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Journalist Markham Hislop interviews leading energy experts from around the world about the energy transition and climate change.
Welcome to episode 367 of the Energy Talks podcast. I'm energy journalist, Marcum Hislop. On October 16th, just 5 days ago, the International Energy Agency released World Energy Outlook 2024. Executive director, Fatih Behroul, made this extraordinary statement. Quote, in energy history, we've witnessed the age of coal and the age of oil, and we're now moving at speed into the age of electricity, which will define the global energy system going forward and increasingly be based on clean sources of electricity, end quote.
Markham:Is King Oil dead done in by a rapidly electrifying transportation sec sector? I'm going to discuss this topic with Jim Burkhard, a vice president of S&P Global, the American analytics firm. He heads up the Global Commodities Insights Crude Oil Research and Energy and Mobility Research on how the automotive ecosystem impacts demand and influences the energy and automotive industries. So welcome to Energy Talks, Jim.
Jim:Thank you, Markham.
Markham:This is a timely interview, and thank you very much for agreeing to do this, because the it seems like every time we have a major report like this released, it's, it looks worse for oil than the than the previous one. And I wanted to because I interviewed Kevin Byrne, who is on your, S and P Global, team, and I've interviewed him many times over the years. And I'm always curious to know what S and P Global thinks about these kinds of questions. So maybe let's just start with a general broad approach and just what's your, what's your take on the IEA's report?
Jim:Well, the you know, there's no right or wrong when it comes to talking about the future. You know, I no one can say, ah, that report about oil demand or electricity demand in 2030 or 2040 is right or wrong. There are cases to be made. You know, it all depends on your assumptions. What are you assuming about economic growth, the pace of electrification of transportation?
Jim:So I don't wanna say whether they're right or they're wrong. There's lots of good people that work there. There's lots of good people who put together the OPEC outlooks, as well. You know, oil demand today is at an all time high. It's never been higher.
Jim:But there are some signposts out there that point towards, you know, oil demand, perhaps oil demand growth, perhaps flattening out and perhaps even beginning to diminish in the next, 10 to 15 years or so.
Markham:What do you say like, I looking at the IEA report, as always, it has, three scenarios. There are stated policies, which is kind of the status quo, the announced policies, which sees a significant decline by 2050, I think down to 57,000,000 barrels. And then, of course, you've got the net zero, which is 20,000,000 barrels. I've always thought that out of those 3, the most likely would be the announced policy scenario, if I had to pick 1. And, the thing that strikes me about recent developments is the speed at which transportation is electrified, driven by by China.
Markham:What would be your take on the Chinese automotive sector, and its transition into manufacturing electric vehicles?
Jim:You're right, Markham, about electrification of transport electric vehicles. It's been led by China, and it is dominated by China. China's number 1 in terms of electrification transportation, and the number 2 market, the European Union is well, well, well below that. So it's really China. And it's not just in terms of buying EVs.
Jim:That's a lot. Last month, about 50% of new car sales in China last year were electric, cars with a plug. But the and also the supply chain, the digging out the materials needed to make batteries, processing those materials, making the batteries, China dominates that supply chain. But the bottom line here is China, China's government, for many, many years has decided to devote and direct 1,000,000,000 of dollars of capital towards this industry, which has obviously helped a lot. So it has been a priority for the Chinese government to agree that it has been nowhere else.
Jim:And that is the fundamental reason why China today is the global leader by far in terms of electrification of transportation.
Markham:Now over the last couple of years, we've seen a big change, really a sea change in American, energy policy. And the, Biden administration had made it very clear that a lot of this, is due to the rise of China as a geopolitical rival and saying, we don't wanna be dependent on on Chinese supply chains. You know, it'd be like during the cold war being dependent on Russia. You know, that wasn't gonna happen, and and the same applies now to China. And now the, the American government is putting 100 of 1,000,000,000 of dollars into EV plants and battery plants and and, even solar panel manufacturing and the deployment of those technologies as well.
Markham:Are we going to see a rise of a major clean energy economy in the US?
Jim:Well, to some extent, it you know, it's already started. I mean, you look at the growth of renewables, wind and solar, it's been growing very, very fast beyond expectations. You look at you know, you're talking about scenarios, IDA scenarios or other scenarios. You go 10, 15, 20 years, the amount of renewables that's been added, probably at least the cases that I've looked at, exceeds even some of the most, you know, the ones that expected the most, what's actually happened has been even above that. So there is a clean energy industry in the United States, right now.
Jim:But when you're talking about batteries in particular, EVs in particular, one reason, EVs have really started to take off in China is cost. And the American government is saying, okay, we don't want battery materials from China or batteries from China or EVs from China unless there's a big tariff. What that means is an alternative supply chain has to emerge. That's going to take money. It's probably going to be higher cost for a time.
Jim:So, you know, balancing geopolitical objectives, like not becoming dependent on China versus and to do that, you have to have your own supply chain, you know, the other friendly or like minded countries. That's gonna take a lot of time and a lot of money, and it's gonna come at a higher cost.
Markham:It's very interesting. A year ago, we started to hear rumblings about how demand was slowing, and and then the, legacy automakers particularly pulled back on some of their investment decisions. And then, we saw a big drop in US, EV demand in the Q1, and then we're a bit surprised, I think, that it rebounded the way it did in the second quarter, and see we've seen even stronger growth in the Q3. And it looks like now some of the forecasters are coming back and saying, well, you know, it looks like we're going to have as much EV. The sales will be roughly the same as what we forecast a year ago.
Markham:And the some of the American firms, like GM now has has introduced the, was it the the Blazer or the Equinox that was been getting rave reviews. It looks like the legacy automakers are kind of beginning to make the pivot, and customers are responding. Would you agree with that?
Jim:It's, you know, this is it's gonna be slower than in than in China. That's for sure. But I think when it come no. Vehicles car sales are volatile anyway. I mean, set aside EVs, go back 10, 20, 30 years.
Jim:You know, they do change according to economic conditions. And when it comes to EV sales in particular, yeah, it's been a bumpy road. You know, the prices have come down in some cases. A number of manufacturers have cut their prices. And, you know, that is something that can support, stronger growth.
Jim:But it is going to take a while. You know, it's going to be a while before the US ever, you know, gets to the levels we've seen in China. It could be many, many years. But and that's because I can't, you know, state this often enough or strong enough. China took almost a whole government approach to developing its EV industry, and there's some very key national security reasons behind it.
Jim:It's not about the environment. It's about national security, national economic security. The US doesn't hasn't had that same degree of support, not even close. So it's gonna take time. It's gonna be a little bit more market driven in the US than it is, than it has been in China.
Markham:Yeah. It's, interesting. I mean, it's not well recognized, I think, in North America, that China sees industrialization, and now that means clean energy, manufacturing industrialization, as part of its greater China strategy. It sees that as the driver to it becoming the United States' greatest rival on the global stage, and which is why it it's pushing so hard. But I think the it sounds like the American government is kind of, you know, recognizes that and is is moving to respond.
Markham:What do you think about the global south now? Because that I you know, when you mentioned OPEC earlier, OPEC's optima very optimistic forecast really depend on the global south sticking with fossil fuels, particularly oil and gas. What's your take?
Jim:That is a fascinating question. It's a really key variable, Mark. And, you know, here's, you know, one one possibility. So the US and Europe putting up big tariffs on China China's EVs. Okay.
Jim:Probably not gonna see very many, certainly not in the US. But when it comes to other countries that have different perspectives and that may not have a domestic auto industry, remember, a big there's a big auto industry in North America and Europe, and they want to defend themselves. But in some countries, there's a much smaller industry or no industry. I mean, take Australia. There's essentially no domestic auto industry.
Jim:Indonesia, Brazil, this small domestic, industry. Those are countries where the possibility is, well, what if they accept cheap Chinese EVs? What if the EV growth story is not California or the United States overall, or it's not Germany? What if over time it becomes, as you mentioned, companies that are in the global south? That's unlikely to be India.
Jim:India has its own reasons for maybe not embracing Chinese CVs like other markets. But there are big markets, Indonesia, Brazil, Nigeria that hold the possibility. I'm not saying it's going to happen, but it holds a possibility that cheap Chinese EVs that work well, you know, could, take market share, in those, in those countries, you know, over the next 5, 10, 15 years. There's some now that's a positive spin on that story. There's obviously some challenges, especially with the reliability of electricity.
Jim:That's another issue. But Chinese EVs are cheap, and that really gives them a leg up in the in in the global market where they don't face tariffs.
Markham:I I was looking at, some of the modeling that's on your your website. And in your base case, oil demand peaks earlier than 2030 and then begins to decline. But but, overall, what does your modeling suggest? What's the most likely output or likely result in your opinion of oil demand over the next, say, well, between now 2050?
Jim:You know, oil models, any type of modeling, Tippy, just it often reflects your own assumptions. So, you know, modeling itself doesn't come out with a truth. It comes out with, well, what do we assume about the future, and how does that translate into numbers? And yes, you're correct, Mark. And if you look at our total oil, it's really total liquids demand.
Jim:There is a there is a mathematical peak before 2030. But what's probably more likely to happen and very difficult to to model is what I would call an undulating plateau. So we're not likely to hit, oil demand hit a peak this year, and then it goes down, down, down, down, down, down, down, down. You know what's interesting? US oil demand peaked in 2,005.
Jim:A lot of people don't recognize that. US oil demand, we've never been higher than that, but we've gone down. We've gone up. So technically, yes, US oil demand did peak in 2,005 at about 20,600,000 barrels a day. It's gotten this, you know, back up, above 20,000,000 barrels a day, probably not gonna go much higher.
Jim:But US oil demand has peaked, but that's an image of what I think will happen in many markets around the world is an undulating I'll make the undulating plateau ups and downs and not not a crash down.
Markham:Yeah. I would agree with that. I I remember, oh, 7 years ago, interviewing an economist who said, and they deal with the the big oil companies like you do. And he said, everybody knows it's coming, but they're they're very interested in the shape of the decline curve. Does it have a big shoulder and a gentle decline, or is it the does the decline curve fall off the the cliff?
Markham:And you can make an argument for for both points of view based on, you know, things like the electrification of, of transportation. What about we talked, you know, primarily about light duty transportation here so far, But what about the medium and heavy duty? Because those punch above their weight in terms of fuel consumption.
Jim:Yeah. Yeah. That's a good point. You know, a big truck, you know, the the type of semi trucks you see on the roads in Canada or the US, they consume a lot more fuel than the typical you know, the car I have sitting in my driveway, you know, over a given year. So you're absolutely right.
Jim:That is going to change at a slower pace, certainly in North America. When it comes to electrification, you know, the amount of batteries you need to haul a big cargo would take up a lot of that space. So it is going to it's gonna it's gonna lag by quite a bit in terms of the share of alternative. You know, LNG actually is another alternative fuel. Liquified natural gas, is is another alternative.
Jim:In fact, that's big in China. China's heavy medium and heavy trucks, the share that are fueled by LNG, you know, this year has been almost 20 to 30% of new sales. Now that doesn't get off for people who want to, you know, get rid of fossil fuels. It doesn't help there. But it it is an alternative.
Jim:It's not just batteries when it comes to medium, heavy, and heavy trucks. It's also about, you know, LNG, which is in China. That market has already begun to emerge. North America, it's it's gonna lag.
Markham:Right. What's your take on the evolution of the the global auto industry? Because this is fascinating. I've had a number of representatives from automakers and their associations on the the podcast, and a lot of them are really worried from the legacy OEMs. You know, you Carlos Tavares has been one of the most outspoken, the CEO of Stellantis, but about the threat that China, poses to the industry.
Markham:And I think, you know, he's basically said that anybody who isn't prepared to switch now to electric is gonna be in trouble, and we're gonna see some failures. And who in your opinion is likely to emerge maintaining its market share or even increasing, from the, OEMs?
Jim:Well, in in North America and the US in particular, we've seen, you know, 100 percent 100% tariffs adopted against Chinese EVs. So and Europe, we, you know, the EU just adopted a tariff up to. I think 47%, not all the get hit with 47%, but up to that amount. So we're seeing, you know, the, the EU and the United States that the 2 of the 3 biggest large, 2 of the biggest car markets in the world adopt defensive strategies, government measures to help protect their domestic industry against Chinese EVs. But it's clear, EVs, when it comes to light vehicles, have won the capital allocation battle.
Jim:They've won the regulatory battle in North America and Europe. You know, of course, China, they won that long ago. But in North America and Europe, they won that battle. So So it's gonna take time. But given, you know, the fact that they're not probably not gonna have to compete, at least in the US against cheap Chinese EVs, that does protect a lot of the current carmakers in the United States.
Jim:Still a big challenge they have to face. This is different from the 19 eighties when a lot of, well made Japanese cars came into the US. Japan was an ally of the US, a treaty ally of the US. So it didn't have the same geopolitical impact that the China story has. But I think what we're seeing is governments raise trade barriers, to protect domestic industries.
Markham:Yeah. It's interesting, isn't it? Oil has really never had a competitor in the 125 years that it's been in the transportation, sector. It really has dominated, and you mentioned Japan in the eighties. I watched that, very carefully.
Markham:I was I was shocked by the quality of the Toyotas that arrived in the in the mid seventies. How they were they were, like, well made sewing machines. They were very, very good. But this is different. Now we have well made, you know, they're like an electrical appliance.
Markham:They're like a almost like a computer. And for the first time, oil actually has a competitor that can displace it, and that's that's unusual. And in the American market, and and I guess in the Canadian market, because it's very similar, what we're seeing, it looks like the consumers are interested, but a little tentative. They're worried about public infrastructure, you know, around charging. They're they're worried, about, they have other concerns.
Markham:Is the Canadian and American consumer ready to adopt EVs at a much higher rate than we've seen so far?
Jim:Yeah. That's, Mark. And let me start off by looking at what happened in China because I think that's instructive. China had many incentives, subsidies, credits to encourage and sometimes force the manufacturer and sale of EVs. For example, if you're buying a new car in Beijing or Shanghai or other big cities, if you wanted to get a gasoline powered car, you'd enter a lottery.
Jim:You may have to wait years. Whereas if you wanted an EV, you're brought to the front of the line. When it came to subsidies for producers and buyers, there was a lot of money thrown out there. You know, today, China requires anybody who sells cars in China to to sell a certain amount of what they call new energy vehicles, essentially electric vehicles. So China has taken approach where they encouraged consumers in many different ways.
Jim:You wanna wait 5 years to get a car or do you want it next month? That's a pretty big incentive buying EV in a lot of cases. And then, you know, American car companies, they can choose to manufacture however many cars they want. The government's not saying you must, not like they are in China, at least. So then it comes down to consumer.
Jim:What is the consumer push? And I think it still is, you know, the, the, the first adopters and one that wanted to try the new technology, you know, you know, that's happened. And now to get that big middle of the market, EV's, people need to be convinced that EV's are as cost effective, practical, easy to use as a gasoline powered car. And for a lot of people, it you know, that hasn't quite happened yet. The recharging network.
Jim:If you're driving around town, you can charge it at home. Fantastic. If you're gonna drive from, you know, Boston to Chicago, you know, is that EV recharging station gonna be working? You know, it'll happen over time, but it is gonna be slower because adoption in North America is going to be more dependent on what consumers choose as opposed to China, where there are all these in incentives and requirements, frankly, that led to the great growth in EV sales there.
Markham:What do you think is the most likely scenario for the future of oil? And particularly, I mean, we have a a big industry in Canada. Catfa Canada is the 4th largest oil producer in the world, and the US is, right up there with with the OPEC countries and Russia. Are we going to see a decline in demand this decade and some restructuring within the oil industry?
Jim:So, you know, there is a we could begin to see a plateau, this decade. And one significant signpost that really just happened is and I'm going back to China again because China's accounted for almost half of the growth in global oil demand this century. Almost half about 47%. Demand for gasoline and diesel in China has peaked. Diesel, we think it peaked last year.
Jim:Gasoline is this year. In other words, it's not gonna go above the levels we've seen in the last year or 2. That is a big milestone event in the history of oil. And that to me is a signpost that oil demand growth will be slowing, perhaps at a plateau. And then, you know, over the next 10, 15 years begin to bend down.
Jim:Now, the next question is, well, what about India and Africa? And I'm bringing up those 2 areas because that's where most of the growth in the working age population is going to come from. Can those and, you know, Africa is 54 countries. Sometimes we speak of it as if it's 1 unit. It's not.
Jim:So you break it down to the really big countries in Africa, Nigeria, Ethiopia, the Democratic Republic of Congo, Kenya, South Africa still got the biggest economy. How do those countries evolve? Do they leapfrog ahead and adopt TVs? Probably not. We'll probably see oil demand grow in Africa.
Jim:We'll price the oil demand continue to grow in India. But overall, for the global oil industry, and this is something that's not deeply not as appreciated as it should, is global population growth is slowing. Working age population is shrinking in many of the largest markets around the world. China's been shrinking since about 2015. Many large European countries, working age population shrinking.
Jim:Japan, shrinking. And just about everywhere else, it is slowing. In the US and Canada, it's only growing because of immigration. Take out immigration. North American population is probably declining as well.
Jim:So that's a factor that's going to affect all energy demand. So energy demand growth is actually gonna be slower over the next 10 to 15 years. Primary demand for energy is gonna be slower. And within that, oil demand growth will also be slower. And because of the electrification of transport, particularly in China, aging populations elsewhere, greater efficiency in gasoline powered cars, we do expect to see a plateau that could emerge, you know, in the next, you know, 5, 10 years or so.
Markham:Well, Jim, thank you very much for this. Really appreciate your insights, and, we, will have you back on again in the in the not too distant future because one of the things that we've learned over the last few years is, that things change. The things change rapidly. It's a very dynamic, industry, and so thank you very much.
Jim:Thank you, Martin.