Electric cars to reshape copper and oil demand
According to Bloomberg New Energy Finance, EVs could displace 2 million barrels a day of oil demand as early as 2023. “That would create a glut of oil equivalent to what triggered the 2014 oil crisis.”
The first half of 2016 saw 128 percent growth in the critical Chinese market, and far stronger than expected sales in the United States, hinting that the world’s EV fleet could grow even faster in the coming years than Bloomberg New Energy Finance’s already bullish expectations, SAFE reported in its Energy Fuse website, saying Wood Mackenzie, the IEA and other agencies believe the EV market is set to grow fast enough to destabilize oil demand.
BHP’s VP of Market Analysis and Economics, Huw McKay, published an analysis of the metals demand vs. oil as demand is displaced by the EV industry. The analysis was published in the Financial Times Commodities Note on Oct. 31.
“The Tesla Model 3 and Chevy Bolt (both of which will be launched imminently) will be the first mass market EVs that can be driven 200 miles on a single charge — the minimum many commentators say is needed if cars solely powered by batteries are to go mainstream in the U.S.,” McKay said.
McKay hit on the turning point for EVs: “Once EVs start matching conventional vehicles for convenience, the speed at which they become commonplace will depend primarily on price,” which he says is driven today by expensive battery packs. “The packs needed to power a midsized car for 200 miles currently cost about $15,000. So the models that use them are more expensive than a $25,000 Toyota Camry — America’s top selling passenger car last year.”
140 million EVs will boost copper demand to 11 million tonnes, with new demand equal to more than 1/3 of current copper demand
BHP believes that by 2035, there will be 140 million EVs on the roads, or 8 per cent of the total fleet of 1.8 billion light vehicles. That’s where copper demand takes off. McKay calls for a big boost in copper demand. “An average pure battery powered electric car requires about 80kg [of copper], four times the amount of a conventional vehicle. Most is spread across the wiring harness (roughly one quarter); the engine (roughly two-fifths) and the battery (roughly one-third).
“Building the EV fleet will use about 11 million tonnes of copper. Subtract the amount that would have been used in the conventional vehicles ‘displaced’ by EVs, and that figure comes down to about 8.5 million tonnes of genuine new demand — equivalent to more than a third of total global copper demand today. At current prices this would be worth about $38 billion of a $100 billion annual market,” BHP calculates.
“That level of EV growth would displace about 2 MMBOPD of oil demand in that year, worth about $37 billion annually at today’s prices in a $1.8 trillion market.
“Long-term forecasting is not an exact science. At BHP we use scenario analysis to understand the range of plausible outcomes. For example, there is clear potential for EVs to use more copper than they do today as the class evolves. And it is worth noting that in our high case forecast, which assumes faster technological change and more policy support, the size of the EV fleet in 2035 is more than double what we incorporate in our mid case,” BHP’s McKay said.
“Copper markets could be sent reeling with knock-on effects for other metals and global commodities, which are known to operate in boom-bust cycles thanks to long lag periods between upstream investment and actual production,” SAFE projects.
But we believe strongly in the value of oil: BHP
Regardless of EV market projections, on Oct. 5, 2016, BHP issued a press release touting its petroleum assets as the vehicle to drive growth, complete with a 103 page presentation. “By 2025 the world is expected to consume more than 100 million barrels of liquids per day – a third of which would come from new sources,” the company said in its press release. BHP sees fossil fuels representing 80 percent of the world’s energy needs through 2035 and it calls for an oil supply/demand rebalance to occur in 2017.