Is the age of oil coming to an end? That question comes to mind after the publication of a study forecasting that global sales of electric vehicles, or EVs, will surge in the next few years, leading to a decline in sales of gasoline cars within five years.
[Record-high 3 million electric cars on the road worldwide in 2017: Report]
This is mostly due to the growing popularity of EVs, especially in China, where there are almost 30 companies selling EVs, almost double the number in the U.S. China’s EV sales in April were up by 136 percent from a year earlier, and almost four times as many were sold as in the U.S. One of the striking aspects of the emerging global market for EVs is that China is projected to account for one in three EVs sold between now and 2040.
Of course, the entire case for growth in sales of EVs rests on the continued decline in their cost, especially for batteries. That’s taking place, as it did for solar panels in China.
With the projected increase in the adoption of EVs, along with electric buses and autonomous vehicles, world demand for oil might fall by 7.3 million barrels per day by 2040, according to the study by Bloomberg New Energy Finance. But that fall-off in road-fuel consumption isn’t as large as it might seem.
Currently, global demand for oil is nearly 100 million barrels a day — so that even with the projected growth in EVs and a retreat in the sales of gasoline cars, oil isn’t going to fade away anytime soon. It will continue to dominate the global energy market well into the future.
[Also read: Utilities pressure Trump to spur sales of electric vehicles]
Despite an increase in the number of EVs, the need for oil is actually going to remain strong as burgeoning middle classes in China, India, and elsewhere buy and drive tens of millions more vehicles (including gasoline cars), rely on large trucks for commerce, fly on airplanes, not to mention purchase refrigerators, washing machines, and other household goods that will consume more electricity.
Oil is fueling China’s economic growth. In 2017, U.S. oil and gas exports to China alone were $4.3 billion. And there’s a lot of room for growth. Treasury Secretary Steve Mnuchin has said in recent days that trade with China could open the way for $40 billion to $60 billion in annual U.S. energy exports.
The implications of these trends are far-reaching. For economic and geopolitical reasons, the U.S. has much to gain by maintaining world dominance in oil production. U.S. shale-oil resources, along with offshore drilling on the Outer Continental Shelf and Arctic reserves, are critically important. But the flip side of the picture is that, if the U.S. expects to become a serious player in global energy markets, we’re going to need a trade policy that takes this into account.
The Trump administration should recognize that clamping U.S. quotas and tariffs on steel and aluminum coming from Asia and Europe are not in our country’s best interest, since we’re going to require more imported steel to build drilling rigs and pipelines to produce and transport oil for export. If China and other countries can’t rely on the U.S. to maintain stable trade relations, they will turn elsewhere for oil, bringing uncertainty to the U.S. energy industry and raising consumer costs.
Clearly, the demand for oil isn’t going away, despite the appeal of EVs. But America’s ability to produce enough oil to meet energy needs can’t be taken for granted. How can it be if energy-rich areas on the Atlantic and Pacific coasts remain off limits to oil production and pipelines needed to move oil to markets can’t be built?
Mark J. Perry (@Mark_J_Perry) is a contributor to the Washington Examiner’s Beltway Confidential blog. He is a scholar at the American Enterprise Institute and a professor of economics and finance at the University of Michigan’s Flint campus.
