DESTROYING OIL DEMAND
Electrification is an under-appreciated alternative. Even after it was more than doubled in size last year, India’s main vehicle electrification program is only receiving about US$600 million annually, far less than the cost of maintaining its existing oil reserves.
The losses that state-owned oil retailers made selling subsidised gasoline, diesel and LPG during the three months of the Iran war, meanwhile, are nearly 14 times that amount.
By permanently destroying oil demand, each new electric vehicle reduces the size of the inventory that a government needs to keep itself secure. China’s battery-powered cars and trucks are currently displacing in the region of 1.8 million barrels a day of oil demand. If spread over 90 days, that’s equivalent to the total petroleum reserves of Germany.
The number will only grow as more electric vehicles are added to the fleet.
It’s inevitable that we will see the expansion of oil reserves in the wake of this year’s conflict, especially as tensions continue to roil the Strait of Hormuz. That will give oil producers a market for their product for years to come. China’s stockpiling may have amounted to between 1 per cent and 2 per cent of global crude demand in recent years.
Such unused inventories aren’t really consumption in the traditional sense. Crude processing has barely increased in a decade, an indicator of how much oil is simply being pumped into tanks and underground caverns in case of emergency.
Still, if governments want to make the most use of the reserves they’re building up, they should spread them thinner by ensuring their economies consume less crude. With the share of EV sales in many Asian countries now exceeding those in Europe and even China, plus battery-powered trucks and scooters promising another blow to conventional transport, consumers are already voting with their feet.
The best protection against the next oil shock is not having to use so much oil in the first place.