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EV Revolution Set To Cripple More Than Just The Oil Industry

Musk Electric Cars

The electric car revolution is already underway, and if the long-term projections are even remotely close to accurate, the effects will ripple through every corner of the global economy.

A large chunk of conventional fossil fuel powered electricity generation is already uneconomic because of the surge of wind and solar installations. Nearly every major U.S. coal mining company has either filed for bankruptcy or is in financial distress, a glaring sign that the industry that powered the U.S. electrical grid for a century is dying off.

Even the relatively small penetrations of solar and wind are upending electricity markets, but we are merely at the beginning of this revolution. As Michael Liebreich of Bloomberg New Energy Finance wrote on August 22, the long-term ramifications of this unfolding phenomenon are hard to overstate.

Take the electricity sector as an example, which is flipping from being an industry based on huge power plants that provide baseload power with peaker plants to provide supply during peak times, to a power sector that relies much more heavily on disparate sources that depend on “forecast-and-balance” services. That is a jumbled way of saying that the electricity grid is changing fast because of clean energy – for decades the grid has hardly changed, but electrical equipment is becoming cleaner, more digitized, and won’t necessarily resemble what it has in the past.

But that isn’t just an issue for the competitors of clean energy (coal and natural gas); the effects could spread throughout the economy. The case of cell phones is illustrative – cell phones “have eaten entire industries (cameras, alarm clocks, maps) and are set to do the same to others (newspapers, cash handling, music systems),” Liebreich explains.

BNEF projects that EVs will capture 35 percent of the global vehicle market by 2040. But because technology is changing fast, the surprise is probably on the upside. Under a more aggressive scenario, BNEF can see a scenario in which 47 percent of all new vehicles sold in 2040 will be electric. Related: Can Fire Ice Replace Both Oil And Renewables?

The rapidly falling cost of batteries will be a key reason for the explosive growth of EVs. Battery costs have already declined by 65 percent over the past five years, and could fall by half again by 2025.

But while some doubters of EVs might dismiss such figures, BNEF says EVs will beat the internal-combustion engine on many more fronts than just emissions. As Liebreich writes, EVs “drive more smoothly yet accelerate better, they can be charged at home or at the office, they require much less maintenance, they help solve air quality problems, they improve the energy autonomy of oil-importing countries.” EVs also are “vastly superior” to fossil fuel-powered vehicles when it comes to autonomous driving, infotainment, and other features. “[I]t simply makes no sense to have an inherently analogue power unit – vibrating, volatile-liquid-consuming, hot-polluting-exhaust-producing – at the heart of a fully digital, sensor-pervaded, solid-state-electronics-controlled system,” Liebreich argues.

With that in mind, he comes to a conclusion that should deeply worry the oil industry: “can anyone think of a good reason to buy a diesel or petrol second car in 15 years?”

What are the implications of this? There will be winners and losers, BNEF says. The winners: battery manufacturers, lithium miners, and a whole supply chain of technology needed for these new vehicles, such as autonomous driving, cyber-security, and other software tech. The losers: suppliers of parts exclusive to fossil fuel vehicles, such as exhaust systems, fuel management systems, gearboxes, etc. Also, less steel will be used in EVs as companies try to reduce weight. Less maintenance also means less need for mechanics, repair shops, and dealerships. Repairs can often be done remotely using software, just as many computer fixes are conducted today. Related: ‘’Like A Rollercoaster’’ Hyper-Volatile Oil Funds See Popularity Spike

Then of course there is the electric power system. EVs themselves will allow for more demand response – an army of EVs provide new source a large source of new demand, but also millions of little power plants when connected to the grid. Software, cyber-security, and other digital tech that helps gird operators deal with load balancing will thrive in this environment.

Finally, perhaps the most devastating effect of the EV revolution will be on the oil industry. BNEF forecasts EVs cutting off 13 million barrels per day of oil demand by 2040. The implications of that figure are hard to exaggerate – if it comes to pass, it effectively means permanently lower oil prices.

The prevailing view in the industry is that the $1 trillion or so in investment reductions between 2015 and 2020 will set the world up for a supply crunch as too few projects come online. But, BNEF says that the EV revolution could mean the off-cited mantra in the industry of prices remaining “lower for longer” could become “lower forever.” BNEF says the long-term cap on oil prices is $80 per barrel and is falling fast. The effects are so massive they are hard to even contemplate – whole countries will be tossed into crisis (Saudi Arabia, Iran, Iraq, Russia, Venezuela, to name a few) if oil prices remain permanently low.

Liebreich sums up BNEF’s conclusions succinctly: “if our predictions for the uptake of electric vehicles are anything like correct, there is no part of the global economy which will not, in some way, be affected.”

By Nick Cunningham of Oilprice.com

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  • Matt Biddick on August 25 2016 said:
    I'm in the oil and gas business and I couldn't care less if the world is overtaken by EVs. A BTU is a BTU is a BTU. Global energy demand as measured by ExxonMobil is several hundred quadrillion BTUs/yr. Those EVs require BTUs to run. Mr. Cunningham, I don't have the figures right in front of me, but the last ones I saw were that renewables (wind and solar primarily) are somewhere south of 5% currently for the world and somewhere around 11-13% for the USA. I live in Oklahoma and we've got those wind turbines on just about every corner already. I suppose if the folks will put up with them being as ubiquitous as mosquitos then maybe the premise of this article comes close to being possible.

    I don't think that'll happen though. I know they fought them at Cape Cod and probably other places, too. If we really switch to that many EVs, then natural gas is going to $10/mcf. That'd be just fine with me.
  • EH on August 26 2016 said:
    "Nick,", my name is Ed, I have lived and worked in Permian Basin for 30+yrs. Seen 3 boom to bust cycles. In 1996 I was drinking coffee with lost and down land "lease" man at 4 in the morning @ a I HOP'S here in Midland. I told him this was coming and that a smart man who had the right connections, should use all the empty industrial building here to "MANUFACTURE the needed parts and equipment for this NEW energy source that was coming. I was and AM into Hydrogen production research. All these existing pipelines through out the Country could be cleaned, tested and approved for distribution of Hydrogen. He agreed but said; the lazy man never believes or trains for CHANGE, that's what happened too the boiler makers who once built the steam powered locomotive. Change is inevitable and good to those who accept and prepare for it.
  • Blaine Flinders on August 26 2016 said:
    I worked in an oil refinery for 33 years. I don't want hydrogen anywhere near my family. It is dangerous and extremely difficult to contain.
  • JHM on August 26 2016 said:
    Thanks, Nick, this is surely a difficult message for many in the oil industry to hear, but it important to contemplate. Anyone who doubts that EVs will take over the market needs to test drive a Tesla. The only real hang up is the sticker price, but this will come down for superior electric vehicles. And as that happens there will be no turning back.

    The earliest economic impact on the oil industry will bear upon the value of oil reserves, not displacement of short oil consumption. This is perhaps the biggest blind spot that the oil industry has. It thinks the shear volume of oil consumption will protect it in light of the decades it will take for EV production to ramp up. But impact on the value of reserves will be felt by the market decades in advance of massive demand loss.

    Consider this, the Saudis have proven oil reserves that will take over 60 years to tap at 2015 production levels. Suppose EVs continue to grow at 35% well below the current rate of 50%. By 2035, demand for oil is falling by 2% or more annually. This may seem like a long ways off. But what is the value of the Saudi reserves or any reserves when demand is falling at such a rate. Basically, there is no point exploring for new reserves, because anybody sitting on surplus reserves will try to liquidate them before they lose all value. So roughly speaking the value of reserves in twenty year is an enormous write down, maybe less than $1/b. But why should anybody worry about this today? Suppose you are Saudi Arabia and you believe that your reserves in 20 years could be practically worth, but at current pace you will only tap about 1/3 of your reserves while they still have value. So your strategy becomes to maximize production every year at whatever price the market will bear. And this is what the Saudis, Iranians and others with large reserve to production ratios are doing. The US has a mere 12 year R/P ratio, so it does not feel the same degree of risk. But the global R/P ratio is at 50 years, which will ultimately lose value to the EV revolution. So large reserve holders need to accelerate production and if that drives prices down to a level where exploration comes to a near standstill so much the better. Minimizing reserve replacement rates is also part of a strategy for preserving the value of proven reserves.

    In short, just the threat of an EV revolution is enough to motive large reserveholders to overproduction in the short term. The glut today may well be extended indefinitely on this point alone. And the pressure to overproduction will only increase as EVs gain a foothold and drive down the longterm value of reserve. So pump like it's going out of style, because it already has.
  • Adrian on August 26 2016 said:
    Every 25 EV's produced represents roughly a barrel per day of demand gone for the next 15-20 years. Worldwide there have been roughly a million produced so far.

    Tesla intends to be at 500,000 vehicles per year in 2018, one million annually by 2020. BYD will likely be close behind. Other newcomers are in various stages of design, pre-launch, etc. Of the "old line" makers, Volkswagen and Daimler might actually be getting serious about them, and Nissan/Renault are improving too.

    And the dark horse is full autonomy. That's going to cause a major shakeup in the auto industry at some point - a lot fewer vehicles will be needed if autonomous "car as a service" takes off.

    Place your bets...
  • Oilracle on August 26 2016 said:
    "Finally, perhaps the most devastating effect of the EV revolution will be on the oil industry. BNEF forecasts EVs cutting off 13 million barrels per day of oil demand by 2040"
    ----

    Those 13 million barrels, or their NG equivalent, have to be burnt somewhere each day somewhere to feed electric cars. Additional amount will have to be burnt to compensate for the battery charging losses and high voltage transmission losses.

    Will the cities be able to expand their power stations? Will the surround communities give up land for the new power lines?

    Gasoline cars leave the cities if the population there decreases. What about the excessive electric power infrastructure there?

    EVs are like trolleys. Where do they still exist? Most got extinct.
  • Chad on August 27 2016 said:
    you state that there will be a 13 million barrel per day drop in demand by 2040 while most other analysts state that the demand will increase up to ~110 mmbbl/day

    I have a hard time believing most of this article for many reasons... one of which is the fact that Tesla has posted a LOSS for each quarter over the past 2 years. The free market won't allow an EV take over, not yet at least.
  • mulp on August 27 2016 said:
    "you state that there will be a 13 million barrel per day drop in demand by 2040 while most other analysts state that the demand will increase up to ~110 mmbbl/day"

    Oil is priced at the margin.

    The increase in supply, or reduction in demand, or both, that sent oil from $80 to $20 was only a ~1 mmbbl/day for six months or less.

    US production is heading to down 1 mmbbl/day, but other supply is coming on line even as wars threatens parts of the global supply. It is the cost of the wars, or rather the costs added to delivering oil in conditions of war, that is keeping the price above $20. The wars are in part driven by the low prices of oil. But a big part of the reason the price got to $100 was war, hot and cold.

    Not likely to be wars fought over wind and solar. Those are based on labor costs, not on control of land.
  • ParmaJohn on August 27 2016 said:
    Chad, Tesla and friends do not live in a free market. US crony capitalism sees to that. Under a Clinton presidency you may expect EV numbers to keep growing as they have for the past seven years or so. Under any other administration you may just see a hiccup as your tax dollars are funneled to a different set of cronies.

    The impact will always be as your numbers indicate: EVs may take away 13, but meanwhile the world still wants 110 more.

    And just out of curiosity, can anyone tell me how many barrels of oil it takes to "lightweight" an EV? We don't burn all the oil that is pulled from the earth, you know.
  • Westcoaster on August 27 2016 said:
    I found a used plug-in Prius about a year ago and am amazed at how smoothly it switches from EV to HV mode and how it handles and accelerates. Plus since I average 65 mpg, what I save on gasoline each month almost makes the payment. Plus it only needs maintenance every 10k miles. I would never buy a straight gasoline-only vehicle again!
  • larrythelogger on August 28 2016 said:
    What is the source of energy that will be used to recharge the batteries of these EV's? My guess is the same energy source that is keeping Tesla alive right now: the US taxpayer AND the fossil fuel industry unless of course, President Her Majesty forces the US taxpayer to put wind turbines and solar panels on 90% of all public and private property.
  • Null on August 28 2016 said:
    Bought a Volt January.

    Gas consumption is down 90%, oil changes look to be around 40,000 miles.

    It is acceptably quick 0-60 in 7, but 0-30 is an amazingly quick 2.2.

    Its a great drive, and miles are dirt cheap!
  • CapitalistRoader on August 28 2016 said:
    "[I]t simply makes no sense to have an inherently analogue power unit – vibrating, volatile-liquid-consuming, hot-polluting-exhaust-producing – at the heart of a fully digital, sensor-pervaded, solid-state-electronics-controlled system..."

    EV's just shift the vibrating, volatile-liquid-consuming, hot-polluting-exhaust-producing power generation from the car to the electric power plant, 2/3's of which are powered by similar processes. EV car electric motors are hardly "digital", being not much different from the AC induction motors that have powered household refrigerators for the past 80 years.

    BTW, when referring to electrical devices, use the word analog, not analogue.
  • NorEastern on August 28 2016 said:
    There is no future for carbon based energy. Current solar projects in the ME are currently being bid in the 2.9 cents a kwh range. And solar cost curves tend to converge at about one cent per kwh. At that price nothing but hydroelectric power can compete. In 40 years oil will only be used for chemical industry feed stock.
  • Stan on August 29 2016 said:
    Nick, you fail to mention the only reason wind/solar are up and coal is down is because of Obummer's push to kill the coal/oil industry. If he and other green nuts had their way we'd all be in the dark and riding bicycles. Wind/solar are only a few percent of our energy production and way too costly but you make it sound like it's taking over oil/gas/coal electricity production which isn't true. I don't want those crazy windmills nor do I want nuclear or hydrogen proliferated. Too dangerous. Nat gas is clean and is the future. The fool politician's here in LA are killing business's by replacing street parking with bike lanes. What idiots. That's where China was decades ago. Now they have come of age and moved into super highways and cars. Our nuts here are pushing us back to the stone age. And yes, I'm voting for Trump who will right this ship of fools.
  • Archaeos Pteryx on August 29 2016 said:
    Your article is misleading (for a while I thought I was reading Cleantechnica -- and that is almost an insult).
    a) Wind and solar "energy" exists only because of subsidies and mandatory quotas. When they exist, the occasionally reduce marginal prices, making conventional plants unprofitable; but they can neither replace conventional plants, nor do they save any real, measured, fuel (as evidenced by the well documented German experience). Any gains form random production are offset by losses in efficiency. They are quite good at doubling electricity prices though.
    b) Coal's problems are not the result of either wind or solar. They are the result of shale gas and indirect taxes on coal. All the wind and solar installations of the US cannot replace the smallest coal plant.
    c) The only value of ev's is that they may act as an outlet for otherwise useless random power, but all the studies I have seen suggest that lithium batteries are not the answer. But if they can feed on subsidies they also must be great
  • dug on August 29 2016 said:
    i am one of the first purchaser of the turbine electric semi trucks--cut my operating cost in half--thats all i care about--debate over
  • EdBCN on August 29 2016 said:
    Oilracle and Matt B: the problem with your theses that it doesn't matter if the cars are EVs or ICEs, they still need the btu's to run them is twofold: First, EVs are significantly more efficient than ICEs as measured from well to wheel. I think they are at least twice as efficient, if not more. So EVs do represent an absolute reduction in energy used. Second, oil is one of the most expensive fuel sources in use today. Just about any other way you can think of to make electricity is cheaper than burning oil in a thermal plant, so it is highly unlikely that oil will be used power EVs. Nat gas may see some demand out of EVs, but not oil. Renewables will pick up the bulk of the slack.
  • EdBCN on August 29 2016 said:
    Archaeos Pteryx: This may sound 'cleantechnica' but it is realistic. a) Wind and solar may have only existed up until now because they have subsidies and mandates, but they are clearly now standing on their own in a lot of places that do not have subsidies. Their price points have reached competitiveness and are continuing to fall rapidly. And, to be realistic, solar and wind are going to keep getting subsidies for a while. Congress, which has been able to achieve agreement on almost nothing for years, has just recently renewed the tax breaks for solar and wind for the next few years. And the state of California just passed an aggressive CO2 plan. Not to put to fine a point on it, but governments will continue to see a value in cleaner air and water- the health benefits alone can be quite significant, let alone the more remote environmental benefits.
    b) Agreed that coal's problem is cheap gas. On the other hand, two thirds of all new capacity added to the US grid in 2015 were renewables. Wind and solar are replacing fossil fuels now. It's going to take a while to replace the whole huge fleet of plants we now have. But the fact that renewables already have the lion's share of the market for new generating capacity, and that they are still growing, means that we are probably entering a prolonged period of downward pressure on the demand for fossil fuels in electricity generation.
    c) The value of EVs is that the cheap, mass-produced batteries that they are bringing to the market will also be a boon for intermittent electric generators- especially solar. Interestingly, it seems the EV revolution is hitting hardest first in the market for heavy vehicles, like buses and garbage trucks, and heavily used vehicles like delivery vans and taxis, not private cars.
  • nuffalready on August 30 2016 said:
    EV are great, but we see what happens when the subsidies are pulled.
    Never could (quite) understand all the 'leave it in the ground' triumphalism from the green-left
  • GregSS on September 01 2016 said:
    nuffalready: The idea of the subsidies is to seed the market, it is hoped that by the time the subsides end that EVs will be competitive with ICE and will be able to stand on their own.

    Batteries are improving in price and range every year, and I think many will be surprised at how quickly EV's and PHEVs become mainstream.
  • Bob on September 01 2016 said:
    One little drawback in the long view, IMHO. We have an economically failing country with an outdated grid. As EV popularity increases, major improvements will have to be made to the grid. New sources of electric production will have to be developed. I would suspect this would be funded by more money printing and passed on via increased taxation of electricity.
    So, as batteries and EV technology become cheaper, get 'em while you can, because at some point, their popularity will flatten, due to increased cost.
    Just a thought
  • Mike on September 02 2016 said:
    Btu is btu - unless you charge at night, when there's such a surplus of electricity they charge much less and even then it is propped up by day time prices. Most charge happens at night! I do!

    Subsidies necessary? All ecomonic activity is subsidized. Especially legacy energy systems. That said, subsidies now are just additional dealer profit on utility scale solar and wind in U.S. Installed price is lower then any other new electricity price and when supply surges their marginal price is near Zero so they force fuel based systems to compete at severe losses.

    Grid: Ev's as previously noted charge at night. They are the best revenue stream for the current grid as the load occurs when wholesale prices are minimal. Also grid stays cooler (per KWh delivered) when those KWh are delivered at night... Basically all profit. Additionally, an EV uses just twice the electricity it takes to refine and deliver gas... So... 1/2 the electricity is not just shifted from comercial rates to residential (way higher) and most shifted off peak. OBTW, my electric bill barely moved when I bought my Volt. I now consume only 15% I used to and I drive 20k miles/year.
  • Douglas on September 05 2016 said:
    Odd we are talking about the demise of oil when the demand keeps going up, OPEC is producing at unprecedented rates and we are short on supply, living on our massive build up of storage. At this point, reserve replacement discovery is the lowest since 1960 and investment has fallen to historical lows. Did I miss something or should I assume you are all drinkng the Kool-aid?
  • bzzz on September 12 2016 said:
    Another eco BS. More than 50% of of processed crude oil is used in industries producing among other things plastics, which if I understood correctly will be used in manufacturing EVs. Another thing which i do not belive in, is the "less maintenance ". I am pretty sure that for couple decades now any car manufacturer is designing and making it's cars in the way that its making money on spares. I dont think it will change in the future - it's a lot of money that comes from servicing and spares. "Remote repairs" are science fiction. Marketing BS.
  • Mike on September 13 2016 said:
    Bzzz:
    Nope! Transport fuel is 75% of oil produced, not 50...

    Much less maintenance is not b.s.. Almost everything that needs peroidic attentions is not even present in an EV...

    You're pretty sure has little predictive value.
  • GregSS on September 14 2016 said:
    No oil changes
    No air filter changes
    No transmission oil changes, or transmission failures to worry about.
    No cooling system problems (hoses, radiator, water pumps)
    No fuel system problems, filter, pump and injectors.
    No emission system problems to break, and catalytic converters to worry about.
    No tune ups to worry about, spark plugs, injectors etc.
    Brake system wear dramatically reduced due to regenerative braking.
  • wan on September 20 2016 said:
    i would love to see our world smoke free but you have to be rationale here....100% ev is not a comprehensive solution. Hybrid is considered a much better solution.

    As one of environmental specialists in my country pointed out in one of local newspapers, his point really got my attention...

    It is easy to say that ev is the solution of environmental hazards that we're suffering now but bear in mind about the effect of the used batteries in ev once they have reached their lifespan. The number of batteries in a single ev are a few times more than the one in a normal car. As more and more evs are on the road so we can have less smoke pollution but the first cycle of the end of battery life in these evs have not started yet. Once the first cycle started and so on, imagine the magnitude of used batteries that go to the dump site. Are these batteries recycled type? If they are, I'm fully supportive of it but if only 10-20 % of these batteries components can be recycled then you need to be worried about it.

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