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Electric Vehicles Could Soon Reduce Oil Demand By 13 Million Barrels Per Day

Electric Vehicles Could Soon Reduce Oil Demand By 13 Million Barrels Per Day

Electric cars could upend oil markets much sooner than everyone thinks.

According to a new report from Bloomberg New Energy Finance (BNEF), the rapid decline in the cost of building batteries for electric vehicles (EVs) will make them cheaper than the internal combustion engine in just a few years. By the 2020s, EVs could beat conventional vehicles on price, a shocking development and a potential epochal shift for energy markets.

Battery prices declined by 35 percent in 2015, another impressive feat for the technology as it marches towards both relevance and market share. BNEF believes that EVs – on an unsubsidized basis – will be just as affordable as a car that runs on gasoline…within six years. That means that by 2022, BNEF argues, EVs will reach “the point of liftoff for sales.” The cost-competitive prediction for EVs even assumes that gasoline-powered cars continue to improve efficiency at a rate of 3.5 percent per year. Related: U.S. Unable To Halt ISIS March Towards Libyan Oil

The report projects that EVs will control 35 percent of the auto market by 2040. That will be possible because an EV with extended range will cost just $22,000 in today’s dollars.

Behind those cost declines is the dramatic fall in the prices of batteries. Costs for lithium-ion batteries have plummeted to just $350 per kWh in 2015, a 65 percent cost reduction since 2010. But battery manufacturers are not done yet. By 2030, costs will fall to $120 per kWh, or less than half of today’s levels. From there, costs will continue to decline.

For oil markets, the conclusions should be alarming. BNEF sums it up succinctly: “The electric vehicle revolution could turn out to be more dramatic than governments and oil companies have yet realized.” Related: In Spite Of Oil Price Slump, Canadian Oil Output To Increase

The oil industry is clearly not planning for the EV revolution. Tom Randall of Bloomberg reported that ConocoPhillips’ CEO Ryan Lance told him in 2015 that “EVs won’t have a material impact for another 50 years—probably not in his lifetime.”

But BNEF sees EVs displacing 2 million barrels per day (mb/d) of oil demand as early as 2023. That is just the start. The real pain will come after that point as EV sales start to skyrocket. BNEF estimates that EVs could capture 35 percent of the market by 2040, which would displace 13 mb/d. For an oil market currently in tatters because supply is exceeding demand by a meager 1 to 2 mb/d, the destruction of 13 mb/d of demand should be unsettling, to say the least. EVs present an existential threat.

At the same time, the sharp rise in EVs would lead to a surge in demand for electricity, as the 41 million EVs sold in 2040 would need to be routinely charged up. All of those cars could require 1,900 TWh of electricity each day, equivalent to about 8 percent of global electricity demand in 2015. Related: Why Oil Booms And Busts Happen

Of course, these are just projections. And as anyone familiar with the projections of the IEA, EIA, or OPEC will tell you, projections are wrong 100 percent of the time. But the exact figures – whether its 25, 35, or 45 percent of market share – are not the important thing to focus on. The key takeaway is the trend, which points to the potential for rapid growth for EVs, taking ever larger chunks of market share away from oil.

The writing is on the wall – as a technology, battery costs will continue to decline as manufacturing and the chemistry improves. Oil companies can reduce costs, but commodities don’t see costs decline in the same way. Finite natural resources see costs rise as they become scarcer. In the long-term, very few people expect oil to be as cheap as it is today at around $30 per barrel. And to the extent that oil remains cheap indefinitely, it will be because EVs destroy demand. It is cliché at this point, but as the old adage goes: the Stone Age didn’t end because we ran out of stones.

By Nick Cunningham Of Oilprice.com

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  • Jim Decker on February 28 2016 said:
    Pipe dream. Take off the subsidies and mandates.

    I saw an ad for a '15 model electric that said it was the wave of the future and electrics would replace internal combustion within 5 years. I was in a museum and it was a 1915 Duesenberg.

    Same circus, different clowns.
  • EdBCN on February 28 2016 said:
    It seems like there are radically different cost estimates for EV batteries. GM claims it is already buying its cells from LG Chem for $145/kWh. I know that the battery is more than just its cells, but still it seems like an extraordinarily conservative estimate to say they'll be $120 by 2030. Another data point: Tesla says their batteries will be $100/kWh by 2020. Or, to use the numbers in this article: Battery cost dropped 35% in 2015 to about $350/kWh. Let's say cost reductions fall by just 25% per year for the coming years. That would get the cost down to $85/kWh by 2020.
  • Bill on February 28 2016 said:
    Logic Fail - if demand for oil falls then oil price stay low and EV's will never ever be economic compared to gasoline vehicle. Fantasy - Dream world.
  • Eco_Turbo on February 29 2016 said:
    Don't forget, that the cost of producing an electric car will become less than producing a gas car. And we all know how auto manufacturers like cutting their costs per vehicle. Plus electric cars are more fun to drive.
  • ricegf on February 29 2016 said:
    @BIll, you are mistaken on both acquisition and operational costs, and are overlooking numerous competitive advantages.

    In acquisition cost: EVs have roughly a tenth the moving parts of a gasoline car, and so will cost significantly less to acquire as the Li+ maturity cost curve plays out in the next few years, as the article notes.

    In operational costs: Maintenance for EVs is comparatively very low given their remarkable technical elegance. But of greater importance is their efficiency of around 90%. Throwing away 70% of the gas you buy as waste heat makes it even harder for gas vehicles to compete on cost with the variety of low cost and free fuels efficiently used by EVs.

    In evaluating the market for EVs, you also have to consider their long list of inherent advantages. They conveniently refuel at home overnight, offer more cabin and far more luggage space, accelerate quickly and smoothly sans transmission, never drip oil or give you "gas smell hands", don't contribute to "ozone alert" days, and operate so quietly that governments sometimes require noisemakers at parking lot speeds so pedestrians know they are there.

    It's hard to accept change, but technology moves on. The age of petroleum-fueled personal transportation is ebbing despite the crash in oil prices - and that doesn't bode well for oil's long term recovery at all. Sorry.
  • David Hrivnak on February 29 2016 said:
    How true. I now have over 45,000 pure EV miles and another 100,000 plug-in assist miles. In 2008 I burned 1200 gal of gas down to 250 last year. My electric "fuel" costs run $.80/gal eq. And that is power I now make cleanly from my roof top solar. I will never go back to a gas only car. Electric is so much smoother, quieter, quicker that going back to a gas car is like a rotary phone. And I can't make my own gas but I can make my own electricity.

    Like Kodak keep thinking the transition is MANY years away.
  • Travis on February 29 2016 said:
    Haha, where's the electricity going to come from to charge the batteries? Electricity still comes from, by a large margin, natural gas fired generators... Ok, we'll drill some more gas wells to take care of the demand for more electricity for these cars.
  • Adrian on February 29 2016 said:
    Refining 13mbpd less oil will free-up a good chunk of electricity. In the short term though, the majority of new US generation capacity has been renewables over the past couple years, and that trend is increasing.
  • James Hilden-Minton on February 29 2016 said:
    Cheers to Nick Cunningham for showing us the writing on the wall.

    The idea that the price of oil must continue to fall to remain competitive with EVs should be even more disturbing to oil investors than the loss of 35% consumption a few decades out. Currently, the price of oil needs to be under $32/b to compete with batteries at $200/kWh and solar at $50/MWh.

    Here's the math. Over a 2000 cycle life of kWh in an EV getting 4 miles per kWh, you need to 1 kWh of batter and 2 MWh of energy to travel 8000 miles and displace demand for 8 barrel of oil, whence, ($200 + 2*$50)/8 bbl = $31.25/b. Here, I am only contemplating producer prices.

    Naturally the prices consumers pay for EVs and electricity are marked up, just as retail price of gasoline is marked up from crude prices. But as the producer prices of batteries and renewable energy fall this cost advantage serves the battery makers. The competition is largely between oil producers and battery producers. The producer cost advantage fuels expansion. This is why you cannot simply look at retail EV prices and have any clue where the real competition is happening.

    So batteries may come down in price around 7.5% per year, while solar comes down even faster. Thus, while oil at $32/b presently may be economically competitive with batteries, this drops to $22/b by 2020 and $15/b by 2025. Few oil producers can compete profitably at these prices. Thus, EVs will have an absolute cost advantage over oil and will snatch up market share all along the way.

    The biggest mistake oil producers can make will be to overproduce. The aging fleet of oil fired autos may be content to support a $50 barrel, but in a cycle of perpetually falling demand even the slightest overproduction will drive the price of oil down to prices low enough to compete with EVs. Oil producers will not be able to count on any sort of growth in demand to help them work out of a glut. So while it is theoretically possible to sell great volumes of oil at $50/b for decades even while being undercut by batteries, the slightest oversupply will be severely punishing to all producers. Any oil producer that can't be profitable with oil at $22/b in 2020 really ought to get out of the business.
  • Francis on February 29 2016 said:
    Will certainly be interesting to see how this develops but there are challenges ahead for EVs. Lithium has pretty much doubled in price in the last 6 months and 3 companies currently control that commodity. You also need 20X more graphite than lithium in those batteries. Graphite suitable for that market is mainly synthetic with a cost of $15k USD per ton. Natural graphite like Zenyatta Ventures may bring the cost down but most other natural graphite are not suitable for EV's unless heavily processed and then, only when added in small quantities to synthetic. I believe in EV's and believe they will win the day though as that process has already started IMO.
  • James Hilden-Minton on February 29 2016 said:
    Travis, "where's the electricity going to come from to charge the batteries?"

    Consider that to travel about 40 miles per day in an EV. You need about 10 to 14 kWh/day. Solar provides about 3 to 4 kWh per day per kW. So one need about 4 kW of solar per EV.

    One million barrels per day can be displaced by 25 million EVs. So fast forward to the middle of the next decade when about 25M EV are sold each year. Installing about 100 GW of solar is sufficient to supply this increment to the global auto fleet.

    Last year 57 GW of solar was installed globally. The growth rate has been about 30% annually for several decades and can certainly continue at that pace. Thus we are looking at an installation rate of about 212 GW in 2020 and 786 GW. By the time EV produces are cranking out 25 million EV annually and crushing 1 mb/d of demand each year, solar will also be pushing out more than 5 times what is needed to supply the EV fleet.

    So even natural gas is killed in this scenario. Solar drops below $10/MWh by 2025. Natural gas generators burn at least 8 MMBtu to make 1 MWh. Thus, there really is no hope for natural gas over $2/MMBtu to retain much market share in power generation past 2025. Actually, natural gas is getting priced out of the electricity market right now, specifically where gas is faces with significant transport costs such as LNG import markets. The pace of this displacement will quicken as new solar drops from $50/MWh to $10/MWh over the next ten years.

    Natural gas producers hoping to cash in on demand from EVs in ten years need to ask themselves if they can be profitable selling and transporting gas at $1.25/MMBtu. If that does not pencil out, you will be priced out of the electricity market.
  • Tesla_ModelS_Fan on February 29 2016 said:
    It seems pretty clear that the market loves EV’s. The Tesla Model S is already disrupting the market of premium sedans.

    I have more than 35000 miles on my Model S and it is simply a better technology than ICE and I will never go back.
    My previous car was an X5 which is a great car, but the Tesla is just much better.

    - Faster acceleration
    - No need to go to the gas station
    - Less maintenance
    - Reduced fuel cost

    Recipe for disruption: Affordable EV with 50Kwh to 100Kwh battery capacity and a fast charging network like the Tesla Supercharges.

    Energy is clearly needed, but the point is that oil is not used for electricity production so the potential disruption of oil demand is very real.

    Another point is that EVs are in reality energy storage devices and can be used for grid stabilization.
    Charging at night when demand is low and electricity rates are lower or in some places free.

    Kodak or Nokia again anyone… ?
  • Ross Ephgrave on February 29 2016 said:
    I like what James H-M has to say and for once I agree with Nick in his article content.

    The writing may be on the wall for the US, but is doesn't look good for us Canadians. Unless global warming continues to warm up our winters, how will these cars fare in -20 to -40 weather over a 5 month winter? Not everyone has a heated garage to store their electr car in either...
  • EdBCN on February 29 2016 said:
    It seems like there are radically different cost estimates for EV batteries. GM claims it is already buying its cells from LG Chem for $145/kWh. I know that the battery is more than just its cells, but still it seems like an extraordinarily conservative estimate to say they'll be $120 by 2030. Another data point: Tesla says their batteries will be $100/kWh by 2020. Or, to use the numbers in this article: Battery cost dropped 35% in 2015 to about $350/kWh. Let's say cost reductions fall by just 25% per year for the coming years. That would get the cost down to $85/kWh by 2020.
  • Matt on February 29 2016 said:
    Do any of the seemingly educated commentors have any math on the land area required to build out all of these solar arrays that will provide this electricity needed for these millions of EV's? Or for the area needed for the wind generators that would contribute? Also, if everyone who owns the millions of EV's (that will displace 13 mmbopd mind you) is charging overnight, then demand won't really be low then will it? Nor the rates I would imagine.
  • EdBCN on February 29 2016 said:
    Cheap oil won't necessarily save the ICE. I've seen a wells-to-wheels study that shows that you get more miles per gallon of crude if you burn it in an electric power plant and use it to charge EVs than if you refine it into gasoline and burn it in a gasmobile. ICEs are incredibly inefficient and the process of refining and shipping gasoline is not too efficient either. On the other hand, electric motors and power plants run at relatively high efficiency, and transmission via electric grid is a lot better than trucking gasoline all over. When the cost of an effective 200-mile-range car battery gets low enough to bring the price of an EV within $5000 to $10,000 of a gasmobile, the ICE will be a goner.
  • Adrian on February 29 2016 said:
    I can't speak for -40 yet, but at -20 my Chevy Volt works great. It wams up on shore power and the electric motor makes none of the horrible noises my gas car made when starting at those temperatures.

    Granted, it doesn't go as far on a charge as in the summer, but then my last gas car was losing 5mpg+ in the winter too, more if there was snow on the road. Power delivery seems unchanged from summertime.

    The Tesla Model S was the best selling vehicle (all vehicles, not just electrics) in Norway several months over the past two years. The Norwegians know winter...

    Great comments folks. Awesome to see the EV crew busting FUD and talking points with positive experiences here in the heart of the online oil patch.
  • 01 on March 01 2016 said:
    From MIT. Flexible solar cells - randament 6w/g

    http://www.gizmag.com/lightest-thinnest-solar-cells-mit/42092/
  • GregSS on March 01 2016 said:
    One of pro-oil arguments is that it will not go away because if EV's are successful then low oil prices will keep gas cars popular. However, extended low oil prices will bring massive problems to a lot of Mid-East countries, if even a couple fall into civil war or cannot keep ISIS at bay, you could see a lot of oil taken off the market in a hurry. This of course would lead to a massive spike in the price of oil.
  • DA on March 01 2016 said:
    Hydrocarbons have been subsidized since time immemorial. Any criticisms
    about other forms of a substitute product receiving subsidies are just uninformed.
    Let the real market decide - no subsidies either way.
  • Michael W on March 02 2016 said:
    I am a bit over the argument of "gov't subsidized portion" of the cost of an all EV. Those dollars were paid by my income taxes and I received that money back. Not, "other peoples money", my money, off of "my taxes".
  • Bill on March 06 2016 said:
    This is wishful thinking.
    Some more realistic analysis
    http://dailycaller.com/2016/02/25/cheap-oil-is-killing-the-electric-car/

    http://www.investors.com/politics/editorials/green-energy-cant-compete-with-30-oil/

    Time to double up on Tesla shorts.
  • Kevin on March 24 2016 said:
    The Bloomberg analysis hinted briefly at Lyft, Uber and self-driving cars. Consumers that stop buying new cars and instead use on-demand transportation will help bring about the supposed oil glut and adoption of electric vehicles.

    Electric cars will be bought mostly by early adopters in the next 2-3 years which doesn't mean much overall. The impact comes from everyone else. it's likely that more than half of people buying a new car today -gas, electric, or otherwise- will be buying their last new car ever.

    GM invested $500 million in Lyft two months ago for a reason. It's a no-brainer that Lyft and Uber would use electric and self-driving cars when available because of maintenance and operating costs that are cheaper than human-driven gas cars. If GM is betting on an electrified, self-driving car culture, then oil companies should pay attention.

    Bloomberg's guess of a 2023 oil glut is a real possibility, not 2028 and later. If you have any doubts, go to Tesla's website and you'll see their autopilot video autoplaying front and center. All major manufacturers want fully self-driving cars by 2020 and the NHTSA is in Phase 2 tests for V2V/V2I (vehicle-to-vehicle/infrastructure) with thousands of human-driven cars (10,000 in NYC and less in a few other cities). Even now Tesla's cars are mapping roads and road conditions and feeding the data back to the company. Imagine what 2020 will look like with a modest progression of what is going on today.

    Self-driving cars will be a big change because transportation is a huge part of society and transportation is fairly inefficient in terms of cost.

    Even if you drive your car 1 hour to work, 1 hour back home and 1 hour for errands every weekday, you car is sitting idle almost 90% of the time Mon-Fri. On top of that you're paying a hundred dollar or so a month for insurance. The only reason for such inefficiency is because it's not yet convenient to rent cars for everywhere you need to go. That will definitely change by 2020.

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