Rise of electric vehicles - implications for the chemical and refining industrie
The possible large scale displacement of the internal combustion (IC) engine by new generation electric vehicles (EVs) – in all its formats – represents arguably the most significant change in the automobile since assembly line production commenced in the early part of the last century. Though IC engines are not expected to disappear, there is good reason to believe EVs will take a growing slice of new car sales. This and other factors such as the sharing economy and a growing realisation that the planet is better served by taking public transport where available and practical, could even impact car sales very differently from earlier envisaged.
Auto industry – an important driver
The automobile industry is a major consumer of chemicals and fuels and has for long been an important driver of demand for a range of chemicals – both commodities and specialities – as also materials such as plastics (commodity, engineering and high performance). Demand for the two most important automotive fuels – gasoline (petrol) and diesel – have been rising steadily till recently and have been one of the main reasons for investments in new refining capacity in major growth markets.
The rise of the EVs will have impacts – positive and negative – for chemicals, materials and fuels. It will impact volumes and reshape the kind of chemicals and materials that will come to be used in the automobiles of tomorrow.
The rationale for EVs is their favourable environmental impact, but the extent to which these vehicles are ‘greener’ will to a large extent be determined by how the electricity that feeds charging points is generated. If it is coal-based, for instance, the ‘green’ credentials are diminished. But if the power comes for a carbon-neutral source like solar, wind or nuclear, the carbon footprint of EVs will be markedly lower even after accounting for all the materials that go into making battery systems.
How quick will EV adoption be?
The pace of EV adoption is not easy to figure, as it will be determined by a number of factors: government policies encouraging their use through policy & fiscal support; the availability of a well-spread out charging infrastructure; the price of crude oil; the commercial viability of renewable sources of power (in particular solar and wind); technological developments in battery systems that provide quick charging, adequate mileage and long service life; and availability at the right price of key raw materials for making these batteries.
There are many uncertainties in each of these – as would be expected from a game-changing technology – but the broad consensus is that the pace of adoption will quicken once some scale has been achieved. While the start may be slow, the ramp up in the number of vehicles on the road can happen fairly quickly.
Nexant, a consultancy, estimates that as much as 35% of the global car fleet in 2040 – equivalent to about 600-mn cars in use – will be EVs or hybrids (running both on electricity and conventional fuel). The penetration of EVs into commercial fleets (trucks, buses) is expected to be far slower – though a few companies, including the EV pioneer Tesla, are eyeing this market as well.
Battery elements – the supply challenge
Despite a lot of ongoing research, the lithium ion battery (LIB) containing varying formulations of oxidized metals (e.g. cobalt, nickel and manganese) in the cathode is expected to be the dominant battery technology. Lithium-iron phosphate (LFP), nickel-cobalt-aluminium (NCA) and nickel-cobalt-manganese (NCM) are the most widely used chemistries for the cathode in automotive batteries, while lithium cobalt oxide (LCO) and lithium manganese oxide (LMO) are most common in consumer electronics.
Cobalt-based batteries currently provide the best overall performance, but the price of cobalt has nearly tripled in the last three years to over $70,000 per tonne. Not surprisingly, a lot of research is ongoing to develop formulations that reduce the quantity of cobalt in the battery; options include solid-state lithium batteries with lithium anode, lithium-air cathode, and use of lithium-silicon and lithium-sulphur as part of anode systems. Till these technologies are developed concerns over the availability of cobalt will remain. Nearly 70% of world production of the element comes from the Democratic Republic of Congo, including from artisanal mines that employ child labour. While recovery of the metal from used smartphones or automobile batteries is very much needed, it cannot make up for the large volumes that will be needed.
China has preferred to work around the cobalt availability issue somewhat by opting for LFP batteries (which do not contain cobalt) for the cars it produces. But these batteries have constraints that stem from its lower energy density and power. It is, however, a more accessible, lower cost, more thermally stable and safer technology than cobalt-containing batteries, and is particularly well suited for public transportation and low range vehicles in cities where journeys are shorter and end at charging points.
Lithium is used in LIBs both in the cathode and electrolyte (as lithium hexafluorophosphate). Though lithium prices have doubled between 2017 and 2018 (to above $20,000 per tonne), its availability scenario is better than for cobalt. There are several suppliers of lithium carbonate and lithium hydroxide, and leading ones are making new investments in creating additional capacity for lithium hydroxide (required for NCM and NCA batteries).
Impact on fuel markets…
Nexant estimates that hybrids and EVs have displaced about 12-mt of gasoline and diesel demand till now, from what would have been theoretically consumed in a zero EV world. This figure is expected to increase to over 250-mt by 2040 – about 15% of annual demand for conventional fuels. Markets for diesel and petrol are expected to grow at a rate of about 1% per annum going forward – about half the rate now.
And for automotive polymers
The desire for light-weighting cars to improve fuel efficiency has driven substitution of conventional materials such as glass, steel and aluminium with a variety of plastics: polyolefins (PE and PP), polyurethanes, polyamides, polyesters, etc. The average car now contains more plastics than 15 years ago, though these levels have now more or less plateaued in the developed world.
The rise of EVs will add a new dimension to this material shift. With no fuel tank, pumps and other connections needed in EVs, the nature of polymers used will change. Commodity polymers such as HDPE, conventionally used to make the fuel tanks, will lose out, as will solvent-resistant synthetic rubbers used in fuel lines. But new opportunities will emerge, such as the use of ultra-high molecular weight polyethylene (UHMWPE) in LIB separators.
Change in business models
Overall, the emergence of EVs could see a slight reduction in plastics demand in the automotive sector, making it somewhat less of an important driver of polymer demand. The role of plastics in packaging and construction – two other significant end-use markets – may become even more important, though there will be constraints here too posed by sustainability challenges. There is a global drive to reduce ‘single use plastics’ and to transition to a circular economy where resources are more productively and repeatedly used. The impact of polymer recycling and reuse strategies on virgin polymer demand is difficult to estimate, but some demand destruction is expected.
Not withstanding the above developments, it is abundantly clear that demand for petrochemicals will outpace that for fuels. This is one more reason why refining companies are seeking alternate business models as they prepare themselves to stay relevant in a very different world. Greater refinery-petrochemical integration as well as new technologies to convert crude oil directly to chemicals are on the cards.
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