Electric vehicles and refining

How well can oil refining, the source of hydrocarbon-based fuels that have sustained much of the world’s transport for more than a century mix with electric vehicles (EVs)?

Sandil Sanmugam
World Refining Association

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Article Summary

That is the basic question the World Refining Association (WRA) sought to answer when it commissioned a recent survey of international downstream industry professionals. Queried about perceived threats to refining from EVs, EV market supports, and the outlook for synergies between the refining and EV spheres, survey participants have provided some enlightenment on the matter. In addition, downstream industry experts have helped WRA to put survey results into the proper context. Read on for a comprehensive overview of the survey.

What’s so worrisome about EVs?
When asked how concerned they are about EVs, the majority of survey participants – 61.1 percent – admitted that they are “somewhat worried” about the vehicles’ impact on the oil refining industry and that refiners need to “plan ahead.” However, they tempered that concern with the sentiment that the effects of EVs tend to be “exaggerated”, at least in the near term.

The remaining respondents selected the following survey answer choices when asked how worried they are about EVs:

23.6% Not worried at all – “We’ll all be out of the industry far before EVs have any real impact”

8.3% Very worried – “EVs are a near-term threat to refiners” diesel and gasoline, and we will see greater numbers of hybrid vehicles.”

6.9% Terrified – “Refineries are in deep trouble… transport fuel demand will soon fall off a cliff”

In a related question seeking their thoughts of how significant an effect EVs could have on oil demand, nearly one-third of respondents (approximately 32 percent) selected “Very significant – big changes will happen.” The remaining survey participants expressed more nonchalant attitudes, with 52.8 percent indicating that they anticipate “Not much” of an impact given continued strong demand from developing countries. In addition, slightly more than 15 percent of survey participants chose the response “None at all – electricity isn’t an option for heavy duty, aviation and bunker fuels.”

EVs constitute just one part of the changing transport demand equation confronting oil refiners, according to Robin Nelson, Science Director with Concawe, a division of the European Petroleum Refiners Association.

“We are entering a period of transition in which a variety of technologies leading to greater fuel efficiency will be released by car manufacturers,” Nelson told WRA. “We will see cars with higher-efficiency combustion engines, both  diesel and gasoline, and we will see greater numbers of hybrid vehicles.”

In the case of “pure EVs,” Nelson opined that market penetration should remain low in the car fleet in the medium term. However, he predicted there is a much stronger likelihood that pure EVs will be used as smaller city cars, e-bikes, and short distance delivery vans.
“The outlook for heavy-duty vehicles will depend on their usage,” added Nelson. “Batteries are less suitable for long-haul vehicles but could be very relevant for city buses, etc.”

Nelson also said that most of refiners’ concern regarding EVs will likely hinge on the balance on demand as well as the overall impact on demand.

“I would consider the impact of electric vehicles to be less important than the change in marine fuels as we prepare for 2020,” said Nelson, referring to the International Maritime Organization’s deadline for lowering the allowable sulphur content from marine diesel oil from 3.5 to 0.5 percent mass by mass. “But beyond 2020, some cities and countries are planning restrictions on vehicles with internal combustion engines.”
Slackening demand for gasoline, diesel, and other refined fuels may also mean that downstream firms devote more attention to manufacturing petrochemicals.

“Demand for traditional fossil fuel will decrease,” said David Pullan, Group Downstream Technology and Development Vice President with MOL Group. “Refiners have to find alternative products to cover the capacity. In line with the ‘MOL 2030’ strategy, 50 percent of the capacity would go for petchem products from the actual 30 percent.”

Pullan added that the proliferation of EVs will drive changes beyond refining. “It will affect the whole downstream supply chain such as supply and logistics, wholesale, and retail,” he said. For instance, he pointed out that:
• Assets such as tankers in supply and logistics will not be able to handle the requirements for new products designed to serve EVs.
• In a wholesale context, the entire organisation will need to integrate knowledge about significantly different products tied to EVs.
• Regarding pricing, market share, and other typically commercial topics, one key question will be: should the company decrease margins to keep market share or gather as much margin as possible while demand is still there?
• In retail, the focus will be on new businesses and solutions. As a result, the product mix will need to be wider; among other things, this would raise questions about achieving necessary competency levels.

EVs vs CO2: Winds of Change or Just Hot Air?
Advocates of making EVs more commonplace on the world’s roadways frequently tout the vehicles’ contribution to the broader goal of curbing carbon dioxide (CO2) emissions. On the question of EVs’ ability to accomplish this heady task, respondents to the WRA survey expressed some reservations. When asked if they believe EVs will substantially impact CO2 emissions over the next two decades or so, nearly 71 percent answered in the affirmative – but to varying degrees. Slightly less than 31 percent, or less than one-half of those responding “yes,” agreed that EVs will “substantially” affect releases of CO2 into the atmosphere. Meanwhile, approximately 40.3 percent of the “yes” votes included a caveat: that other factors will be more dominant than EVs in terms of cutting emissions.

What, then, do survey participants think will have a greater effect in reducing CO2 releases? When asked what will make the biggest impact in cutting CO2, a sizable majority of survey participants – 69.4 percent – selected “renewable energy.” Just under 10 percent chose “changes to livestock production” while 5.6 percent picked “Electric vehicles.” Approximately 1.4 percent indicated that “Moves toward petrochemicals” will limit CO2 emissions. Nearly 14 percent selected other factors not specified within the set of answer choices.

To be sure, refiners and others fossil fuel industry players are hardly immune from the push in Europe and elsewhere to dramatically limit CO2 releases.

“The drive for decarbonization will impact refiners and this will carry through to oil demand,” said Nelson. “Gas has a very different outlook as this can substitute for coal and be part of the transition to a lower carbon world. Liquefied natural gas (LNG) is likely to increase in shipping, although it is difficult to assess the impact of this trend today.”

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