No one knows exactly how many electric vehicles will hit the road in the coming decade, but one thing is certain: it’s going to be a lot. The precise rate of uptake depends on a lot of factors, from falling EV costs and improved technologies to policy support and incentives for manufacturers as well as drivers. What we do know is that reaching net zero emissions by mid-century will require an electric car fleet of over 300 million vehicles by 2030, and 60% of new car sales will have to be electric models.
In reality, we’ll most likely fall a little short of those numbers in the United States. According to projections from S&P Global Mobility, electric vehicle sales in the United States could reach 40 percent of total passenger car sales by 2030, and more optimistic projections foresee electric vehicle sales surpassing 50 percent by 2030. While this won’t quite get us to net zero by 2050, it marks a huge expansion of the current EV market. Already, electric vehicle sales are on a sharp upward trend in the United States (and around the world), with sales nearly doubling between 2020 and 2021, according to figures from the International Energy Agency.
This expansion is going to have widespread implications for the energy economy as demand shifts away from motor fuels toward electricity. This means that domestic motor fuel producers are going to have to evolve – or die. Industry analysts are predicting that most refiners will opt to increasingly focus their production on distillates rather than fuel, as traditional combustion engines begin to go the way of the dodo. More specifically, they are looking to “maximize diesel and biofuels production for exports.”
Diesel, in particular, is becoming more and more appealing, as global diesel inventories have declined and demand has spiked. Last year, diesel profit margins peaked at over $70 a barrel, more than double the profit margins of gasoline in the same time frame. At that time, United States refiners were exporting 1.57 million barrels per day of distillate fuel – an all-time record.
The market for diesel has cooled considerably since that peak – distillate profit margins are now around $31.35 a barrel – but margins are still nearly double their five-year average. According to reporting from Reuters, this will incentivize increased investment into diesel production (as well as other high-value distillates) in the current term, which will continue to influence the shape of the refining industry for years to come.
Most industry experts see this investment as a much safer long-term strategy than continuing to invest in gasoline production. Gasoline demand has already been lagging for quite some time now in the United States as fuel efficiency has increased in gas-powered cars, and the number of electric cars on the road has rapidly expanded. Distillate demand, on the other hand, will likely continue to grow 32% by 2045, mostly led by an increased need for both diesel and jet fuel.
Demand for biofuel and biodiesel, too, is on a growth trajectory. Refiners are leaning into this trend as well. According to Reuters, “oil refiners such as Marathon Petroleum and Phillips 66 have been retrofitting oil refineries to produce biofuels such as renewable diesel and sustainable aviation fuel.”
While the United States is lagging behind most of the world’s strongest economies in terms of clean energy spending and production, it is uniquely positioned to lead the pack in terms of biofuels exports. As the shale revolution has slowed down in Texas, the country is left with tons of refining capacity ready and waiting for the next step. This means that the United States could easily become the world’s largest exporter of sustainable aviation fuel and renewable diesel in a remarkably short time span.
By Haley Zaremba for Oilprice.com
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