The adoption of electrification in the ongoing energy transition push is set to chip away at oil demand sooner and faster than previously expected, according to a new report by Rystad Energy.

In an updated base case published April 21, the energy consultancy firm now sees oil demand peaking in 2026 mainly by a rapidly growing electric vehicle (EV) market. Rystad Energy had previously forecast peak oil demand in 2028.

“Although oil demand is expected to recover above pre-virus levels, it will be just marginally,” said Sofia Guidi Di Sante, oil markets analyst at Rystad Energy, said in the firm’s report. “Any post-pandemic oil demand boom is tempered by structural declines that were already ongoing long before the virus, such as substitution in power, industry and buildings.”

According to the report, Rystad Energy is downgrading its peak oil demand forecast and now expects world demand for oil to peak at 101.6 million bbl/d in 2026 before falling below 100 million bbl/d after 2030. The firm’s previous forecast had oil demand peaking in 2028 at 102.2 million bbl/d.

The acceleration in the adoption of EVs is part of a global push to tackle greenhouse-gas emissions by transitioning the world away from fossil fuels. In the U.S., President Joe Biden has vowed to dramatically boost the sale of EVs, making it a part of his proposed $2.3 trillion infrastructure plan.

Several U.S. states have also unveiled plans to end the sale of new gasoline-powered vehicles by 2035 or earlier. General Motors Co., the largest U.S. automaker, also said in January it had set a goal to end all gasoline passenger car and truck sales by 2035.


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Aside from the “staggering takeover of EVs,” Rystad Energy said its analysts see oil demand being either phased out, substituted, or recycled across a range of sectors. Some of the shifts, the firm said, will be sudden, while others are forecast to slowly evolve.

Road transport (passenger vehicles, buses and freight), which Rystad said makes up over 48% of oil demand, will be the ultimate driver of the transition.

“The swiftest transition is already well underway in the electric passenger vehicle sector, which currently makes up 6% of global vehicle sales, but will account for 23% by 2025 and then accelerate towards 96% penetration by 2050.”

Trucks, which account for 18% of total demand, will not electrify in the short-term, but when the adoption occurs in the mid-2030s and begins reaching critical mass, the substitution impact will be much higher on a per-unit basis compared to smaller vehicles that use less fuel, the firm said.

“EV trucks will benefit from the technology groundwork already being established in passenger vehicles. Buses will also see a gradual transition from petroleum diesel to electric and biofuels. The EV truck market share will rise to 6% in 2025, 21% in 2030, and 61% in 2040.”

Petrochemicals, which make up 14% of total oil demand, are expected by Rystad to grow until at least the mid-2030s as plastics consumption per capita grows worldwide.

“The demand then peaks as plastics recycling rates converge towards 75-80%, as observed in glass and metals, from the current effective rate of 5%, at the same time as hydrogen-sourced feedstock picks up from less than 1% today to 30% of the virgin petrochemical feedstock for LDPE, HDPE, PP and PVC plastics production in 2030.”

Maritime, which makes up 6% of demand, is expected to be dominated by oil for at least through the mid-2030s, after which Rystad said it expects to see switching to LNG, hydrogen, electric batteries and other carbon-neutral vessels, especially in newbuilds.

“This sector already underwent a big transition with IMO 2020, which saw the switching from high-sulfur fuel to ultra-low sulfur fuel.”

Aviation, which Rysted said makes up less than 7% of oil demand, is expected to continue to grow until 2050 as no viable oil substitution technology exists.

“The gradual introduction of bio-jet fuel will limit pure kerosene jet fuel demand growth but will not affect the strong upward trajectory in aviation through 2050, unless a viable alternative technology is introduced.”

Other sectors (agriculture, energy own use, own energy use, industry, buildings, and power generation) continue a downward sloping trajectory, according to the firm.

“Growing agriculture and energy own use demand partially offset the accelerated decline of oil consumption in power.”

Rystad Energy Long-Term Global Oil Demand Scenarios Graph

Guidi Di Sante said Rystad Energy sees oil demand evolving in three phases.

“Through 2025, oil demand is still affected by COVID-19 impacts and EVs are still slow to take off,” she said, “then from 2025-2035, structural declines and substitution impacts—especially in trucks—take hold.”

The recycling of plastics and accelerated technologies in maritime will be the final transition leg bringing oil demand further down toward 51 million bbl/d in 2050, she concluded in the report.