Big Oil’s Dire EV Problem

David Fessler By David Fessler, Energy and Infrastructure Strategist, The Oxford Club

Alternative Energy

Believe it or not, the electric vehicle is NOT an invention of the 21st century…

In fact, it may come as a surprise to learn the first EV was already on the road in the 19th century…

But by the turn of the 20th century, the internal combustion engine (ICE) came along and eventually killed the EV.

A century later, the opposite is happening.

EVs are replacing ICE (or gas-powered) vehicles at an astounding rate. Many countries have voted to outlaw gas-powered vehicles within the next decade.

Big Oil’s Death Knell?

Next year, we’ll hit what I call the EV adoption tipping point. That’s when the cost of ownership of a new EV will be less than or equal to that of the gas-powered car.

How do you think that will affect demand for oil?

Put simply, demand reduction will happen much quicker than oil industry executives believe it will.

Some recognize the coming problem and are facing it head on…

The CEO of Royal Dutch Shell (NYSE: RDS.A), Ben van Beurden, signaled his company’s intention to develop only the most productive and lowest-cost oil fields. There’s no point wasting time on expensive deepwater fields. Further, van Beurden believes “peak oil demand” could happen by the end of the 2020s.

But his views aren’t shared by everyone in the oil industry.

Executives at Exxon Mobil (NYSE: XOM) think crude demand will continue growing well into the 2040s. However, the pace will slow between now and then.

I believe Shell has a more realistic projection for peak oil demand than Exxon does…

In fact, I believe it will happen even quicker than van Beurden predicts.

Several external forces are building momentum for widespread EV adoption. More and more countries are banning gas-powered vehicles.

Manufacturers are riding the EV wave as well. Volvo announced all its models will be either EVs or plug-in hybrid vehicles by 2019.

GM is introducing 20 EVs by 2023, and it intends to eventually phase out all gas-powered vehicles completely.

Ford is plowing $4.5 billion into EV development, with 13 new models to be released over the next several years.

Mercedes-Benz parent company Daimler plans to electrify its entire line by 2022. It expects to have more than 50 electric and hybrid models.

Jaguar Land Rover expects to have its entire vehicle lineup electrified by 2020. And Nissan is releasing 12 new EVs by 2022.

China: Ground Zero of the EV Tipping Point

China is on track to be the biggest mover of the EV adoption needle. The country recently announced that it’s banning gas-powered vehicles. No date has been set, but this is a monumental development given China’s standing as the world’s largest car market.

In 2016, China’s auto sales topped 22.5 million units.

Through the first nine months of 2017, sales hit 20.2 million…

Altogether, China accounts for about 30% of all cars sold around the world.

When China’s ban on gas-powered cars goes into effect, Big Oil will be scrambling.

Natural Gas: Big Oil’s Safety Valve?

Natural gas has become the fossil fuel of choice for utilities. Many around the country are using it to replace aging coal and nuclear power plants.

This could be the solution to the EV revolution that Big Oil companies are looking for…

We’ll be closely watching the story unfold. One thing is clear: Big Oil will have to make some adjustments.

Good investing,

Dave

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