Some industry observers think mass EV adoption will have profound consequences for big oil. Chris Watling, chief executive of Longview Economics, believes crude prices could fall to U.S. $10 a barrel by 2023, as EVs and other alternative energy sources shake up the international hydrocarbons economy. Bank of America Merrill Lynch forecast pure EVs – cars with only electric motors as opposed to hybrids – could account for 34 percent of global light vehicle sales by 2030, rising to 90 percent by 2050.

A Touch of Deja Vu

Skeptics argue we have been here before. At the beginning of the 20th Century, around 25 percent of all cars in the United States were electric. But by the early 1920s, the insufficient range and power of electric batteries, as well as cost concerns compared with internal combustion engines, consigned the electric car to history. Another attempt at EV adoption in California was scuppered in the 1990s by legislators, carmakers, consumer indifference and vested interests in the oil industry.

Those concerns are still legitimate today, although the convergence of regulation and technological progress suggests things are different this time. It is the also prospect of substantive mid-market EV pull that has reignited talk of peak oil demand.

An October 2017 report by natural resources data company Wood Mackenzie highlights the scale of the transport sector and by implication its importance to lubricant marketers. Of the 96 million barrels per day of crude consumed worldwide, almost 60 million b/d of demand comes from the transport sector. Wood Mackenzie says demand across the Organization for Economic Cooperation and Development will fall by about 4 million b/d by 2035. The report cites a combination of factors, including EV uptake, government policies and a mature transport sector.

By contrast, Wood Mackenzie believes that non-OECD demand will offer a partial respite to refiners and expects demand in non-OECD economies to grow by nearly 16 million b/d by 2035, due in part to rising income levels and a growing middle class. Even so, that trend is tempered by potential changes in government policy, auto technology and demographics that may dampen demand.

Nervous Offering

The question of EVs impact and an aggressive push by China – the worlds largest auto market – and other countries to spur widespread EV use has added uncertainty to Saudi Aramcos highly anticipated IPO in 2018, with recent reports suggesting the planned listing of a minority stake may be shelved. Although EVs are only one factor in Aramcos decision-making process, refiners need to start using EVs as an indicator in their planning because of the extent to which EV numbers are beginning to correlate to oil demand.

Upheaval caused by the imminent EV age will also be felt throughout the downstream sector, even impinging on the viability of filling stations and forecourt lubricant sales. With the exception of filling stations that target long-distance traffic and offer charging points, Bank of America Merrill Lynch expects throughput per filling station to decline and hollow out the attractiveness of what has been a valuable business characterized by steady margins.

According to Geeta Agashe, president of finished lubricants consultancy Geeta Agashe & Associates, several factors have brought the EV discussion to the fore. Agashe cited increased pollution levels and climate change as the underlying reasons driving countries including, China, France, Germany, India and the United Kingdom, to curtail or ban internal combustion engines. It is clear many automakers, such as GM, Honda, Jaguar Land Rover, Volvo and VW, and even high-end marques such as Maserati, which is committed to making only pure or hybrid EVs by 2019, see the writing on the wall.

The potentially huge EV market is giving rise to new alliances. Agashe points to Renault-Nissan-Mitsubishi and Toyota-Mazda-Denso as examples of nascent automaker EV strategies. Yet to get the exponential growth that is being touted around will need several conditions to be met said Agashe. Three key things need to happen if EVs are to thrive: competitive EV prices, increased driving range and extensive public load station infrastructure. If so, from a share of less than 1 percent today EV sales are set to mushroom in the coming decades.

All of that will jolt the lubricants industry as it stands today, and future comparisons are stark. According to Agashe, a fully electric Tesla Model 3 consumes only 3.6 liters of lubricants (factory fill only) over a 10-year period – 90 percent less than a well-established hybrid like the Toyota Prius.

Demand for factory-fill engine and transmission fluids are likely to be hardest hit but there will be also considerable reductions in demand for metalworking fluids as vehicles trend from steel to lighter weight aluminum or thermoplastics. Producers of [API] Group III and Group IV base oils could see demand negatively impacted as electric vehicles will not have the same lubrication needs as an internal combustion engine, Agashe said. Aftermarket demand for engine and transmission fluids will also shrink as internal combustion engines car stock gradually gets replaced. Putting all that together could dampen overall lubricant demand by 1 million to 2 million t/y worldwide in the period 2025-2030, she forecast.

Amid the fallout there will be opportunities for new lubricant applications. That is likely to manifest in demand for first-fill grease as well as solutions for electric conductivity, low friction/high speed and reduced noise applications. Synthetic esters may also have a role to play as battery cooling fluids and copper wire drawing.

Batteries Included

Whether or not EVs hasten the demise of the internal combustion engines will be largely determined by advances in battery technology that improves range, reduces recharging time and most importantly helps reduce the total cost of EV ownership. The Brookings Institution has identified five technologies that are consequential to the EV market.

Right now, the EV market is dominated by lithium-ion batteries (LIBs), and manufacturers like Tesla and Nissan have invested heavily in the technology. According to Brookings, LIBs are likely to remain central to demand in the next decade due to their cyclability (the number of times the battery can be recharged while still maintaining its efficiency) and despite a low energy density (the amount of energy that can be stored in a unit volume).

LIBs earned a negative early reputation for overheating and catching fire, but manufacturers have managed to make them more stable. Research continues to focus on developing a lithium anode, something that Brookings describes as a holy grail because of its ability to store a lot of energy in a small space.

The trouble is most lithium is mined outside of the U.S. and China is a major source of high-grade supply. Companies like ExxonMobil say that dependency on foreign-mined lithium lessens the case for widespread EV adoption. The oil giant has instead decided to pursue a biofuels strategy and is engaged in collaborative research into algae biofuels with biotech company Synthetic Genomics. Even so, supplies of lithium appear plentiful to sustain EV demand – according to Agashe there is around 365 years of stocks.

Meanwhile, solid state batteries have attracted the interest of automakers, including Toyota and Volkswagen. They offer several advantages such as extended lifetime, reduced need for expensive cooling mechanisms and capacity to operate in a wider temperature range. They are also less likely to catch fire if a flame-resistant electrolyte is used.

Aluminum-ion batteries are similar to LIBs but use an aluminum anode and hold out the promise of increased safety and lower costs over LIBs. But research still has a long way to go. Stamford University recently solved one of the aluminum-ion batterys major drawbacks – its cyclability – unlocking the potential for significantly decreased charging times.

Lithium-sulfur offers higher theoretical energy density and a lower cost than LIBs, but the low cyclability caused by expansion and harmful reactions with the electrolyte are a major drawback, Brookings argues. Even so ongoing research is improving the situation. Lithium-sulfur batteries combined with solar panels powered the widely acclaimed 336-hour flight of the Zephyr 7 unmanned aerial vehicle, and work to commercialize their use has recently gained momentum.

Finally, metal-air batteries have a pure metal anode and an ambient air cathode. As the cathode typically makes up most of the weight in a battery, having one made of air is a major advantage. There are several possibilities for the metals but lithium, aluminum, zinc and sodium appear the most promising. However, most metal-air or metal-oxygen prototypes have problems with cyclability and lifetime.

Will it Happen?

Echoes of 20th Centurys dabbling with electric cars still resonate and underscore that mass EV adoption could still yet be derailed, but environmental imperative makes that a rapidly diminishing possibility, even though that imperative isnt so clear cut.

The one big issue with electrics and plug-in hybrids is the source of the electricity. And if that is sustainable, then the whole picture works. If you come from non-sustainable primary energy, its just carrying water from one lake to another one to no avail, Kari-Matti Elo, director of Finnish rerefiner TecOil, told a recent industry conference.

For the lubricant industry, however, retooling for such a huge shift in market dynamics is an urgent necessity. Sudden changes in technology often leave traditionalists floundering, and with pricing pressures already prevalent among refiners and lubricant marketers, further rationalization seems probable.

There is another dimension too. If predictions for the EV market are accurate, Chinese OEMs could emerge as the global leaders in pure EV sales. According to Bank of America Merrill Lynch, China could seize 50 percent of the market by 2030. Generous government subsidies have rapidly established China as an EV force. That adds further complexity for the lubricant industry and will require new relationships with Chinese OEMs at time when demand for lubricants in the automotive sector may be waning.

The EV story is not just about the future use of technology – it may also signify a realignment of the global auto industry and one in which China is a major player. Getting in the way of that outcome stands power and money, or more mundanely put, battery life and total cost of EV ownership.