The electric car revolution is already underway, and if the long-term projections are even remotely close to accurate, the effects will ripple through every corner of the global economy.
A large chunk of conventional fossil fuel powered electricity generation is already uneconomic because of the surge of wind and solar installations. Nearly every major U.S. coal mining company has either filed for bankruptcy or is in financial distress, a glaring sign that the industry that powered the U.S. electrical grid for a century is dying off.
Even the relatively small penetrations of solar and wind are upending electricity markets, but we are merely at the beginning of this revolution. As Michael Liebreich of Bloomberg New Energy Finance wrote on August 22, the long-term ramifications of this unfolding phenomenon are hard to overstate.
Take the electricity sector as an example, which is flipping from being an industry based on huge power plants that provide baseload power with peaker plants to provide supply during peak times, to a power sector that relies much more heavily on disparate sources that depend on “forecast-and-balance” services. That is a jumbled way of saying that the electricity grid is changing fast because of clean energy – for decades the grid has hardly changed, but electrical equipment is becoming cleaner, more digitized, and won’t necessarily resemble what it has in the past.
But that isn’t just an issue for the competitors of clean energy (coal and natural gas); the effects could spread throughout the economy. The case of cell phones is illustrative – cell phones “have eaten entire industries (cameras, alarm clocks, maps) and are set to do the same to others (newspapers, cash handling, music systems),” Liebreich explains.
BNEF projects that EVs will capture 35 percent of the global vehicle market by 2040. But because technology is changing fast, the surprise is probably on the upside. Under a more aggressive scenario, BNEF can see a scenario in which 47 percent of all new vehicles sold in 2040 will be electric. Related: Can Fire Ice Replace Both Oil And Renewables?
The rapidly falling cost of batteries will be a key reason for the explosive growth of EVs. Battery costs have already declined by 65 percent over the past five years, and could fall by half again by 2025.
But while some doubters of EVs might dismiss such figures, BNEF says EVs will beat the internal-combustion engine on many more fronts than just emissions. As Liebreich writes, EVs “drive more smoothly yet accelerate better, they can be charged at home or at the office, they require much less maintenance, they help solve air quality problems, they improve the energy autonomy of oil-importing countries.” EVs also are “vastly superior” to fossil fuel-powered vehicles when it comes to autonomous driving, infotainment, and other features. “[I]t simply makes no sense to have an inherently analogue power unit – vibrating, volatile-liquid-consuming, hot-polluting-exhaust-producing – at the heart of a fully digital, sensor-pervaded, solid-state-electronics-controlled system,” Liebreich argues.
With that in mind, he comes to a conclusion that should deeply worry the oil industry: “can anyone think of a good reason to buy a diesel or petrol second car in 15 years?”
What are the implications of this? There will be winners and losers, BNEF says. The winners: battery manufacturers, lithium miners, and a whole supply chain of technology needed for these new vehicles, such as autonomous driving, cyber-security, and other software tech. The losers: suppliers of parts exclusive to fossil fuel vehicles, such as exhaust systems, fuel management systems, gearboxes, etc. Also, less steel will be used in EVs as companies try to reduce weight. Less maintenance also means less need for mechanics, repair shops, and dealerships. Repairs can often be done remotely using software, just as many computer fixes are conducted today. Related: ‘’Like A Rollercoaster’’ Hyper-Volatile Oil Funds See Popularity Spike
Then of course there is the electric power system. EVs themselves will allow for more demand response – an army of EVs provide new source a large source of new demand, but also millions of little power plants when connected to the grid. Software, cyber-security, and other digital tech that helps gird operators deal with load balancing will thrive in this environment.
Finally, perhaps the most devastating effect of the EV revolution will be on the oil industry. BNEF forecasts EVs cutting off 13 million barrels per day of oil demand by 2040. The implications of that figure are hard to exaggerate – if it comes to pass, it effectively means permanently lower oil prices.
The prevailing view in the industry is that the $1 trillion or so in investment reductions between 2015 and 2020 will set the world up for a supply crunch as too few projects come online. But, BNEF says that the EV revolution could mean the off-cited mantra in the industry of prices remaining “lower for longer” could become “lower forever.” BNEF says the long-term cap on oil prices is $80 per barrel and is falling fast. The effects are so massive they are hard to even contemplate – whole countries will be tossed into crisis (Saudi Arabia, Iran, Iraq, Russia, Venezuela, to name a few) if oil prices remain permanently low.
Liebreich sums up BNEF’s conclusions succinctly: “if our predictions for the uptake of electric vehicles are anything like correct, there is no part of the global economy which will not, in some way, be affected.”
By Nick Cunningham of Oilprice.com
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I don't think that'll happen though. I know they fought them at Cape Cod and probably other places, too. If we really switch to that many EVs, then natural gas is going to $10/mcf. That'd be just fine with me.
The earliest economic impact on the oil industry will bear upon the value of oil reserves, not displacement of short oil consumption. This is perhaps the biggest blind spot that the oil industry has. It thinks the shear volume of oil consumption will protect it in light of the decades it will take for EV production to ramp up. But impact on the value of reserves will be felt by the market decades in advance of massive demand loss.
Consider this, the Saudis have proven oil reserves that will take over 60 years to tap at 2015 production levels. Suppose EVs continue to grow at 35% well below the current rate of 50%. By 2035, demand for oil is falling by 2% or more annually. This may seem like a long ways off. But what is the value of the Saudi reserves or any reserves when demand is falling at such a rate. Basically, there is no point exploring for new reserves, because anybody sitting on surplus reserves will try to liquidate them before they lose all value. So roughly speaking the value of reserves in twenty year is an enormous write down, maybe less than $1/b. But why should anybody worry about this today? Suppose you are Saudi Arabia and you believe that your reserves in 20 years could be practically worth, but at current pace you will only tap about 1/3 of your reserves while they still have value. So your strategy becomes to maximize production every year at whatever price the market will bear. And this is what the Saudis, Iranians and others with large reserve to production ratios are doing. The US has a mere 12 year R/P ratio, so it does not feel the same degree of risk. But the global R/P ratio is at 50 years, which will ultimately lose value to the EV revolution. So large reserve holders need to accelerate production and if that drives prices down to a level where exploration comes to a near standstill so much the better. Minimizing reserve replacement rates is also part of a strategy for preserving the value of proven reserves.
In short, just the threat of an EV revolution is enough to motive large reserveholders to overproduction in the short term. The glut today may well be extended indefinitely on this point alone. And the pressure to overproduction will only increase as EVs gain a foothold and drive down the longterm value of reserve. So pump like it's going out of style, because it already has.
Tesla intends to be at 500,000 vehicles per year in 2018, one million annually by 2020. BYD will likely be close behind. Other newcomers are in various stages of design, pre-launch, etc. Of the "old line" makers, Volkswagen and Daimler might actually be getting serious about them, and Nissan/Renault are improving too.
And the dark horse is full autonomy. That's going to cause a major shakeup in the auto industry at some point - a lot fewer vehicles will be needed if autonomous "car as a service" takes off.
Place your bets...
Those 13 million barrels, or their NG equivalent, have to be burnt somewhere each day somewhere to feed electric cars. Additional amount will have to be burnt to compensate for the battery charging losses and high voltage transmission losses.
Will the cities be able to expand their power stations? Will the surround communities give up land for the new power lines?
Gasoline cars leave the cities if the population there decreases. What about the excessive electric power infrastructure there?
EVs are like trolleys. Where do they still exist? Most got extinct.
I have a hard time believing most of this article for many reasons... one of which is the fact that Tesla has posted a LOSS for each quarter over the past 2 years. The free market won't allow an EV take over, not yet at least.
Oil is priced at the margin.
The increase in supply, or reduction in demand, or both, that sent oil from $80 to $20 was only a ~1 mmbbl/day for six months or less.
US production is heading to down 1 mmbbl/day, but other supply is coming on line even as wars threatens parts of the global supply. It is the cost of the wars, or rather the costs added to delivering oil in conditions of war, that is keeping the price above $20. The wars are in part driven by the low prices of oil. But a big part of the reason the price got to $100 was war, hot and cold.
Not likely to be wars fought over wind and solar. Those are based on labor costs, not on control of land.
The impact will always be as your numbers indicate: EVs may take away 13, but meanwhile the world still wants 110 more.
And just out of curiosity, can anyone tell me how many barrels of oil it takes to "lightweight" an EV? We don't burn all the oil that is pulled from the earth, you know.
Gas consumption is down 90%, oil changes look to be around 40,000 miles.
It is acceptably quick 0-60 in 7, but 0-30 is an amazingly quick 2.2.
Its a great drive, and miles are dirt cheap!
EV's just shift the vibrating, volatile-liquid-consuming, hot-polluting-exhaust-producing power generation from the car to the electric power plant, 2/3's of which are powered by similar processes. EV car electric motors are hardly "digital", being not much different from the AC induction motors that have powered household refrigerators for the past 80 years.
BTW, when referring to electrical devices, use the word analog, not analogue.
a) Wind and solar "energy" exists only because of subsidies and mandatory quotas. When they exist, the occasionally reduce marginal prices, making conventional plants unprofitable; but they can neither replace conventional plants, nor do they save any real, measured, fuel (as evidenced by the well documented German experience). Any gains form random production are offset by losses in efficiency. They are quite good at doubling electricity prices though.
b) Coal's problems are not the result of either wind or solar. They are the result of shale gas and indirect taxes on coal. All the wind and solar installations of the US cannot replace the smallest coal plant.
c) The only value of ev's is that they may act as an outlet for otherwise useless random power, but all the studies I have seen suggest that lithium batteries are not the answer. But if they can feed on subsidies they also must be great
b) Agreed that coal's problem is cheap gas. On the other hand, two thirds of all new capacity added to the US grid in 2015 were renewables. Wind and solar are replacing fossil fuels now. It's going to take a while to replace the whole huge fleet of plants we now have. But the fact that renewables already have the lion's share of the market for new generating capacity, and that they are still growing, means that we are probably entering a prolonged period of downward pressure on the demand for fossil fuels in electricity generation.
c) The value of EVs is that the cheap, mass-produced batteries that they are bringing to the market will also be a boon for intermittent electric generators- especially solar. Interestingly, it seems the EV revolution is hitting hardest first in the market for heavy vehicles, like buses and garbage trucks, and heavily used vehicles like delivery vans and taxis, not private cars.
Never could (quite) understand all the 'leave it in the ground' triumphalism from the green-left
Batteries are improving in price and range every year, and I think many will be surprised at how quickly EV's and PHEVs become mainstream.
So, as batteries and EV technology become cheaper, get 'em while you can, because at some point, their popularity will flatten, due to increased cost.
Just a thought
Subsidies necessary? All ecomonic activity is subsidized. Especially legacy energy systems. That said, subsidies now are just additional dealer profit on utility scale solar and wind in U.S. Installed price is lower then any other new electricity price and when supply surges their marginal price is near Zero so they force fuel based systems to compete at severe losses.
Grid: Ev's as previously noted charge at night. They are the best revenue stream for the current grid as the load occurs when wholesale prices are minimal. Also grid stays cooler (per KWh delivered) when those KWh are delivered at night... Basically all profit. Additionally, an EV uses just twice the electricity it takes to refine and deliver gas... So... 1/2 the electricity is not just shifted from comercial rates to residential (way higher) and most shifted off peak. OBTW, my electric bill barely moved when I bought my Volt. I now consume only 15% I used to and I drive 20k miles/year.
Nope! Transport fuel is 75% of oil produced, not 50...
Much less maintenance is not b.s.. Almost everything that needs peroidic attentions is not even present in an EV...
You're pretty sure has little predictive value.
No air filter changes
No transmission oil changes, or transmission failures to worry about.
No cooling system problems (hoses, radiator, water pumps)
No fuel system problems, filter, pump and injectors.
No emission system problems to break, and catalytic converters to worry about.
No tune ups to worry about, spark plugs, injectors etc.
Brake system wear dramatically reduced due to regenerative braking.
As one of environmental specialists in my country pointed out in one of local newspapers, his point really got my attention...
It is easy to say that ev is the solution of environmental hazards that we're suffering now but bear in mind about the effect of the used batteries in ev once they have reached their lifespan. The number of batteries in a single ev are a few times more than the one in a normal car. As more and more evs are on the road so we can have less smoke pollution but the first cycle of the end of battery life in these evs have not started yet. Once the first cycle started and so on, imagine the magnitude of used batteries that go to the dump site. Are these batteries recycled type? If they are, I'm fully supportive of it but if only 10-20 % of these batteries components can be recycled then you need to be worried about it.