• 4 hours Thanksgiving Gas Prices At 3-Year High
  • 8 hours Iraq’s Giant Majnoon Oilfield Attracts Attention Of Supermajors
  • 10 hours South Iraq Oil Exports Close To Record High To Offset Kirkuk Drop
  • 13 hours Iraqi Forces Find Mass Graves In Oil Wells Near Kirkuk
  • 14 hours Chevron Joint Venture Signs $1.7B Oil, Gas Deal In Nigeria
  • 15 hours Iraq Steps In To Offset Falling Venezuela Oil Production
  • 17 hours ConocoPhillips Sets Price Ceiling For New Projects
  • 3 days Shell Oil Trading Head Steps Down After 29 Years
  • 3 days Higher Oil Prices Reduce North American Oil Bankruptcies
  • 3 days Statoil To Boost Exploration Drilling Offshore Norway In 2018
  • 3 days $1.6 Billion Canadian-US Hydropower Project Approved
  • 4 days Venezuela Officially In Default
  • 4 days Iran Prepares To Export LNG To Boost Trade Relations
  • 4 days Keystone Pipeline Leaks 5,000 Barrels Into Farmland
  • 4 days Saudi Oil Minister: Markets Will Not Rebalance By March
  • 4 days Obscure Dutch Firm Wins Venezuelan Oil Block As Debt Tensions Mount
  • 4 days Rosneft Announces Completion Of World’s Longest Well
  • 4 days Ecuador Won’t Ask Exemption From OPEC Oil Production Cuts
  • 5 days Norway’s $1 Trillion Wealth Fund Proposes To Ditch Oil Stocks
  • 5 days Ecuador Seeks To Clear Schlumberger Debt By End-November
  • 5 days Santos Admits It Rejected $7.2B Takeover Bid
  • 5 days U.S. Senate Panel Votes To Open Alaskan Refuge To Drilling
  • 5 days Africa’s Richest Woman Fired From Sonangol
  • 5 days Oil And Gas M&A Deal Appetite Highest Since 2013
  • 5 days Russian Hackers Target British Energy Industry
  • 6 days Venezuela Signs $3.15B Debt Restructuring Deal With Russia
  • 6 days DOJ: Protestors Interfering With Pipeline Construction Will Be Prosecuted
  • 6 days Lower Oil Prices Benefit European Refiners
  • 6 days World’s Biggest Private Equity Firm Raises $1 Billion To Invest In Oil
  • 6 days Oil Prices Tank After API Reports Strong Build In Crude Inventories
  • 6 days Iraq Oil Revenue Not Enough For Sustainable Development
  • 7 days Sudan In Talks With Foreign Oil Firms To Boost Crude Production
  • 7 days Shell: Four Oil Platforms Shut In Gulf Of Mexico After Fire
  • 7 days OPEC To Recruit New Members To Fight Market Imbalance
  • 7 days Green Groups Want Norway’s Arctic Oil Drilling Licenses Canceled
  • 7 days Venezuelan Oil Output Drops To Lowest In 28 Years
  • 7 days Shale Production Rises By 80,000 BPD In Latest EIA Forecasts
  • 7 days GE Considers Selling Baker Hughes Assets
  • 7 days Eni To Address Barents Sea Regulatory Breaches By Dec 11
  • 8 days Saudi Aramco To Invest $300 Billion In Upstream Projects

Breaking News:

Thanksgiving Gas Prices At 3-Year High

Peter Tertzakian

Peter Tertzakian

Peter is an economist, investment strategist, author and public speaker on issues vital to the future of energy. He has clocked over 30 years of…

More Info

Will The EV Hype Actually Help The Oil Business?


Last week’s announcement by Volvo that every car, “it launches from 2019 will have an electric motor,” jolted oil investors.

Then France amped up the newswire by switching on a ban: No more combustion car sales by 2040. To cap off a trilogy of electric vehicle (EV) proclamations, Elon Musk lit up the twitter feed with a photo of Tesla Motor’s first Model 3 production car.

Oil companies and investors should take note. These announcements are impacting the industry and will increasingly do so. But it’s not because electric cords are going to replace pump hoses anytime soon.

The demand for oil is as robust as it’s ever been, thanks to barrels that are priced 60 percentage lower than they were three years ago; the linkage of petroleum to the world economy is actually strengthening not weakening.

But it doesn’t matter. EV mania is affecting the psychology of investors who finance oil assets, services and infrastructure. Fog lights of reason are finding it increasingly difficult to see the future of oil past 2020, because a cloud of uncertainty is thickening around long-term demand.

The result of all this next-decade confusion is that less money is going to be flowing into the oil business.

Increasingly, investors will expect a premium return for long-term projects and their money will discriminate with higher tolerance. It’s all Darwinian; the natural selection imposed by investors will seek visionary management, quality assets, fast payback, profitability at lower cost, and innovative new processes to facilitate operating at lower prices. It’s already happening and the selection criteria are likely to tighten over the next few years.

The EV revolution is no longer a Tesla curiosity. By 2020 most automakers will be parading their offerings of pure electric or hybrid models. Some will even follow Volvo’s bold move to divorce pistons in favor of rotating magnets. And it’s probable that more western countries will follow France’s ban. Each new announcement will bring more fantastic predictions about the imminent demise of the oil industry, increasing the uncertainty about how wheels are going to turn.

Even now, the mainstream narrative seems convinced that the end of oil is nigh. More and more armchair analysts ask me rhetorically, “Looks like the petroleum business is finished, eh?”

“Really?” I say with an understanding nod. But then my instinct for real-time market research kicks in. I volley a return question, “Have you bought an electric car or hybrid?”

The answer is predictably, “No,” even though hybrids have been around for almost 20 years and mainstream EVs from Nissan, BMW and Tesla have been around since 2010.

Related: The Major Wildcard That Could Send Oil To $120

I bought a Tesla six months ago and have been driving it routinely since. I love it. Silent, smooth and efficient, I’m a believer that the electric mode of transportation is a no-brainer for city driving. But that’s just me, a habitual technology adopter.

Broad sales momentum for alternative vehicles is still tepid to-date. There was a linear ramp-up in the US market for battery electric vehicles (BEVs) between 2013 and mid-2014 when oil prices were over $100/B. But sales over the past three years have struggled to gain convincing momentum (see Figure 1). Plug-in hybrids (PHEVs) are starting to trend up, but volumes are small.

(Click to enlarge)

China is three times the auto market of the US. It’s demonstrating a greater propensity to adopt EVs, due to demographics, exhaust pollution and government subsidies. But even there the monthly sales are still choppy.

An exponential ramp in global EV sales is needed to be persuasive. Undoubtedly, the trend will tick up again after we see a greater diversity of mainstream models like the Tesla Model 3 and whatever companies like Volvo, Audi, BYD and many other automakers come up with. But fast adoption is not a given. Cheap oil prices and the utility of the internal combustion engine have long been a strong tag team against assaults on their market share.

So, we are living in an energy world of contradictions. The clutch is completely disengaged between the consumer trends we see today (growing use of cheap oil and sparse EV penetration), and conjectures about tomorrow (the imminent demise of oil).

So what’s going to happen over the next few years? Here are two possible outcomes as a result of greater EV sales and headline momentum:

1. A tightening of capital will clean out oil’s inefficient producers. The progressive wing of the industry, mostly located in North America, will innovate even more aggressively to lower their costs. Technology leaders within the business will do very well and be battle hardened to handle any potential demand moderation in the 2020s. Oil prices will stay low with ample supply, making the consumer decision to switch to EVs more difficult; or,

2. Shrinking capital investment into the industry will result in oil supply constraints. Declining production will drive the price of oil higher again, after bloated inventories clear in the next couple of years. The advent of higher oil prices will be a catalyst for faster EV adoption, around the same time that more model diversity becomes available. Low-cost oil producers that are aggressively innovating today will benefit from their call option on the higher prices.

Volvo and other EV manufacturers should hope for the latter

Ironically, progressive oil companies will do well under both scenarios.

By Peter Tertzakian for Oilprice.com

More Top Reads From Oilprice.com:

Back to homepage

Leave a comment
  • citymoments on July 14 2017 said:
    Lithium battery requires the metal of Li and cobalt which are both rare metals, that is why the more electrical cars are built the more expensive they will become. If you trade commodity, have a look at the lithium price: it has doubled in last 12 months, do you see the lap tops are becoming more expensive ? Read my lips, electrical car, solar and wind energy investment is a scam, it will fail miserably. In China, electrical car is a government funded propaganda to de-industrialize western economy. Oil will be over $200 in three years time!
  • Henry on July 17 2017 said:
    Yea, oil wil be $500 in a few years. Thats what someone needs to write in order for the sensors to publish your article. No opinion that disagree. Whats the point of a comment section unless its allowed to be published? You might as well remove your comment section. Its a joke.
  • TM on July 18 2017 said:
    @citymoments: Funny statement: "electrical car, solar and wind energy investment is a scam, it will fail miserably". Yeah...sure. That is why renewable investment is already ahead of investment in fossil fuels on a worlwide basis. Solar and wind are already competitive with conventional sources of energy even without subsidies. So, i guess renewables have already won. All we have to do is sit down, get some popcorn and watch the slow, painful death of fossil fuels. It will be slow, just like the disappearance of dinosaurs, but their decadence is already here. Anyways it's good to see there are still people like citymoments out there. There are tons of money to be made thanks to people like him. People who just can't get the picture yet and keep backing the losing horse in this race.
  • David Hrvnak on July 23 2017 said:
    I believe we will soon see peak demand for oil. Both of our cars are now plugin 's and we have cut our gasoline usage by 80%. And with solar on the roof we cut all electricity usage. Energy independence is finally at hand.
  • Ian on July 28 2017 said:
    Oil is so pervasive and at present so essential to just about any human endeavour that all commodities, goods and services are priced according to an oil 'standard' . As things stand today the price of gasoline will be equal to the price of bread or milk etc, no matter what the Dollar value of gasoline is. Oil is shackled to every other segment of the economy. Raise the price of oil and the rest of the economy's prices will inflate to match. As the oil resource becomes harder to extract, so strain will be felt throughout the economy, but still the ratio of oil prices to other prices will remain roughly the same. EV and electrification of manufacture agriculture and transport will allow oil to be unshackled from its 'gold standard' status and it can rise in price without dragging the rest of the economy with it.

Leave a comment

Oilprice - The No. 1 Source for Oil & Energy News