs on public
services, gradually expanding the tax base (by introducing a value added tax), and raising more funds from an
increasing number of visitors to the kingdom.
Secondly, they shall lower subsidies in order to reduce spending, rationalizing the country’s huge public investment
program, and diverting funds away from foreign purchases, towards arms.
Thirdly, the kingdom shall diversify its national wealth and, in the process, increase current investment income. For
example, the IPO of a small part (up to 5%) of Saudi-Aramco,the giant oil conglomerate, would be used to raise
funds, and the proceeds would be invested in a wider range of assets across the world.

The action plans definitely require vital administrative and operational resources and come at a time when the
Kingdom is not only dealing with lower oil earnings and losing its large reserves, but is also reiterating its regional
role, including in Syria and Yemen.
Against this background, the rapid implementation of some initial and notable steps towards the realisation of
Vision 2030 is nothing but encouraging. It is imperative to sustain the momentum in a manner that maintains
consistent communication with key domestic stakeholders in order to determine the plan’s success.