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November 8, 2017

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OPEC sees bright outlook for producers and carmakers

The outlook looks bright for oil-producing nations and carmakers, OPEC said yesterday, as the cartel expects a surge in car ownership in the developing world to far outweigh the adoption of electric vehicles over the coming two decades.

In its annual look at long-term developments likely to affect the energy market, OPEC said it expects growth in the global economy to be centered in developing nations, which will in turn spark a boom in car ownership.

The World Oil Outlook 2040 report estimates the size of the global economy to be 226 percent that of 2016, with developing countries accounting for three-quarters of the growth.

With their increasing income, people in developing nations are expected to splurge on cars, tripling their number on the road in the region to 1.2 billion.

And while the OPEC report expects electric vehicles to make inroads in the market, it doesn't expect them to drive out traditional internal combustion engines just yet.

“It can be concluded that the velocity of technical advances has accelerated substantially with the introduction of (battery electric vehicles), which are now considered a serious alternative to traditional gasoline and diesel passenger cars.”

However, OPEC noted that advances in internal combustion engines have also made them more efficient.

“It is expected that gasoline engines will retain their economic advantage for the build-up of new fleets in developing countries, while diesel will remain the main mover for commercial vehicles,” said the OPEC report.

OPEC expects the added vehicles in developing nations to create an additional 12.2 million barrels per day in oil demand.

That estimate takes into account increased efficiency measures and the adoption of electric vehicles in China and India. Otherwise, growth in oil demand would have been more than double.

In advanced economies that are members of the OECD club of nations the increasing adoption of electric vehicles and tighter efficiency regulations are expected to lead to a drop in demand by 7.2 million barrels per day.

The report doesn't see the days of diesel as being over quite yet, although the global scandal touched off by Volkswagen's forced admission in 2015 of rigging millions of its diesel vehicles to pass emissions tests has had an impact.

“The so-called ‘diesel scandal’ and its scars, together with a higher than previously expected penetration of electric vehicles, has resulted in a further downward revision for diesel/gasoil demand,” said OPEC.

But OPEC said it believes that technical solutions are possible that “will allow engine manufacturers to comply with strict regulations in view of gaseous, as well as particulate emissions” that are due to come into force.


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