Electric car revolution may drive oil ‘investor death spiral’ 

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(photo ajmexico)

(photo ajmexico)

Advanced batteries could tip the oil market from growth to contraction earlier than anticipated, concludes credit rating agency Fitch in a new study. Bloomberg New Energy Finance (BNEF) has already told investors to expect the big crash in oil by 2028 — and as early as 2023. Joseph Romm  Joseph Romm, founding editor of the influential weblog Climate Progress, warns of the “investor death spiral” that may await the oil industry. Article courtesy of Climate Progress.

Fitch Ratings agency warns that if recent technology trends continue, we may see an “investor death spiral” as first the smart money — and then everyone else’s — sells off oil company assets (bonds and stocks). That would in turn increase the industry’s costs for both debt and equity — while oil prices would be stuck at low levels as the world hits peak demand.

“Global oil demand growth is slowing at a faster pace than initially predicted”

This would affect industries whose stocks and bonds are cumulatively valued in the trillions of dollars. In particular, Fitch notes, “an acceleration of the electrification of transport infrastructure would be resoundingly negative for the oil sector’s credit profile.”

joe romm 1

 Global electric car sales soar

It’s clear the electric vehicle (EV) revolution is accelerating worldwide (see my earlier post and the figure above). EV sales have been growing faster than 50 percent a year. Countries from Norway to Germany to India are racing to ban fuel-burning cars and go all electric.

“Global oil demand growth is slowing at a faster pace than initially predicted,” the International Energy Agency (IEA) found in its September oil market report. “We see a slowing down of oil demand growth in China,” explained IEA chief Fatih Birol, and a “major reason” is that cars are rapidly getting more fuel-efficient.

Of course, the smart money generally acts sooner, rather than later

Birol notes the efficiency trend will continue since many growing countries “such as India, such as (countries in) South East Asia, have not yet set the fuel economy standards.” EV adoption speeds up the overall trend.

BNEF has pointed out that a global glut of 2 million barrels a day is what triggered the 2014 oil price collapse. Their analysis concluded that if electric vehicles continued their recent growth rate, EVs could displace that much oil demand “as early as 2023.”

joe romm 2

BNEF, however, believes “compound annual growth rates as high as 60 percent can’t hold up for long.” Their own “more methodical” forecast breaks down EVs “to their component costs to forecast when prices will drop enough to lure the average car buyer.” In BNEF’s model, we see only 30 percent annual growth rate in EVs and cross the oil-crash benchmark five years later in 2028.

“Someone will be left holding the barrel”

Of course, the smart money generally acts sooner, rather than later. Climate hawk Bill McKibben and others have been warning people to divest from fossil fuel investment for years now. Those who listened avoided the big crash in coal company stock prices and the impact of the 2014 oil price crash.

It’s not too late to avoid the next oil shock. While predictions of the exact year it comes are necessarily imperfect, Bloomberg offers this sage advice: One thing is certain: Whenever the oil crash comes, it will be only the beginning. Every year that follows will bring more electric cars to the road, and less demand for oil. Someone will be left holding the barrel.

Editors Note

Joseph Romm is the editor of Climate Progress, a blog on the Think Progress website. This article was first published on his blog and his republished here with permission.

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  1. Mike Parr says

    A couple of extra pointers:
    Thomas Sedran, head of strategy at the VW group: “by 2021 to 2023 an EV will cost the same or less than an ICE”.
    VW is laying off ++10k workers.
    A sign of the times?

  2. Scott G. says

    This analysis relies entirely on plateauing global miles-driven, a scenario where EV’s are purely substituting ICE’s rather than acting incrementally and substitutively, an ignorance of the torque requirements for heavy duty vehicles (or the relative share of those vehicles in petroleum consumption), and an infinitely deep supply of the rare earth metals that form the components of advanced batteries. Moreover, this analysis does not consider or acknowledge the various components of refined petroleum that are not sold as fuels, but as feedstock or building materials, and constitute a large component of refined petroleum demand.

    • Tilleul says

      I guess you should warn the train industry which use full electric and diesel genset powered electric engines for decades thanks to their high torque at 0 speed…

      The comment about the feedstock will probably go the other way around : in a petroleum reffinery the sales to the chemical industry provides the bulk of the profit while the production of fuel provides the economy of scale. The chemical industry has to buy to reffineries chemical products with a very high margin, though the price is still cheaper than if they were making it on their own. However this activity is also under threat ! For example naphta is used for production of ethylene, propylene and butadiene. Due to an abundance of ethane coming from shale gas play, the US is now producing ethylene directly with ethane, this has increase the price of oil based butadiene as they can no longer sell their ethylene which lead to increase profitability of an investment into bio-sourced butadiene. Soon will also have Power-to-chemicals using CO2 as feedstock that will also eat the margin of the oil industry. Consolidation doesn’t get you the same benefits here, so the oil industry will be largely irrelevent in this market.

      The whole ecosystem of the oil industry is under attack. If you decrease their market for fuel they will lose the economies of scale that give them an advantage on the chemical feedstock market, if you add competition to the chemical feedstock market they will lose the revenue necessary to keep down the cost of fuel.

      What you also missed is that the starter battery of an ICE car can’t be use for the energy requirements of a connected car and we won’t even talk about autonomous car… Compared to plug-in hybrid and full electric car features, driving an ICE car will soon feel like driving a Nokia 3210…

      …and BTW rare earth are neither rare nor earth, they are large quantity of deposit available around the world, the term “rare” means only you won’t find them easily in their pure form.

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