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McKinsey Energy Insights: oil could peak before 2025 from accelerated EV uptake and plastic reduction

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Oilfield Technology,

McKinsey Energy Insights (MEI) has launched its Global Energy Perspective: Accelerated Transition outlook – exposing eight shifts that could accelerate the energy transition. Two of the most significant shifts are around plastics and electric vehicles (EVs). The outlook reveals rapid EV uptake and reduced plastic demand could see oil peak as early as 2025 and decrease quickly thereafter.

The findings are constructed from MEI’s Global Energy Perspective Reference Case, which captures McKinsey’s view on how energy demand may evolve over the next few decades. The accelerated transition scenario uncovers that over one million new EVs were sold last year alone and in the past five years the cost of battery packs has decreased on average by 15-20% per year – much faster than expected. If uptake of EVs accelerates, MEI anticipates that by 2035 EVs could account for 65% of total global vehicle sales – 70 million vehicles per year. This would lead to a third of the global fleet being electric in 2035 and over 80% in 2050, which minimises oil demand from transport, today’s biggest oil demand sector.

Jasper van de Staaij, Associate Partner at MEI said: “The energy landscape is changing rapidly. Over 200 European cities already have low emission zones and cities like Paris have announced diesel bans by 2025. It’s conceivable that by 2050, in China and most OECD countries, virtually all cars on the road could be electric – dramatically impacting oil demand. Battery costs are already tumbling, which will make EV cost of ownership, including the fuel, lower than owning a diesel or petrol car.

“But it’s not just EVs that might push oil to its tipping point, plastic also has a part to play. Plastic reduction and recycling is a goal for many countries now. As of 2018, over 70 national governments have regulations on single-use plastics, and 50% of those governments introduced those policies in the last three years. We believe these trends will slow the demand growth for new plastic and significantly reduce oil demand.”

The scenario also highlights that plastic bans, more efficient use of plastics, and recycling may have a significant impact on oil’s future. If plastic demand growth slows down and recycling uptake continues to increase to 40% in 2050, this slows down the need for new virgin plastic and therefore reduce oil demand by around 30%.

The outlook identifies the impact of eight potential shifts that could further accelerate the transition. Other notable key insights include: Carbon emissions may remain well above a 2-degree Celsius pathway, fossil fuel demand decrease will be disproportionally large compared to power demand increase, gas demand will continue to grow as its role in the energy system remains stable, and coal demand will decrease rapidly.

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