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Tsvetana Paraskova

Tsvetana Paraskova

Tsvetana is a writer for Oilprice.com with over a decade of experience writing for news outlets such as iNVEZZ and SeeNews. 

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Oil Prices Must Drop Sharply To Compete With EVs

All major stakeholders in the oil industry need oil prices to be higher than the current $60 a barrel Brent Crude to turn profits or balance government budgets.

Yet, in the long term, oil prices at $60 wouldn’t be competitive in the transportation sector because they won’t be able to compete with electric vehicles (EVs), BNP Paribas Asset Management said in a research note last month.   

The long-term breakeven oil price needs to be as low as $9 or $10 a barrel so that gasoline cars can remain competitive as a means of transportation in the future, according to the research report, authored by Mark Lewis, Global Head of Sustainability Research at BNP Paribas Asset Management.

Yet, there are two major obstacles for the clean energy to overcome in order to really threaten the internal combustion engine gasoline car: the deeply entrenched oil industry with deep political roots and the insufficient investment in energy storage and energy infrastructure to enable a sweeping mass-scale EV and renewable adoption, BNP Paribas admits in the report.

The report introduces the concept of Energy Return on Capital Invested (EROCI) to measure how much a given capital outlay on oil and renewables translates into useful or propulsive energy at the wheels: “in other words, for a given capital outlay, how much mobility can you buy?”

According to BNP Paribas Asset Management’s analysis, at present, for the same capital investment, wind and solar energy will already produce significantly more useful energy for EVs than oil at $60 a barrel will for cars and other light-duty vehicles (LDVs). 

Major oil producing countries dependent on oil revenues need oil prices higher than the current $60 a barrel level to balance budgets and boost government income. U.S. shale also needs at least $50-60 a barrel of oil to profitably drill new wells. The oil majors, despite all the cost cuts and streamlining, also need oil at some $50 to turn a good profit and keep or increase dividends.    Related: Can This Multi-Billionaire Revive Alaska’s Oil Industry?

But the advance of renewables and the growing global sales of electric vehicles (EV) have started to disrupt the energy sector. Renewables and battery costs continue to drop, and the share of renewables in major developed markets such as Europe is constantly growing.  

“What you have here is an energy source that’s got a zero short run marginal cost and the capital costs are plummeting, so now is the time to invest in energy storage,” BNP Paribas’s Lewis told CNBC last week, commenting on the findings of the report.

“Ten years ago – even five years ago – putting capital into that didn’t really make sense because renewables themselves were still expensive and still needed subsidies. They don’t need subsidies anymore,” Lewis added.

Last year, energy storage deployment around the world reached a record level, nearly doubling from 2017, the International Energy Agency (IEA) says.

“Technology costs for battery storage continue to drop quickly, largely owing to the rapid scale-up of battery manufacturing for electric vehicles (EVs), stimulating deployment in the power sector,” the IEA said, but noted that energy storage continues to be strongly dependent on supportive policies, meaning that progress varies greatly from one country or region to another. Related: Oil Prices Crash As Hurricane Hurts Bullish Sentiment

In the longer term, however, continuously falling battery costs and rising capacity and usage of clean energy are set to result in booming global stationary energy storage over the next two decades, BloombergNEF (BNEF) said in a recent report.

Energy storage installations across the world are expected to soar to 1,095GW, or 2,850GWh, by 2040, compared to a modest deployment of just 9GW/17GWh as of 2018, according to BNEF’s latest forecasts. Unsurprisingly, the key driver of the energy storage installation boom will be additionally plunging costs of lithium-ion batteries, which will give financial rationale to additional uses of storage and surging installations of stationary energy storage.

Oil majors should be worried about how long they will have the advantage of scale over renewables, EVs, and stationary energy storage. According to BNP Paribas’s report “the economics of oil for gasoline and diesel vehicles versus wind- and solar-powered EVs are now in relentless and irreversible decline, with far-reaching implications for both policymakers and the oil majors.”

However, energy storage and energy infrastructure will need a lot of capital outlays to become the threat that will drive oil majors out of profitability range. 

By Tsvetana Paraskova for Oilprice.com

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  • Adam Czajkowski on September 02 2019 said:
    I like EVs as much as the next bloke, but EVs are substantially more expensive than ICE cars, by a wide margin. You should look at how EV sales plummeted in European countries that removed credits, or the US for that matter, now that the subsidy is gone.
  • Ronald Wagner on September 02 2019 said:
    The electricity has to come from somewhere and that will be from natural gas. The price of the electric vehicle would have to drop by half to be near the lifetime savings of gasoline. Natural gas vehicles would be much more economical and much cleaner than gasoline. That can be done right now and the vehicles can be dual fuel, burning gasoline if desired. Natural gas can even be dispensed at home.
  • Joshua Jones on September 02 2019 said:
    Nobody wants an electric car. Most Americans can't afford a new car, and those who can are not going to waste their hard earned money on some battery powered p.o.s. that will be worth nothing by the time its paid off. I suppose there are a few milenials out there native enough to think that they are single-handedly saving the world by burning coal instead of oil. Green is the color of money and that is all this ridiculous discussion is about.
  • Glenn Taylor on September 03 2019 said:
    What did you expect BNP to say? They are based in Paris so of course they would come out with report biased towards EVs and away from oil.

    I don't have a problem with EV's but take away the subsidies and they aren't much more competitive if at all. They should definitely be cheaper to maintain though that depends on battery reliability.

    NY Times writers did a drive from LA to Vegas with average EV and only saved 11% over gas. Go figure.
  • Chirag Kathrani on September 03 2019 said:
    Most of the people putting comment over here have not used EV. I have been using it since 2014. It has no maintainence, that maintainence cost itself covers the cost of electricity used for driving. I lately put solar panels so that electricity is not a cost anymore. Some one commented people dont have money to buy EV's. Dont realize americans buy 17.3M new vehicles each month. Average truck they buy spend are way expensive plus they also are expensive to drive its the matter of time people will realize and switch.
  • John Di Laccii on September 04 2019 said:
    Saudi trols are consistently trying to prove that this world can not run wuthout their holly depleting oil, coming here with fake Western names and lazy, crooked Arab brains and language. Hope the whole barbaric ME will go down into cesspit once deprived of the only means.
  • Abraham Thundiyil on September 04 2019 said:
    Well this not acceptable ... The EVs are of triple costs that a gasoline engine car and that too range of the EVs are less and charging times are so high takes about 6hrs to make a full charge how do you expect the oil prices get down . manufacturing batteries will solve the problem ... I don't understand . if you can bring a Technology to charge the EVs within 5-10 mins full charge!then we would think about using the electric vehicles .saying to bring the oil prices to 10$ a barrel ... Please -_-
  • Abraham Thundiyil on September 04 2019 said:
    Well this not acceptable ... The EVs are of triple costs that a gasoline engine car and that too range of the EVs are less and charging times are so high takes about 6hrs to make a full charge how do you expect the oil prices get down . manufacturing batteries will solve the problem ... I don't understand . if you can bring a Technology to charge the EVs within 5-10 mins full charge!then we would think about using the electric vehicles .saying to bring the oil prices to 10$ a barrel ... Please -_-
  • Richard Walling on September 04 2019 said:
    My wife traded her $20k Lexus for a $43k Tesla with under 30k miles. O-60 in 4.0 sec. Silent. Fuel is delivered nightly at $0.50 per gallon. Full tank every morning. No problem driving 750 miles over a weekend. She has averaged 2,766 miles/month. The $439/month not spent on oil vs the $66 spent on power paid for her upgrade. Power costs are $2.37 per 100 miles. I beat my son’s 2008 Corvette 0 to 60 in it. It still has an 8 year unlimited mile warranty. It is built for a 500k+ life. The newer Tesla Model 3 now outsells ALL CARS in the US, based on revenue. You can afford a better car with when it costs 80% less to drive. This is at $56 WTI prices. The house is in fire. Get out if you can before oil follows the coal industry to the grave. Capitalism is merciless to inefficient and uncompetitive business models. Don’t say you were not warned. The quickest production car is electric and runs 2.27 seconds 0-60. This is a sedan, not a sports car. Game over. It is now a mopping up operation and the decline is irreversible. Think film cameras, steam engines, CDs, Blackberrys. The Stone Age didn’t end because we ran out of stones.
  • Bob Forbes on September 06 2019 said:
    @Richard Walling: "Game over. It is now a mopping up operation and the decline is irreversible".

    Except for the fact that the power to charge the toy car comes from a power station's generators which run from oil products or coal, some are nuclear. Windmills dont work, they need all that fossil fuel to transport them on ships from China and all the gasoline for the vans to runto them daily as keep breaking down and they have this strange thing going on where they sort of "stop" and prouce no power when its not windy.
  • Suqi Madiqi on September 17 2019 said:
    "In order to help buck the latter of these two trends, Lewis is urging businesses to adopt the recommendations of the Task Force on Climate-Related Disclosures (TCFD), including the completion of scenario analyses for both a 1.5C and a 2C trajectory.

    This sentiment is perhaps to be expected, given that Lewis sits on the TCFD himself. But he insisted that the Task Force’s recommendations should be a starting point, rather than a stopping point, in an age of increased awareness around – and pressure to act on – climate change"

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