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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 Needs To Be Below $20 To Compete With Electric Cars

Oil refinery

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, BNP Paribas Asset Management said in new research this month.   

The research report—authored by Mark Lewis, Global Head of Sustainability Research at BNP Paribas Asset Management—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).

“For gasoline LDVs, we calculate the oil price required to yield as much net energy as would new renewables projects in tandem with EVs at $9-$10/bbl, and for diesel at $17-$19/bbl,” the report says.

“In short, whether in the form of gasoline or diesel, oil’s days as a fuel for LDVs are clearly numbered because our EROCI analysis shows that the economics of new wind and solar projects combined with EVs are set to become irresistible,” BNP Paribas said.  

The implications for oil majors are that “the challenge is on a scale that they have never faced before, and business-as-usual is simply not an option,” according to the report, which implies that current investments in oil projects with breakevens of $20 a barrel or higher could put as much as 40 percent of future annual output at risk of being stranded. Related: Russia Gains Stranglehold Over Persian Gulf

Despite the stark warning to the oil industry, BNP Paribas Asset Management’s report says that the “oil industry today enjoys a massive scale advantage over wind and solar of several orders of magnitude – oil supplied 33% of global energy in 2018 compared with only 3% from wind and solar. Moreover, EVs are currently more expensive than ICE and diesel vehicles on a sticker-price basis, and likely to remain so until 2023-25.”

Although the oil industry’s scale advantage is enormous today, it is time-limited as oil companies have to invest in new projects “just to stand still,” the report notes.

“For now, though, oil enjoys a significant energy-flow advantage over renewables. The question is, how big is this advantage, and how long will it last?” BNP Paribas Asset Management’s research report says.

By Tsvetana Paraskova for Oilprice.com

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  • Diederik Zwager on August 06 2019 said:
    Oil needs to be below $2,000 to compete with electric aircraft. And believe me, if 20% suddenly drives electric then electricity will cost $20/kWh and $200 oil will look very attractive.
  • Mamdouh Salameh on August 06 2019 said:
    This is nonsense masquerading as serious research. If the conclusion is wrong then we can easily assume that the assumptions are faulty.

    There will neither be a post-oil era nor a peak oil demand or imminent energy transition throughout the 21st century and far beyond. Oil will continue to reign supreme all through particularly in global transport system.

    While an increasing number of electric vehicles (EVs) on the roads coupled with government environmental legislations could decelerate the demand for oil, EVs could never replace oil in global transport 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
  • Old-Ruffneck Smith on August 06 2019 said:
    For those of us the run SUV's and Large Pickup trucks in USA, can I pull 14k trailer 60 miles round trip on electric? My Business rate is double my residentual. The infrastructure for 5 truck I am sure would be astounding in cost.....
  • James Hilden-Minton on August 06 2019 said:
    One important comparison point that this research note leave out is how much mobility a $100B investment in natural gas production and generation would yield (where the this power is used to charge EV). This goes directly to the question of whether the O&G industry can simply pivot to natural gas as the EV fleet grows.

    But the confounding issue with comparing a $100B investment in natural gas with a $100B investment in wind and solar even if they yield nearly the same mobility is that the revenue on either investment is likely to be about the same. That is, the price of natural gas must remain low enough to compete with wind and solar for new capacity. This implies a price cap less than $3/mmBtu for gas. So making a $100B investment where gas is capped this low raises the serious question if whether financial ROI will be high enough to attract the investment.

    Moreover, if the O&G industry makes that trade of oil investment for NG EV investment, they killing off demand for oil. That is, a $100B investment in electricity for EVs still kills off the need for $500B to $600B investments in oil and refining. The implication here is demand for aggregate energy investment will decline as the EV fleet grows. No doubt, the industry will participate in this by providing natural gas to power the EV fleet, but this is essentially cannibalization of the oil market. So, no, O&G cannot simply pivot to natural gas, but will shrink revenue as it does so. But it must pivot because a slice of a smaller pie is better than no pie at all.
  • Asoka Diggs on August 06 2019 said:
    "For those of us the run SUV's and Large Pickup trucks in USA, can I pull 14k trailer 60 miles round trip on electric?"

    I can provide some insight into the state of the technology here - I do tow a truck bed utility trailer with a Model X, and I follow forums where others towing with their Model X are reporting their results.

    As far as I know, the Tesla Model X is the only EV with a tow rating (class 3 / 5k pounds). So the easy answer for today, mid 2019, is there is no commercially available vehicle to do what you're looking for.

    I regularly tow my truck bed trailer with a couple of yards of with what I'd guess is 2-3k pounds of stuff (pretty light) on a 60 mile round trip run. A good working assumption is efficiency is cut in half while doing so (so the typical 230 miles of range I leave with is actually good for 120 miles). 60 mile round trip would be shaving things thin. A moderate range increase such as is already available (to just over 300 miles) and it's doable today. (Note that the trailer has the aerodynamic characteristics of a brick wall :))

    So it's not here today, but it's coming in the next few years. The biggest impediment today isn't that the technology doesn't exist - it's that it hasn't been designed into a vehicle and made available publicly (other car models have higher volumes and have been targeted first).

    Cost per mile for fuel for me works out to about $0.04 normal driving. That bumps up to about $0.08/mile towing (my residential rate is $0.11/kWh and I get 3 miles / kWh in normal driving, so you can adjust to your own situation).

    Your 14k tow ability for a pure BEV isn't here today. It's here and reasonably available in < 10 years; possibly for equal or lower up front cost than a gas or diesel alternative today, with much lower fuel costs.
  • Richard R on August 07 2019 said:
    Well this article ignores one valuable piece of information – majority of crude products is used in manufacturing. Though I suspect the writers may believe the tooth fairies deliver EV’s out of thin air when collecting milk teeth.
    These nonsense articles are a big problem in our society which is generally ignorant of basics scientific and engineering principles that make our civilisations cogs turn. This getting published only feeds the vocal negative (and largely uneducated) minority which at the moment are held high as fountains of knowledge. Even the government Environmental department agencies appear staffed by people with no basic high school science knowledge. They will be lapping this up with their double skinny lattes with chocolate on top .

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