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EV Revolution Could Wipe Out $21 Trillion In Oil Revenue

Oil storage

Hardly a day goes by without a research company releasing yet another report forecasting the future of electric vehicles and all related industries, oil included. Some of these are skeptical, but most predict a bright future for electric cars.

The latest is no exception: a UK-based company, Aurora Energy Research, has projected that the adoption of electric cars could wipe out as much as US$21 trillion in revenues for the oil, gas, and coal industry by 2040.

The post, EV Revolution Could Wipe Out $21 Trillion In Oil Revenue, was first published on OilPrice.com.

In oil, Aurora Energy Research predicts that revenues could fall from US$1.5 trillion in 2016 to US$1.1 trillion in 2040 on the back of fast EV adoption combined with major improvements in energy efficiencies. Meanwhile, oil prices could plummet to as little as US$32 a barrel.

This is what could happen under a “Burnout” scenario developed by the research firm that envisages fast growth in EV adoption and equally fast growth in electricity demand on the back of digital tech use driven by the expansion of the Internet of Things.

Under this scenario that might as well be called “Doomsday” as far as it concerns the oil industry, Aurora Research sees the number of EVs on the roads in 2040 at 540 million. For context, another research, from 2016, saw the total number of cars on the road in that year at 2 billion, so EVs would be a pretty solid portion of the total.

As a result of the advent of EVs, crude oil demand will peak long before 2040, in the mid-2020s. By 2040, oil prices will have fallen to US$32. Coal will be doing even worse, with a ton selling for just US$28 thanks to the increased use of low-carbon power generation capacity replacing coal power plants.

The news for oil and coal under this scenario is certainly bad. Not so for gas: gas will be the big winner under the “Burnout” scenario of Aurora Energy Research, with revenues there rising twofold by 2040, with both supply and prices rising as gas takes territory freed by coal and oil.

Related: OPEC Could “Relax” Production Cuts

All in all, the research does not really tell us anything new, except some numbers that sound impressive if you forget that a “Burnout” scenario is not necessarily the most likely one. There have been many upbeat reports on EVs, but the revolution they have touted as happening has actually shaped up to be more of an evolution with adoption not as fast as many of these forecasts predicted.

However, it is true that EV sales are increasing thanks to falling costs, mainly in batteries. This year, total electric car sales are seen by Bloomberg New Energy Finance at 1.6 million, which may not be a whole lot, but it is up considerably from the several hundred thousand EVs sold four years ago. If this exponential growth continues, we might just see some of the optimistic forecasts materialize, although Aurora Energy Research’s prediction of EVs making up a quarter of the global car fleet might be a bit of a stretch.

The oil industry no doubt reads all these forecasts. It’s no coincidence that Shell and BP are expanding into EV charging and battery technology. Even if the forecasts are too upbeat, it pays to be prepared for a greener future that, according to Aurora Research, will come not so much as a result of official policies as of the advance of digital tech and what the firm calls consumer engagement with low-carbon energy.

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James Stafford's picture

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Discussions

Matt Chester's picture
Matt Chester on May 24, 2018 3:59 pm GMT

That’s why the wisest of the oil companies are diversifying, getting not only into EV tech and EV chargers but also renewables. This happens in all sorts of businesses, not just energy, and it’s always the companies who adapt to the ever-evolving landscape that make it out on top. Will be interesting to see if any of the oil majors are too stubborn or too late to adapt and how that shifts the landscape.

Bob Meinetz's picture
Bob Meinetz on May 24, 2018 5:01 pm GMT

Irina, BP and Shell saw this coming after GM’s EV1 burst upon the scene twenty years ago. It was the genesis of the idea to use liquid hydrogen as a fuel, so 50,000 U.S. service stations might pawn off re-engineered methane for a while before being converted to convenience stores.

It was the genesis of attempts by the oil industry to shut EVs down, like buying Ovonics’ patents on nickel-cadmium automotive batteries then sitting on them. Like claiming the University of Texas owns the patents to all lithium-ion batteries (not sure, but I think that bit of insanity is still winding its way through court).

Though EVs won’t be doomsday for the oil industry it will be put out to pasture, however, and it can’t happen soon enough. Leave it in the ground.

Jarmo Mikkonen's picture
Jarmo Mikkonen on May 24, 2018 6:27 pm GMT

So, when EVs reach 25 % share of vehicles on the road, oil demand crashes?

At the end of 2016, EVs had achieved a 5% share of all passenger cars on the country’s roads. This is greater than five times the market share in the U.S. Last week it was announced that 42% of all Norway’s new car sales in June were EVs.

Given Norway’s leading position in this space, we can gain some insights by examining the impact of EV sales on the country’s oil demand.

In 2005, there were 167 electric vehicles on Norway’s roads. By 2015, that number had exploded to just under 40,000. Yet according to the 2017 BP Statistical Review of World Energy, Norway’s oil consumption in 2015 was 6% higher than it was in 2005. Further, in 2016 when Norway’s EV sales eclipsed 50,000 vehicles and reached a 5% market share, oil demand rose again to within 0.7% of its all-time high mark set in 2013.
https://www.forbes.com/sites/rrapier/2017/07/12/norways-oil-consumption-...

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