[Tinordi]

Follow up article on the statement from the CFO of Shell:

Oil demand in the developed OECD world has already peaked and is 9 per cent below the level reached in 2005. In Europe, oil demand is down 17 per cent over the same period.

After a surge in Chinese demand over the past decade – particularly during the years of rapid growth and industrialisation – it has become obvious that demand there has flattened off. Some of the oil imported over the last two years has been re-exported, and more has gone into strategic stock piles – a prudent measure when prices are low but not something that can continue. Demand is still growing in India and Turkey but the volumes involved are relatively small.

All the indications are that in the developed world demand has further to fall. Oil use is now heavily concentrated in the transport sector. Electric vehicles have only a fractional share of the market but the numbers are growing month by month. Technology is improving, reducing costs and expanding sales. Tesla gets most of the publicity but those wanting to understand the impact of EVs on the oil market should look at China where 188,000 new electric and hybrid vehicles were sold in 2015. This year that number is expected to more than double to around 450,000.

The technology improvements will continue but I believe the next big step will be a regulatory drive to make EVs the default choice for motorists in cities. Measures such as lower vehicle taxation, lower congestion charges and easier parking are being used as gentle incentives for behaviour change. But I can see cities in countries such as Germany or China going further and mandating their use – with the shift implemented over a relatively few years. In both countries local production will spur the adoption of new public policies. I will write more about what is happening in Germany in a future post.

Gradually, or perhaps more quickly, EVs will eat into the market currently reserved for petrol.

The conventional wisdom in some of the other oil majors is that this effect will be swamped by the growth in car use in the emerging market economies of Asia and Latin America. But that misses the phenomenon of leapfrogging. As EVs proliferate, their costs will fall until they are the natural purchase everywhere. Urban air quality is a big social issue in most developing countries, and once a viable alternative to petrol is available the shift could come quickly. Perhaps the internal combustion engine can match the falling costs and reduced pollution but it would be foolish to take that for granted. In addition, the new EV industry centred in places such as Germany and China will have every incentive to compete internationally.

https://www.ft.com/content/6c7d9e1f-...9-12dde9774140