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Could TaaS Offset EV Impact On Oil Demand Growth?

Could TaaS Offset EV Impact On Oil Demand Growth?


The Didi Chuxing application is displayed on a smartphone screen in this arranged photograph taken in Shanghai, China, on Sunday, May 22, 2016. Philippe Laffont’s Coatue Management LLC, which manages more than $7 billion, has backed China’s biggest ride-hailing app Didi Chuxing as it competes with Uber Technologies Inc. Photographer: Qilai Shen/Bloomberg

While there is concern about the potential for growth in electric vehicles (EVs) to suppress oil demand growth, a recent report argues that Transportation as a Service (TAAS) could provide an alternative source of fossil fuel demand.

Kimmeridge Energy has issued a report, Oil Demand and the EV/TaaS Automation Equation: Why the Emergence of a New Segment May Accelerate, not Soften, Oil Demand discussing the effects of EV adoption trends and TaaS penetration rates on the long-term outlook for oil demand. It argues that early data suggests that the growth of TaaS and autonomous vehicles could become a new source of fuel demand growth and vehicle miles traveled (VMT).

The impact of EVs on oil demand is driven by the view that EVs are very efficient or will be primarily charged by renewable sources. These factors, combined with the increasing efficiency of internal combustion engines (ICE), have led many to predict a decline in gasoline demand, spelling “the end of oil”.

While the authors of the report accepts that the tenets of this argument are plausible and should not be dismissed, the report argues that the advent of TaaS, a sector currently dominated by companies such as Uber, Didi and Lyft, could form a new source of demand growth.  The report explored data from New York City and Singapore to see how this might play out on the ground. It argues that TaaS may in fact be creating new incremental demand. This is turn accelerates the number of total VHT and an associated increased in gasoline demand.

The report says, “In New York City and Singapore, TaaS is not a zero-sum game of moving people from taxis to Ubers, but is actually creating demand that previously didn’t exist. In New York, this is happening even though Uber is on average more expensive than traditional yellow taxis and public forms of transit. “ The data suggests that the adoption of EVs has failed to reduce gas demand faster than the growth in VMT increases.

The report also argues that the potential for demand growth is much greater if the promise of autonomous cars is realized. Labor accounts for 80-85% of the cost of TaaS. If the driver was removed, the cost of TaaS would decline significantly and demand would rise as consumers use TaaS for trips that they would otherwise not have used a taxi for.

Autonomous trucking could also drive a resurgence of diesel demand as it replaces train transportation. These technologies could make bus travel obsolete and suggest that the future is more, not less energy intensive.

Overall, according to the report, the outlook for oil demand in the long term will be determined by the balance of these two countervailing forces. On the one hand, there will be substitution of fuel from petroleum to batteries, which will be powered by the lowest-cost source of electricity at the time. However, on the other hand, TaaS and autonomous driving are likely to result in more cars, more VMT and incremental demand.

The big question that remains is whether or not these increased VMT will be fulfilled by renewably fuelled EVs in the longer term.  Kimmeridge’s research makes a valid point about how uncertain the future may be in terms of projecting oil demand, suggesting a later peak, but the fact remains that without clearer numbers on the extent to which, and speed of which, EVs penetrate the vehicle fleet  the peak will remain hard to predict. And its possible that the electrification of TaaS fleets will have a significant role to play.

Uber’s autonomous fleet plans may be on hold but they continue to support the use of EVs in their fleets. In the UK, for example,  they have a tie-up with Nissan for EVs and already more than 60 per cent of Uber journey miles in London take place in hybrid cars. At the same time, shared journeys through uberPOOL – which matches people going in the same direction at the same time – have already saved more than 1.5 million miles being driven. Meanwhile in 2017 rival Lyft said that it will be providing 1 billion automated EV rides by 2025. More importantly, these will all be powered by renewable energy.

Didi, China’s answer to Uber, claims to already have 260,000 EVs already on the road, 10% of the 2 million cars sold last year. It has announced plans for a ride-share service, as well as plans to develop and deploy 1m EVs by 2020. According to the company as many as 25 million rides are completed on its network daily, twice as many as the rest of the world combined. While there is less clarity on whether or not these rides will be powered by renewable electricity, the company has announced plans to launch its own charging network which will be available for use to the fleet and other EV owners.  It is reported to be investing in renewable energy projects as well, so the growth of renewable powered EV penetration may be faster than expected.

According to the International Energy Agency (IEA), the global number of electric vehicles grew around 54% to 3.1 million in 2017 and it estimates that the number of electric vehicles on the road around the world will hit 125 million by 2030. Given the Agency’s consistent underestimation of the roll-out of renewable energy technologies, the balance of probability suggests that the growth might be much, much more.

 



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