LONDON/HOUSTON/SINGAPORE — Wood Mackenzie took a closer look at the impact of the UK government's proposal to ban the sale of new petrol and diesel cars by 2040, as outlined by the Environment Secretary, Michael Gove, in an interview to the BBC this morning.
Alan Gelder, Wood Mackenzie's senior vice president, refining and chemicals research, said: "If auto manufacturers can deliver this, then oil demand will peak and then decline swiftly. Judging by Mr Gove's comments, this will have a massive impact on the refining sector and the oil markets."
He added: "According to our base case analysis, we expect there to be over 34 million passenger cars on UK roads by 2035, of which over 4 million are battery electric vehicles (BEVs).
"Sales of BEVs are expected to ramp up quite considerably after 2025, with one in three cars sold in the UK by 2035 expected to be fully electric (with typical new car sales over 2 million vehicles per year)."
Wood Mackenzie expects electricity demand from both these types of vehicles will reach 12 TWh or 3% of total electricity demand in the UK at this time, requiring over 400,000 new public charging points at an investment cost of over £30 billion.
Alan added: "By 2035, we expect the remaining internal combustion engine (ICE) passenger fleet will continue to consumer over 6 million tonnes of gasoline and 7 million tonnes of diesel per year. This amounts to a 40% reduction compared to the amount of fuel consumed by cars today. However, UK total oil demand decline is projected to be only 20%, due to demand growth from airlines and commercial vehicles."
The UK currently has over 8000 retail stations. These are closing at a rate of approximately 100 per year. By 2035, we expect only 6000 sites to remain.
If the government's proposal permits only BEVs to be sold post 2040, then the situation changes.
Alan said: "It could take almost 20 years for the ICE fleet to fully convert unless incentives are put in place to accelerate scrappage of such vehicles."
Johannes Wetzel, Research Analyst, cross-commodity analytics, EMEARC, said: "Assuming that all ICE passenger cars were to switch to BEVs by 2035, electricity demand would increase by 55 TWH to 16% of overall demand, which would be a challenge for power grid stability, so massive investment in flexible power generation, electricity storage and the grid itself will be necessary.
"Currently peak load on the UK power grid is roughly 53 GW in winter. The introduction of fast charging technology means that EV charging load will rise as well.
"If, in 2035, 5% of the EV fleet were to charge at the same time, the load on the grid could soar by up to 40 GW. Massive investment in flexible power generation, electricity storage and the grid itself will be necessary to keep the lights on."
Alan added: "The sustainability of the UK refining industry is threatened, as gasoline typically represents one third of the refined products supplied from UK refineries (though currently 20% of UK gasoline production is exported).
"Retail sites could close at a much faster rate than our base case, outlined earlier, and will need to change business models to survive the transition to a battery-led car fleet. On top of this, the impact of government fuel duty revenue lost — currently around £27.5 billion per year — will be significant. "
The impact on the oil, refining and electricity sectors extends beyond the UK, as if this change is delivered here, it is likely to be replicated across many other parts of the world.