Rating and research agency ICRA has observed in a recent report that the shift from petrol and diesel-driven vehicles towards electric vehicles will pose a threat to oil refining and marketing companies, particularly the newer ones.
While this is intuitive, the assessment is significant because India’s downstream oil companies do not see electric vehicles as a threat.
In a chat with this correspondent last December, the Finance Director of Indian Oil Corporation, AK Sharma, had said as much. He stessed that the high cost of EVs would make them unattractive.
Costs of batteries
And now, ICRA says the threat is real. Its analysis shows that costs of batteries are falling rapidly – from $800/kWhr in 2011 to $208 in 2017, and the expectation is that it could fall to $70 by 2030 or even earlier. (Battery capacity is measured in terms of the number of units of electricity (kWhr) it can hold, as well as the highest energy it can discharge (kW), and the number of times it can discharge-recharge (cycles) before going dead.)
Crude oil prices
ICRA believes that when battery costs fall below $100 per kWhr, and if crude oil prices are around $90 a barrel, EVs could take petrol and diesel-powered vehicles head on.
“The high risk of electrifying the automobile fleet looms on the downstream players,” says the ICRA report.
ICRA recognises the lack of infrastructure for charging vehicles – especially commercial vehicles that are used for longer hauls – as a “hurdle”.
However, global companies, such as ABB, are keen on building the necessary infrastructure.
Nevertheless, while the existing refineries might be able to withstand the weather, the demand disruptions because their assets are well depreciated and viability of greenfield refinery products would come under pressure in the long term, the agency cautions.
It observes that Indian oil-refining and marketing companies are investing in brownfield and greenfield expansion of their refineries to satisfy the country’s growing demand.
“Electrification of vehicles in the country will not mean that downstream companies will go out of business as petroleum products are also demanded by other sectors such as airways and petrochemicals,” the report notes.
However, diesel and petrol form around 50 per cent of the total product volumes derived from every tonne of crude oil processed by a refinery, and a much higher share of 65 per cent in terms of value derived from crude oil, it notes.
Thus, any impact on demand of auto-fuels, could have a significant bearing on the demand growth of crude oil and gross refining margins (GRMs) of refineries.