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Irina Slav

Irina Slav

Irina is a writer for the U.S.-based Divergente LLC consulting firm with over a decade of experience writing on the oil and gas industry.

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EV Revolution Could Wipe Out $21 Trillion In Oil Revenue

Hardly a day goes by without a research company releasing yet another report forecasting the future of electric vehicles and all related industries, oil included. Some of these are skeptical, but most predict a bright future for electric cars. The latest is no exception: a UK-based company, Aurora Energy Research, has projected that the adoption of electric cars could wipe out as much as US$21 trillion in revenues for the oil, gas, and coal industry by 2040.

In oil, Aurora Energy Research predicts that revenues could fall from US$1.5 trillion in 2016 to US$1.1 trillion in 2040 on the back of fast EV adoption combined with major improvements in energy efficiencies. Meanwhile, oil prices could plummet to as little as US$32 a barrel.

This is what could happen under a “Burnout” scenario developed by the research firm that envisages fast growth in EV adoption and equally fast growth in electricity demand on the back of digital tech use driven by the expansion of the Internet of Things.

Under this scenario that might as well be called “Doomsday” as far as it concerns the oil industry, Aurora Research sees the number of EVs on the roads in 2040 at 540 million. For context, another research, from 2016, saw the total number of cars on the road in that year at 2 billion, so EVs would be a pretty solid portion of the total.

As a result of the advent of EVs, crude oil demand will peak long before 2040, in the mid-2020s. By 2040, oil prices will have fallen to US$32. Coal will be doing even worse, with a ton selling for just US$28 thanks to the increased use of low-carbon power generation capacity replacing coal power plants.

The news for oil and coal under this scenario is certainly bad. Not so for gas: gas will be the big winner under the “Burnout” scenario of Aurora Energy Research, with revenues there rising twofold by 2040, with both supply and prices rising as gas takes territory freed by coal and oil. Related: OPEC Could “Relax” Production Cuts

All in all, the research does not really tell us anything new, except some numbers that sound impressive if you forget that a “Burnout” scenario is not necessarily the most likely one. There have been many upbeat reports on EVs, but the revolution they have touted as happening has actually shaped up to be more of an evolution with adoption not as fast as many of these forecasts predicted.

However, it is true that EV sales are increasing thanks to falling costs, mainly in batteries. This year, total electric car sales are seen by Bloomberg New Energy Finance at 1.6 million, which may not be a whole lot, but it is up considerably from the several hundred thousand EVs sold four years ago. If this exponential growth continues, we might just see some of the optimistic forecasts materialize, although Aurora Energy Research’s prediction of EVs making up a quarter of the global car fleet might be a bit of a stretch.

The oil industry no doubt reads all these forecasts. It’s no coincidence that Shell and BP are expanding into EV charging and battery technology. Even if the forecasts are too upbeat, it pays to be prepared for a greener future that, according to Aurora Research, will come not so much as a result of official policies as of the advance of digital tech and what the firm calls consumer engagement with low-carbon energy.

By Irina Slav for Oilprice.com

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  • Tom on May 23 2018 said:
    On a bright Sunday Morning last fall we drove into Houston from the north around 11:00 AM, from a distance the city was shrouded in a yellow haze visible from far off. We have an oil industry and API that only look at their very local and very current bottom lines. They are not interested in cleaner fuels for cleaner air in our cities or a better future for their customers. We need electric vehicles because the Oil Industry REFUSES to improve their products. Hydrocarbon fuels spew lots of harmful pollution, but the oil industry refuses to do even simple things like blending in more ethanol to clean them up. Rather than blend in even a slight 10% ethanol, refiners line up at the EPA to get RFS Waivers from Scott Pruitt to avoid cleaning up their fuels. It's really sickening, the very institutions that should be leading the way on cleaner fuels like the EPA and the API are actually fighting them to maintain the status quo as long as possible. So Bring on the Electrics, I personally can't wait, in view of the total hypocrisy in the Oil Industry, the API, and the EPA.

    They are all so so worried about your lawn mower or your weed eater, but they don't mind flogging you with their high Benzene, High Pollution Fuels. Bring on the Electrics, I can't wait!
  • John Scior on May 23 2018 said:
    Emerging markets will favor smaller vehicles instead of adopting an EV with higher up-front costs. As oil becomes scarcer to bring to market, any loss in revenue from EVs will certainly be more than made up from in higher prices resulting from scarcer supply sources. Should oil drop to $ 32 per barrel, the economics of adopting an EV tend to diminish and their adoption would slow down. In regard to coal prices, developing nations might be more inclined to utilize cheap coal-derived electricity as its price goes further down, thus to some extent putting a floor on the price of coal. In essence, EVs are to be considered a less expensive substitute for oil as petroleum products become more expensive because of scarcity. Although they will ultimately displace the gasoline powered automobile, the displacement is not the kind of displacement which we see such as that occurs when internet retailers displace brick and mortar stores because of their more efficient business model.
  • Andrew MacIntyre on May 24 2018 said:
    Here we go again project fear all over again.... "could", "would", "might". Fact is it cant and it wont. All that will happen is all inefficient EV's and their flammable toxic lithium batteries will end up in landfill and poison our earth. Just more green fantasy propaganda again. If we listen to this lot we will be in darkness within days and back to wearing animal skins and carrying clubs to kill things to eat.
  • Peter Breedveld on May 24 2018 said:
    So coal is going to crash while everybody needs more electricity for EVs. Does anyone else realize that that makes no sense.

    Much of the world's electricity generation uses coal more electricity consumption means more burning of coal.
  • Mamdouh G Salameh on May 24 2018 said:
    This is more of a wishful thinking than a realistic reading of the facts in the market. Let me explain why.

    Aurora Energy Research projections are based on two very dubious assumptions: one is that we could have some 540 million electric vehicles (EVs) on the roads by 2040. The other is that the car manufacturing could raise its production capacity of EVs from the current 500,000 EVs to 540 million by 2040.

    And since the two assumptions are not realistic, then by definition the conclusion that EV revolution could wipe out $21 trillion in oil revenue is a pipedream. The other assumption that oil prices could plummet by 2040 to $32 a barrel is wishful thinking.

    Global oil consumption is projected to hit 100 million barrels a day (mbd) next year and is projected to reach 120 mbd by 2040 accounting for 33% of global primary energy consumption in 2040 as it did in 2017 despite rising global oil production and consumption.

    Currently, electric and hybrid cars combined number under 2 million cars out of 1.477 billion internal combustion engines (ICEs) on the roads worldwide, or a negligible 0.14%. This is despite support by significant government subsidies. The total number of ICEs is projected to reach 2.0 bn by 2025 rising to 2.79 bn by 2040 according to US Research.

    At a most favourable scenario, we might have some 50 million EVs on the roads by 2040. By that time the world will be using 43.8 billion barrels a year (bb) of which 75% or 32.85 bb will be used to power 2.790 billion ICEs around the world. Bringing 50 EVs on the roads will reduce the global oil demand by only 0.59 bb (1.6 mbd) or 1.8% by 2040. Assuming the oil price by then will be $100, then this could wipe out only $58 bn in oil revenue and not the $21 trillion mentioned in the article.

    However, I hasten to add that even 50 million EVs by 2040 is an impossibility. The reason is that current manufacturing capacity of EVs and hybrids amount to 1 million vehicles annually of which only 500,000 are EVs and the rest are hybrids. So it will take many decades to manufacture 50 million EVs.

    Moreover, there will be a need for trillions of dollars of investment to expand the global electricity generation capacity in order to accommodate the extra electricity needed to recharge 50 million electric cars.

    A post-oil era is a myth. Oil will continue to rein supreme throughout the 21st century and far beyond.

    Dr Mamdouh G Salameh
    International Oil Economist
    Visiting Professor of Energy Economics at ESCP Europe Business School, London
  • Scott on May 24 2018 said:
    Dr. Salameh,

    I want to compliment you on your in depth insight offered on this site. I must say, I await your response on every topic of importance. Even when I may not fully agree with you there is no disputing your addition at every attempt. Please continue!
  • moron on May 25 2018 said:
    So, uh, how do I charge my battery? Uh, isn't there a net loss of energy is the transfer of energy to the battery? Uh, is any energy required to make and dispose of batteries! Uh, what is the IQ of the Aurora Energy researchers? Thanks!

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