Road fuel demand peaks in 2027

In just five years from now, global road fuel demand is seen peaking

Under BloombergNEF’s Economic Transition Scenario — where changes in the world’s energy system are driven by techno-economic trends and market forces, and no new policies are assumed to be enacted — road fuel demand reaches a peak in 2027, as efficiency improvements and alternative drivetrains cut into road fuel use. From then on, demand begins to decline structurally. Road fuel is used by passenger cars, commercial trucks, two-wheelers and three-wheelers.

“Fuel producers with exposure to markets like the US or Europe are poised to see sales of diesel and gasoline decline significantly from current levels over the next decade. On the other side of the world, in markets like India and China, demand growth that ‘could have been’ fails to materialise,” according to the latest outlook from BNEF.

Two key changes are seen by 2025:

• Passenger electric vehicle (EV) sales rise to 20.6 million versus 6.6 million in 2021. China and Europe continue to lead the market.

• The share of EVs in total sales rises to 23 per cent from less than 10 per cent in 2021.

In some European markets such as Germany, the UK and France, EVs reach 40-50 per cent of sales by the middle of the decade.

Rising prices at the fuel pump are only adding to the demand for EVs. Norway’s EV sales reached 85 per cent of overall sales in May 2022.

The vehicle electrification wave is amplified by policy. Europe, for instance, is working to ban the sale of internal combustion engine or ICE vehicles (including hybrids) from 2035. Automakers are playing their part too. Four automakers had made ICE phase-out announcements in early 2021: Jaguar, Volvo, GM and Ford. Over the course of the year, targets were announced by Mini, Fiat, Audi, Honda, Volkswagen, Mercedes-Benz, Hyundai and Rolls-Royce. By the end of 2021, as many as 12 new automakers had committed to ending sales of traditional gasoline cars. In early 2022, Chrysler set an all-electric target for 2028. BYD announced that it had stopped production of fossil-fuelled vehicles since March.

Corporations with large fleets, like DHL, Ikea and Amazon, have pledged to become net-zero emitters, and will add to the demand for electric light trucks in particular.

There will be companies and markets where electrification will come only gradually. India’s leading carmaker, Maruti Suzuki India, plans to launch its first hybrid car in 12 months. “Electric vehicles are not going to be a large part of car sales [in India], irrespective of what other manufacturers are saying or planning,” Chairman R C Bhargava was quoted by Bloomberg News as saying. Cars powered by hybrid technology, natural gas and biofuels present a better path toward a cleaner future than electric cars considering the nation generates about 75 per cent of its electricity from dirty coal, he said.

India’s power mix is changing, however, and the government is aiming to get half of its electricity supply from non-fossil fuel power sources by 2030. Solar and wind power are very competitive compared to other sources, and will be ramped up to feed the grid, and also to power electrolysers for producing green hydrogen.

The entry of Tesla in India could galvanise the automobile market transition in India, and the world’s top seller of electric vehicles is keen to test the waters, but a firm entry date has remained elusive. The Indian government wants Tesla to manufacture in India. “Tesla will not put a manufacturing plant in any location where we are not allowed first to sell and service cars,” Elon Musk tweeted last month.

BNEF expects a two-tiered global auto market to emerge, with the benefits of electrification set to accrue unevenly. The gap between the leading markets and the emerging markets will grow wider over the next two decades.

One way to figure out the leading markets is to map EV charger installations. BNEF sees 2.5 million public chargers in place by the end of 2022, against 1.8 million last year. The current year will set a record for charger installations — at 642,000 — with China, Europe and the US at the helm. Expect to see more fast chargers being set up.

Over 2021-30, global road fuel demand growth is negative in the passenger car segment, mildly positive in the two- and three-wheelers space and substantial in the commercial vehicle sector. All segments see de-growth overall after 2030.

India is seen emerging as a large freight market. BNEF analysis also shows that electrification is the solution for heavy-duty long-haul trucking too. Battery trucks are seen to be more cost competitive, and likely to remain so on a total cost of ownership basis compared to fuel cell vehicles, where cost declines are less certain.

The writer is the New York based Editor – Global Policy for BloombergNEF, reachable at vgombar@bloomberg.net