Could Ev’s Crash Oil Sooner than you Thought?

February 27, 2016

Above, Bloomberg analysis shows electric cars will have an impact sooner than you think.

Videos below from my interview with Brewster MacCracken of Austin’s Pecan Street Project on his detailed findings of solar and EV “early adopters”.


It’s time for oil investors to start taking electric cars seriously.

In the next two years, Tesla and Chevy plan to start selling electric cars with a range of more than 200 miles priced in the $30,000 range. Ford is investing billions, Volkswagen is investing billions, and Nissan and BMW are investing billions. Nearly every major carmaker—as well as Apple and Google—is working on the next generation of plug-in cars.

This is a problem for oil markets. OPEC still contends that electric vehicles will make up just 1 percent of global car sales in 2040. Exxon’s forecast is similarly dismissive.

The oil price crash that started in 2014 was caused by a glut of unwanted oil, as producers started cranking out about 2 million barrels a day more than the market supported. Nobody saw it coming, despite the massively expanding oil fields across North America. The question is: How soon could electric vehicles trigger a similar oil glut by reducing demand by the same 2 million barrels?

That’s the subject of the first installment of Bloomberg’s new animated web series Sooner Than You Think, which examines some of the biggest transformations in human history that haven’t happened quite yet. On Thursday, analysts at Bloomberg New Energy Finance weighed in with a comprehensive analysis of where the electric car industry is headed.

Even amid low gasoline prices last year, electric car sales jumped 60 percent worldwide. If that level of growth continues, the crash-triggering benchmark of 2 million barrels of reduced demand could come as early as 2023. That’s a crisis. The timing of new technologies is difficult to predict, but it may not be long before it becomes impossible to ignore.

Rocky Mountain Institute:

Those who claimed low oil prices would crash renewables (other than biofuels) were wrong. The reason is simple. Wind and solar power make electricity. Oil makes less than four percent of world and under one percent of U.S. electricity, so oil has almost nothing to do with electricity. Thus in 2015, as oil prices kept skidding, global additions of renewable power set a new record, adding about 121 GW of wind and solar power alone. Renewables’ $329 billion investment was up 4% from 2014, says Bloomberg New Energy Finance (which tracks each transaction), but it added 30 percent more capacity because renewables got much cheaper. Solar power is booming even in the Persian Gulf, where it beats $20 oil.

Natural gas does compete with solar and windpower, and its price tends to move with oil’s, but cheaper gas doesn’t much affect renewable power either. That’s because new wind and solar power often beat even the operating costs of the most efficient gas-fired power plants anyway, even without counting the market value of gas’s price volatility.

Yet as oil prices gyrate, it’s important to understand that underlying trends are shifting too, to oil’s disadvantage. It’s happened before. In the 1850s, whalers—America’s fifth-largest industry—were astounded to run out of customers before they ran out of whales. Over five-sixths of their dominant market (lighting) vanished to competitors—oil and gas both synthesized

from coal—in the nine years before Drake struck “rock oil” (petroleum) in Pennsylvania in 1859. Two decades later, Edison’s electric lamp beat whale oil, coal oil, town gas, and John D. Rockefeller’s lighting kerosene. Today in turn, most  traditional lighting is being displaced by white LEDs, which each decade get 30x more efficient, 20x brighter, and 10x cheaper. By 2020 they should own about two-thirds of the world’s general lighting market.

LEDs inside-out are PVs—photovoltaics, turning light into electricity. PVs often, and very soon generally, beat just the fossil-fuel cost of running traditional power plants. PVs are now less capital-intensive than Arctic oil, not counting the ability to use electrons more effectively than molecules. Costly frontier hydrocarbons like Arctic oil can’t sell for a high enough price to repay their costs. Their revenue model has been upside-down for years. Had Shell persevered instead of abandoning its $7-billion Arctic investment, and had it found oil, it wouldn’t have won durable profits.

Oil companies since 1860 and electric utilities since 1892 have sold energy commodities—molecules or electrons—rather than the services customers want, such as illumination, mobility, hot showers, and cold beer. This business model means that when customers use the energy commodity more efficiently to produce the service they want, the provider loses revenue, not cost. That’s bad for both electric utilities and hydrocarbon companies, because most (and for oil, ultimately all) of the commodity they sell can be displaced by far cheaper energy productivity.

That displacement is already well underway. Renewable electricity merits and gets lots of headlines, but in 2014 it raised U.S. energy supplies only a third as much as the energy saved in the same year by greater efficiency. Over the past 40 years, Americans have saved 31 times as much energy as renewables added. Those cumulative savings are equivalent to 21 years’ current energy use. They’re simply invisible: you can’t see the energy you don’t use. But globally, it’s a bigger “supply” than oil, and inexorably, it’s going to get much, much bigger.

Oil companies worry about climate regulation, but they’re even more at risk from market competition. The oil that’ll be unburnable for climate reasons is probably less than the oil that’ll be unsellable because efficiency and renewables can do the same job cheaper. An oil business that sputters when oil’s at $90 a barrel, swoons at $50, and dies at $30 will not do well against the $25 cost of getting U.S. mobility—or anyone else’s, since the technologies are fungible—completely off oil by 2050. That cost, like the $18 per saved barrel to make U.S. automobiles uncompromised, attractive, cost-effective, and oil-free, is a 2010–11 analytic result; today’s costs are even lower and continue to fall.

In short, like whale oil in the 1850s, oil is becoming uncompetitive even at low prices before it became unavailable even at high prices. Today’s oil glut, we hear, is caused by fracking, a bit by Canadian tar sands, and most of all by the Saudis’ awkward (though impeccably logical) unwillingness to give up their market share to higher-cost competitors. But less noticed, and equally important, is that demand has not lived up to irrationally exuberant forecasts.


11 Responses to “Could Ev’s Crash Oil Sooner than you Thought?”

  1. There’s more to it than just power. Electric cars are a lot simpler in design than internal combustion cars. A gasoline engine is mostly a Rube Goldberg machine with lots of moving parts and controls that often go bad. If the battery problem is solved, then goodbye gasoline powered cars.

    Unfortunately, that will destroy a lot of businesses depending on selling repairs and auto parts that will eventually have no market.

  2. Whoever wrote this oversimplified Bloomberg video, voiced by a snarky-sounding know-it-all, only has a partial understanding of Peak Oil. The easy to drill stuff, the low-hanging fruit has been located and that discovery and production has peaked. Unconventional oil like TAR sands (not ‘oil sands’ – that sounds so much cleaner, like, why wouldn’t we want to clean that oily sand the way we scrub it off birds after a tanker disaster) and deep water drilling just cost more to produce both in monetary, energy and environmental expenses.

    I agree with the overall premise that EVs will have an S-curve moment and we may end up leaving most of the remaining oil in the ground. But in the mean time we can’t ignore the costly impacts and knock-on effects of extracting expensive and environmentally dangerous oil. Why is it that business-oriented publications seem to underplay the true cost of energy? Do investors truly not care about health, the climate, and environmental issues associated with extracting fossil fuels?

    • Rob Painting Says:

      Do investors truly not care about health, the climate, and environmental issues associated with extracting fossil fuels?

      Very clearly they don’t. Environmental destruction in the pursuit of short-term profit is a recurring theme in human civilization.

    • otter17 Says:

      Right, I was thinking the same on the “peak oil theory ain’t happening” remark. Just looking at the relative scale of the production figures indicates there still could be an overall peak even with an increase in production capacity from unconventional sources. By and large, conventional oil has very likely peaked, unless there is some huge Saudi-sized discovery to be made in the Arctic. Every other conventional oil region faces peak and declines that could offset even the most vigorous production capacity additions in the few tar and oil shale regions. Fort McMurray in Canada is growing about as fast as physically possible to increase tar sands production, and the same goes with the Bakken boom towns. Even adding production capacity upgrades in the Orinoco tar sands or possibly the less thoroughly exploited western Iraq fields would not necessarily guarantee to offset or provide increasing global oil production in the face of declines in a majority of conventional oil regions.

      Sure, any given discovery is possible around the corner and could increase oil reserves, but to so confidently proclaim that peak oil theory isn’t happening isn’t probably the most prudent position. Still, whether we are oil-limited or not, there will still be the climate limit, which puts pressure all the fossil fuels.

  3. redskylite Says:

    EV’s can replace and will replace fossil fueled vehicles, the technology is not new, but with modern understanding and technology it is effective. In the small country I reside in it is not discussed much, but my local gas station has a free EV charge point, my local shopping mall car park also has a free EV charge point. The momentum is building even here.

    I am old and retired and have an old petroleum fueled Volvo that plods on, if I was younger and starting life I wouldn’t consider anything but electric.

    We have to think beyond petrol, we must take the leap and soon.

    Just do it guys, don’t even think about it. The window is still open. Just. Do it.

    • addledlady Says:

      We’re a bit like that. Only use the car a couple of times a week. Though now I’m escorting my 4 month old granddaughter and her mum for her “swimming” lessons each week, that may increase marginally.

      If we had more money, I’d certainly get an EV because we have rooftop panels to keep it charged. But buying _any_ car would be an unacceptable extravagance for the time being when our current use of fuel amounts to about $40 worth, about 10 or fewer times a year. (Despite being a 6 cylinder car, we get reasonable fuel consumption – better than 35 mpg in old money on average.)

  4. […] I posted not long ago on an item in Bloomberg News about the possibility of an Electric Vehicle Paradigm shift: […]

  5. […] as I’ve discussed here before, instead, the abundance of oil being produced, leading to a glut and collapse of prices, and […]

  6. I’m still waiting for 1) the wood gas hybrid and 2) exchangeable normed batteries.

    Until then, there’s no serious EV industry.

  7. […] course, if the Financial Times had been reading this blog, they might have been quicker off the […]

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