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With Mass Vehicle Electrification on the Horizon, New Oil Development hits a 70 Year Low

“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.”Bloomberg

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As the global climate situation worsens, the rickety and destructive old energy sources that caused the problem in the first place continue to look less and less secure. Meanwhile, the new energy sources that will help to address what is now a very serious crisis continue to gain strength.

Plummeting Oil Discoveries, Investments

A report out from the International Energy Agency this week showed that new oil discoveries had fallen to 2.4 billion barrels — less than 1/3 of the 15 year average. Meanwhile, the volume of conventional resources sanctioned for development fell to 4.7 billion barrels or the lowest level seen since the 1940s.

(Global oil discoveries and sanctioned developments hit historic lows during 2016. A structural trend due to new energy market factors that is likely to continue through at least the end of 2017. Image source: International Energy Agency.)

Sanctioned development is a direct measure of investment in new oil extraction infrastructure while new discoveries are a key factor in maintaining or expanding present oil supply rates of around 85 million barrels per day globally (total liquid fuels including biofuels are now 92 million barrels per day). If investments are falling along with new discoveries, at some point daily production rates will start to lag.

A combination of low oil prices, strong opposition to new oil projects, divestment of fossil fuel market capital, concern over climate change, loss of good faith in the oil industry, and rapidly falling renewable energy prices have all weighed heavily on oil exploration and new project investment. Intense efforts to extract unconventional oil (shale oil and tar sands) in the U.S. and Canada also depressed the broader global markets. IEA sees this trend continuing through at least 2017. A potential for price increases may emerge post-2017 due to supply tightening despite a feeble expected demand growth of 1.2 million barrels per day over the next five years. Given such weak expected increases in demand, most of any supply tightening would tend to come as flagging new project investments fail to make up the gap in falling well production rates.

Oil Major Predicts Electric Future

But over the same 5-year timeframe another factor pushing down global oil demand is expected to begin to emerge. Electric vehicle purchases, which now make up about 1 percent of the global market, are expected to dramatically expand in the coming years. A fact that even oil major Total acknowledges.

(Bloomberg New Energy Finance projects rapid adoption trend for electric vehicles. However, once this kind of market momentum starts, it can tend to snowball very rapidly. Potentially even more rapidly than this trend graph suggests.)

According to a recent report from Gas2:

At the Bloomberg New Energy Finance conference in New York on April 25, Joel Couse, chief economist for Total, predicted that sales of electric cars will surge from about 1% globally in today’s new car market to up to 30% of the market by 2030. If that happens, he says, demand for petroleum based fuels “will flatten out, maybe even decline.”

Coming from an oil major, this is a big admission. And one that jibes with past reports made by Bloomberg showing electric vehicles dramatically eating into global oil demand by the 2020s. Since Bloomberg’s 2016 report, new revelations have continued to emerge showing EV market strength. Battery prices are falling by 20 percent per year — which just keeps making both EVs and related battery storage more accessible. Meanwhile, EVs continue to develop in ways that surpass their conventional counterparts. Michael Liebreich, who founded Bloomberg New Energy Finance, expects that by “2020 there will be over 120 different models of EV across the spectrum. These are great cars. They will make the internal combustion equivalent look old fashioned.”

Potential to Decimate Oil Demand in Just One Decade

More than 50 percent of global oil demand comes from gasoline use. Another 15 percent of that demand comes from distillate use which includes diesel — which is also a motor vehicle based fuel. Start replacing significant portions of the global vehicle fleet with EVs and that demand is going to fall.

(Total oil demand is significantly vulnerable to fluctuations in gasoline and distillate products demand — both of which are heavily impacted by electric vehicle and solar energy adoption rates. Image source: Quora.)

This is arguably already a marginal feature of the oil market with EVs making up 1 percent of global vehicle sales and with solar now acting to directly replace diesel based electric generation. But the ground swell we are beginning to see in the energy markets appears to be the start of transformational trend.

Cities and countries are banning (or planning to ban) petrol-based vehicles. Automakers like Volkswagon, GM, Nissan, BMW, Audi, Ford, and Toyota are dedicating increasing portions of their vehicle fleets to electrics even as all-electric manufacturers like Tesla are growing more dominant. And fast charging stations that are capable of 5-10 minute charge times are on the horizon. Given the emerging confluence of affordability, capability and desirability — it appears that a big, S-curve-like, EV adoption bump is coming on fast. If and when such an event occurs, a crash in oil production rates is likely to follow soon after.

Links:

International Energy Agency

Total Predicts Electric Cars Will Decrease Oil Demand

Bloomberg New Energy Finance

How Goliath Might Fall

The 5-10 Minute EV Charging Stations are Coming

Quora

Hat tip to Steve Piper

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