Governments in the world’s two most populous countries—China and India—are backing electric cars to a degree that may surprise oil refiners when their expectations of rising gasoline demand fail to materialize.
“Demand for gasoline in Asia may peak much earlier than expected,” Reuters writes, citing leading executives in both the oil and auto sectors, “as millions of people in China and India buy electric vehicles over the next decade, threatening wrenching change for the oil industry.” Gasoline makes up about 45% of refineries’ production, and carries among the highest profit margins. The executives Reuters cited warned refiners to “prepare for a future in which gasoline, their biggest source of revenue, will be much less of a cash cow.”
Only about 2% of the global car fleet is electric today, but China is aiming to have “alternative fuel vehicles” amount to 20% of the 35 million vehicles it forecasts will be sold there in 2025. India is contemplating banning the sale of internal combustion cars by 2030.
“We will see a clear shift to electric cars. It’s driven by legislation, so electric cars are coming, it’s not a niche anymore,” Wilco Stark, vice president for strategy at Germany’s Daimler AG, told Reuters. Meanwhile credit rating agency Moody’s warned that “rising pressure on margins and cash flows will potentially lead to stranded assets” among refiners.
The International Energy Agency acknowledged the potential impact of the Asian giants’ policy moves, with a spokesperson stating that it intends to review a November, 2016 forecast that gasoline demand will continue to rise until 2040, in light of “the choices made by China and India.”
Reuters reports that refiners are responding by shifting their production toward the precursor petrochemicals for plastics or household chemicals, “areas where consumption is soaring,” and to “middle distillates” like diesel oil on which almost all farm, construction, and heavy mobile industrial equipment still relies.
The news agency has previously cited a persistent over-supply of gasoline, as demand fails to keep up with expectations, as a factor in the world’s larger glut of oil and damped-down prices for crude.