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Andreas de Vries & Salman Ghouri

Andreas de Vries & Salman Ghouri

Dr Salman Ghouri is an Oil & Gas advisor with expertise in global / regional long-term forecasting, macroeconomic analysis and market assessments. He has developed…

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Will Autonomous Cars Transform The Energy Industry?

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A recent study by the Boston Consulting Group (BCG) concluded that by 2030 a quarter of all miles driven in the U.S. will most likely be in autonomous vehicles.

BCG’s core message that the automotive industry “is on the brink of a major transformation” and that “for millions of Americans … the next vehicle they purchase may be the last car they ever own” did not surprise us. When back in 2015 we began researching current developments in the automobile industry in order to assess how these could eventually impact the transportation industry’s crude oil demand, it quickly became clear to us that the future of driving is autonomous.

As we documented in “The Second Automotive Revolution: Implications for the Oil Industry”, self-driving cars will simply offer a better value proposition than the conventional car. Most people see the act of driving as a necessary waste of time and would rather spend that time doing something else – which self-driving cars will make possible. Self-driving cars will also reduce road congestion since they improve the flow of traffic, drive more safely thus reducing the number of congestion-causing accidents, and require less distance between them for safe driving so more of them can fit onto any given stretch of road. Furthermore, as an estimated 30 to 60 percent of cars driving in the inner city are simply looking for parking, self-driving cars will reduce the burden on existing roads and solve the parking problem of America’s inner cities – self-driving cars do not need to park, after all, after drop-off they just drive-off.

And this is where the implications for the energy industry come in.

Unlike conventional cars, self-driving cars can be put to productive use after they have dropped you off at your destination. Conventional cars cannot of course, since they need you to drive them, and that is why they tend to be left idle some 95 percent of the time. But your self-driving car could continue on the road without you, and for a fee bring someone else to work or pick-up and drop-off a package. A small fee, that is, since self-driving cars do away with a major cost element of traditional taxi and package delivery services – the driver. Related: How Far Will OPEC Go For $60 Oil?

Logically, therefore, the owners of self-driving cars will become businessmen in the taxi and parcel delivery business since the income this generates will reduce the overall cost of car ownership. Which raises a question: if the owners of self-driving cars will offer their cars as a cheap taxi when they themselves don’t need them, who would choose to continue to own a car? Would it not be much more cost-effective to just hail a self-driving car whenever one needs to go somewhere? Of course it would, which is why self-driving cars will end car ownership as we know it today and Uber-ize transport. Instead of being parked in garages and on the roadside, fleets of self-driving cars will be roaming the streets moving people and goods around.

While this does not necessarily increase or reduce total miles travelled, it will certainly increase the distance an average car travels every day. This is why the self-driving cars of the future will almost certainly all be electric, because electric cars offer superior durability and reliability when compared to conventional cars. A conventional car with its internal combustion engine has hundreds of moving parts and consequently requires regular maintenance and component replacements (oil changes, filter changes, belt replacements, spark plugs, fuel pump, etc). The number of moving parts in an electric car are far, far fewer making the car itself much less heavy in its maintenance requirement and far more reliable.

Clearly, then, a future of self-driving cars is bad news for the oil companies, who should thus be really worried about BCG’s assessment that by 2030 a quarter of all miles driven in the U.S. will most likely be in autonomous vehicles. Because these miles should be expected to be electric and thus imply a 25 percent drop in U.S. gasoline demand.

For the oil companies in particular the following question is critical, therefore: How realistic is BCG’s prediction?

While we were not surprised by the automotive trends highlighted by BCG, the speed at which BCG sees things moving did surprise us. Back in 2015 it was difficult for us to assess how realistic autonomous driving was, i.e. how quickly self-driving cars could become mainstream. But looking at what has happened since, the BCG forecast seems totally realistic.

Essentially all the traditional car makers – Ford, GM, BMW, Volvo, etc. – are investing heavily in self-driving cars. So are the electric car focused upstarts such as Tesla, BYD and Faraday Future. Automobile parts manufacturers such as Bosch and Delphi are developing toolkits for autonomous driving that the car manufacturers could install on their standard models. And outside of the car manufacturing industry Uber is leading development of driverless technology and is already road testing it, while Apple appears ready to follow in Uber’s footsteps and China’s Baidu is working hard to do so as well. Related: Did Algos Drive The Latest Oil Price Rally?

Some, such as Toyota, are more pessimistic as to how quickly these efforts will lead to self-driving cars appearing on the road. Others are more optimistic, such as Mercedes-Benz, which recently announced its plan to have a fleet of driverless taxis on the road by 2020. And this is exactly what BCG forecasts, that the first autonomous cars will appear around 2020 and from there become mainstream by 2025 to 2030.

In response to this the optimists amongst energy executives might say that autonomous, electric vehicles will reduce gasoline demand but increase electricity demand, and thus gas demand since gas is expected to be the preferred electricity provider for the medium term. While some disagree with this expectation completely, pointing to the rapid reduction in the cost of generating electricity from renewable sources, we would bring to the attention of these optimists that since electric cars are about three times more efficient than conventional cars, even in the most optimistic case (from the fossil fuel industry’s perspective, that is) the overall increase in gas demand will be much less than the decrease in the demand for gasoline.

Now is the time, therefore, for the wise amongst the energy executives to start considering alternatives to the fossil fuel business.

By Andreas de Vries and Salman Ghouri

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Leave a comment
  • Jack b :-) on April 19 2017 said:
  • Sean on April 19 2017 said:
    While its true Electric cars are nearly 3x more efficient as ICE's (actually, more like 2.5X), what also needs to be factored in is the efficiency of the fuel itself.

    Gasoline is about 90% efficient - takes about 1 gallon of gasoline to deliver 10 gallons to a car's tank. Whereas electricity is about 40% efficient (generation & transmission losses).

    All things considered, EV's aren't much more energy efficient than ICE's.

    The benefit is being able to use alternative & nuclear energy, as well as fossil fuels in concentrated, remote locations.
  • CIPPDX on April 19 2017 said:
    As a member of the legal community, I pray that "autonomous cars" are on the roads by 2020, since this will easily pay for my kid's college education. The liability risks are huge. How do you deal with poor roads (with no or minimal lines), or bad weather (blinding rain, blowing snow), or the "four-way" stop, where inevitably, the incorrect party ventures into the intersection first. And then there is the increased risk of hacking, which will give the Russians and N Koreans a fabulous new target. And finally, this will be introduced into a environment which will continue to have +/- 260 million cars driven by humans, whose actions are not easily incorporated into a algorithm. As Jack b said: "Nope", this is not going to happen anytime soon.
  • Vincent DeSapio on April 20 2017 said:
    Another important indicator will be whether Tesla is close to selling 500,000 electric cars next year as they are projecting. If they are anywhere close, it could spell the death knell of the oil industry as well as a whole host of other business, i.e. car repair, gas stations, etc.
  • Scott G. on April 20 2017 said:
    Agree with Sean below. Cannot just consider he efficiency with which an EV converts battery energy to kinetic, but also the efficiency of the weighted average fleet of generation assets (granted some of these are non-fossil).

    The power generation mix and the EV vs. ICE mix of autonomous vehicles are critical to the effect on future oil demand, and I think they are understated in this article. If the autonomous technology does take off, there will be a massive number of consumers seeking the autonomy but not necessarily caring for the electrification of their vehicle. My guess is that total miles driven will probably increase in a high autonomy scenario, as "drop and retreat home" car patterns outweigh efficiencies of ride sharing. Personal property is heavily entrenched in American culture and will take more time to surmount this barrier to sharing.
  • Dan on April 24 2017 said:
    Maybe the one percent will drive them, the ones who profit from globalization. The 99% still driving 2016 autos by 2030. It is fun watching the Tower of Babel mentally of liberal globalization crash to the ground.

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