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For the first time in more than 100 years, the automotive
ecosystem faces a convergence of technological, political, and
economic forces that are fundamentally altering how cars are
sold,used, and powered. Driverless technology, electric vehicles,
new mobility services, and public policy are prime disruptive
forces. This change is under way; the only question is how quickly
it will occur and how transformative it will prove. This shift is
affecting not only the automotive industry, but also the energy and
chemical industries since they are inextricably linked. The
implications for the Middle East-especially major oil-producing
countries-are profound.
IHS Markit addresses these disruptive forces in our Mobility and
Energy Future subscription service, which builds on our 2017 study,
Reinventing the wheel: the future of cars, oil, chemicals, and
electric power. Our team of mobility experts-drawn from the IHS
Markit Automotive, Energy, and Chemical teams-established an
entirely new modeling approach, which quantifies fuel demand and
vehicle miles traveled (VMT) by powertrain and mobility channel
(ride hailing, car sharing, personal use). We model the penetration
of new mobility services and powertrains, including electric
vehicles, under two long-term scenarios for both light vehicles and
trucks.
A key element of our analysis is the clear impact on global oil
demand-and what changes in the mobility signal about the
possibility of a peak in world oil demand in the next 20 years. For
the Middle Eastern oil industry, there are both existential threats
as well as fresh opportunities related to changes in mobility.
Demand for mobility via the car: Up 90%
A key insight of our work is that mobility via the car will be
higher in the coming years and decades owing to the growth of
mobility as a service-such as Uber and Didi ride-hailing services.
Indeed, at a time when many prognosticators debate the timing of a
peak in oil demand, we expect global VMT to increase 90% from 2018
to 2050. However, will these "new" miles driven come from
oil-powered or electric-powered cars? There is no single global
answer-and even if oil demand plateaus in the late 2030s, there is
still significant demand growth before then. In any case, changes
in mobility will be different around the world. For example, in
some markets-such as India-oil demand may rise because of
increasing demand for mobility via the car. In others, such as
California, demand may decrease. Understanding regional variation
in mobility changes is key for Middle Eastern oil producers to
align with marketing and downstream strategies. Several other key
headlines emerge from our ongoing mobility analysis:
Declining sales of internal combustion engine (ICE)
light vehicles lead to weakening demandfor
gasoline and diesel in the 2020s. Globally, conventional
gasoline light vehicle sales are expected to peak by the early
2020s; diesel in particular will be squeezed drastically beyond
2025, owing to many EU city access restrictions to address local
air quality concerns. In addition, the hybridization of powertrains
picks up pace after 2020 when mild hybrid electric vehicle
technology effectively starts to displace conventional gasoline
engines. As battery costs continue to decline and zero-emission
vehicle mandates are made effective, hybrid sales will lose ground
to greater sales of battery electric vehicles and plug-in hybrid
vehicles. Even as light vehicle ICE sales decline, we expect
electric vehicle sales to rise from 2% of global vehicle sales in
2018 to 15% by 2030 in our base case Rivalry scenario. The
combination of this switching away from ICE vehicles and tightening
fuel economy regulations will lead to a peak in global light
vehicle gasoline and diesel demand by 2030 in our base case Rivalry
scenario (see Figure 1).
Penetration of alternative powertrains is expected in
medium and heavy vehicles. Medium and heavy vehicles
currently account for approximately 50% of global gasoil demand.
Our Reinventing the Truck study shows that although diesel is
expected to remain the dominant fuel in key markets such as China,
Europe, the United States, and Japan, a long-term decline in diesel
demand for trucking is expected, beginning by 2030. By 2040, our
base case analysis shows that 15% of medium and heavy vehicle sales
will be trucks with alternative powertrains, particularly in urban
applications where sales of battery electric medium-duty vehicles
will expand. In addition, increasing efficiency and tighter fuel
economy standards contribute to this decline in diesel demand even
for long-haul trucking.
There are headwinds for long-term global oil
demand. A plateau in world oil demand in the 2030s is in
our base case, the Rivalry scenario. However, if changes in
mobility are more revolutionary- propelled by advances in the
commercialization of driverless technology-a demand peak could
occur as early as the 2020s, as in our Autonomy scenario. Much of
the Middle East's oil production is at the lower end of the global
oil supply cost curve, which means the region is well positioned
for a highly competitive oil market. However, keeping an up-todate
understanding of a rapidly changing automotive ecosystem is
essential to avoid unpleasant surprises and stranded assets.
The increase in electrification and automation creates
opportunities for companies outside ofthe
traditional automotive supply chain. The opportunities for
new entrants are in areas such as machine learning, software
development, data collection and analysis, and sensing and
automation technology. "Auto-tech" companies will emerge as a
result of both competition and partnership between incumbent
companies and new entrants. Interdependencies will emerge because
of growth in ride hailing and the increasing automation and
electrification of cars. New entrants will need the manufacturing
knowledge of incumbents. Incumbents will need the technology
innovations from new entrants. In addition, the energy companies
are investing in these new ventures, inserting themselves in
businesses ranging from electric vehicle charging to the
digitalization of mobility services.
Cascading into chemical feedstocks
The decreased use of liquid transportation fuels, as the
automotive industry moves vehicle powertrains away from ICEs, will
have rippling effects throughout the energy and chemical sectors.
Some changes will be noticeable in the near term, but most of the
changes are expected in 2030-40. Demand for gasoline and diesel
used in light-duty vehicles will weaken; as a result, more refinery
cuts will be available to serve as chemical feedstock. Also, lower
oil and natural gas demand in the Autonomy case reduces energy
production and prices. As oil prices decline in the long term,
prices for related products such as naphtha and NGLs will decline
with them, reducing feedstock costs for petrochemicals. Lower crude
prices could potentially force naphtha values downward to the point
where they become the long-term favorable feedstocks for steam
crackers. Such a shift in favorability would encourage investment
in naphtha crackers in the growing Asian demand centers, such as
China and India, and in the low-cost naphtha regions.
Materials shift
Changes in the volume of cars built and sold, as well as trends
in miles traveled, will impact the materials used by the automotive
industry. One of the many significant impacts from the move away
from ICEs is the elimination of fuel tanks, which will hurt
high-density polyethylene demand in the automotive sector. The move
will also result in reduced demand for engineering plastics used in
under-the-hood applications, which require high-temperature and
chemical resistance.
There will also be "gainers," which will have increased use
because of design changes, including increased use of polyurethane
foams in sound-deadening applications, as well as increased use in
thermal insulation to minimize the need for battery power consumed
by air conditioning. Polymers used in wire and cable insulation and
connectors will become increasingly important to meet the demands
of higher voltage and higher amperage power distribution in
electricity-based cars. Although plastics will continue to play a
role in the lightweighting of automobiles, the use of highstrength
metals and alloys, as well as composites, will take on a more
prominent role in this trend. Lightweighting will remain a key
trend given its importance to maximizing the miles per charge of
electric vehicle batteries.
Jim Burkhard, Vice President, Oil Markets, Energy &
Mobility, IHS Markit | Kate Hardin, Vice President, Energy and
Mobility, IHS Markit | Anthony Palmer, Vice President, Consulting,
IHS Markit
Posted 28 November 2018 by Jim Burkhard, Vice President & Head of research for oil markets, energy & mobility, IHS Markit