The “peak demand” hypothesis is the idea that demand for oil will peak as alternatives to oil become widespread. The notion that peak demand will happen within the next few years – and that EVs will be the primary driving force behind this shift – has gained in popularity over the past couple of years, particularly among cleantech enthusiasts. Bloomberg has especially pushed this narrative in several articles (See here, here or here). One Bloomberg article last year argued that EVs could cause a permanent oil crash as soon as 2023.
Norway’s experience is perhaps instructive.
In response to generous incentives and some of the highest gasoline prices in the world, Norway’s electric vehicle (EV) sales have grown at the fastest rate of any country in the world. Over the past seven years, Norway’s EV sales have averaged more than a 90% annual growth rate.
At the end of 2016, EVs had achieved a 5% share of all passenger cars on the country’s roads. This is greater than five times the market share in the U.S. Last week it was announced that 42% of all Norway’s new car sales in June were EVs.
Given Norway’s leading position in this space, we can gain some insights by examining the impact of EV sales on the country’s oil demand.
In 2005, there were 167 electric vehicles on Norway’s roads. By 2015, that number had exploded to just under 40,000. Yet according to the 2017 BP Statistical Review of World Energy, Norway’s oil consumption in 2015 was 6% higher than it was in 2005. Further, in 2016 when Norway’s EV sales eclipsed 50,000 vehicles and reached a 5% market share, oil demand rose again to within 0.7% of its all-time high mark set in 2013.
There are some legitimate reasons why Norway’s oil consumption grew even as EV sales were skyrocketing. A growing population can help explain this seeming discrepancy. But it becomes harder to rationalize when Norway’s oil consumption growth is compared to that of its peers. Norway isn’t a member of the European Union, but it is surrounded by EU members. It is also bordered by other Scandinavian countries with similar demographics. Yet the EU as a whole and all of Norway’s neighbors saw oil demand decline over the past decade:
The exception to the rule of declining oil consumption was the world’s leading EV market.
I don’t raise this issue to denigrate Norway’s experience, nor to suggest that EVs won’t eventually make a notable impact on oil demand. Indeed, I think if the growth trajectory continues, that will indeed happen.
My point is that it won’t necessarily happen as quickly as proponents think because the equation is more complicated than “More EVs = Less oil demand.” That’s the narrative being pushed by some, but Norway’s example shows that it isn’t as simple as that. The U.S. is also well behind Norway in both EV market share and growth rate, so that would argue for a longer timeframe for peak demand in the U.S. (as far as EVs are concerned).