Lower Forever: Electric Cars and the Inevitable Reality of the Oil Market

Tesla

MAR 23 2016 BY ERIC SAIBI 100

Plug-Ins Like These From Chevrolet Coming For Oil? (Photo by Steve Fecht for Chevrolet)

Plug-Ins Like These From Chevrolet Coming For Oil? (Photo by Steve Fecht for Chevrolet from the 2017 Chicago Auto Show)

Proponents of the Electric Car are already convinced that the advent of cars with plugs will ultimately spell doom for the Big Oil companies and countries that rely on oil exports.  Meanwhile the oil industry, led by OPEC, is expecting steady growth through at least 2040.  But what will it take for the rest of the market to “see the light” and accept the fact that demand for oil will soon peak and slowly erode?

In this report I will examine the fundamentals of oil demand destruction from a markets perspective.  Using a combination of conservative estimates, educated guesses, and market insights I will quantify the amount of PEV sales needed to cause enough oil demand destruction necessary to change the long term outlook of the oil market.  Furthermore, assuming an “S” shaped growth curve I will provide insights as to how long it might take for this shift in market psychology to occur.

In late 2014 through 2015 a worldwide oversupply of crude oil existed mostly in the order of 1 to 2 million barrels per day according to the EIA.  WTI Crude Oil sold off from well over $100 in mid-2014 to under $27 a barrel in February of 2016.  As a result of the prolonged oversupply and pricing pressure, oil companies drastically slashed capital expenditures, reduced workforces and reluctantly accepted the “lower for longer” mantra.

But what would it take for the market to accept what electric car advocates already believe – that prices and demand for oil will remain Lower Forever?  To begin with, the market needs to observe enough oil demand destruction to conclude that electric cars are having a significant impact on market fundamentals.  If this can be observed in the context of an “S” shaped growth curve, market participants will quickly realize that oil will soon reach Peak Demand and then begin falling.  A huge psychological threshold will be crossed when electric cars beginning displacing about 50% of annual oil demand growth.  At that point it will be pretty obvious that oil consumption will inevitably begin a steady decline.

According to OPEC’s 2015 World Oil Outlook (WOO) report, annual oil demand growth is expected to be less than 1% from 2017 to 2020, and average well under 1% through 2040.  With 2016 demand being estimated at 94.10 million barrels per day, this translates to annual growth of less than 1 million barrels per day.  So let’s round up to 1 million barrels per day and assume we need to observe half a million barrels per day of demand destruction to change market psychology.  Keep in mind OPEC does not really factor in much growth in electric cars.  Their WOO report forecasts BEVs to be just 1% of the market by 2040.

Just How Many EVs Do We Need On The Road To Affect Oil (InsideEVs/Alex Wai - Model S Event This Year In Hong Kong)

Just How Many EVs Do We Need On The Road To Affect Oil? (InsideEVs/Alex Wai – Model S Event This Year In Hong Kong)

So how many electric cars need to be sold to offset oil demand by about half a million barrels per day?  According to the EPA, the average new car fuel economy is about 25 MPG.  And the average car is driven about 15,000 miles per year among working age people (Source: U.S Dept of Trans).  So the average BEV will displace about 600 gallons of gasoline per year.  Let’s assume the average PHEV will get about 20 miles per charge of AER.  This translates into about half the total miles driven in all-electric, so a displacement of about 300 gallons of gasoline per year.  Let’s also assume BEVs continue to make up 62% of PEV sales as reported by hybridcars.com.  This means the average PEV will offset about 486 gallons of gasoline per year.

Roughly 13 Million "Ford Energi" Type Plug-Ins Needed

Roughly 13 Million Plug-Ins Needed 500 Million Barrels A Day

A barrel of crude oil produces about 35 gallons of fuel – 19 gasoline, 12 diesel, 4 jet fuel (Source: EIA).  So conservatively, the average PEV should displace about 13.9 barrels of crude per year.  To get to our magic number of 500,000 barrels a day, we need to sell (500,000*365 days/13.9) = 13,129,496 PEVs.

Whoah, that’s a lot of cars!  How long will that take?  Let’s not include the roughly 1.2 million PEVs sold prior to 2016 since those are largely factored into OPECs figures.  In 2016, an estimated 700,000 PEVs will be sold (Source: JATO Dynamics).  This seems like a reasonable estimate considering production increases of the Tesla Model X, Chevy Volt, and expected strong China growth.  (Note: 2015 PEV sales were about 520,000).

– With a disappointing 20% growth rate after 2016, we will hit 13,129,496 incremental PEVs in 2024, 8 years from now.

– With a base case 35% growth rate after 2016, we will hit 13,129,496 incremental PEVs in 2022, 6 years from now.

– With an optimistic but very possible 50% growth rate after 2016, we will hit 13,129,496 incremental PEVs in 2021, 5 years from now.

Plug-In Electric Vehicle Growth Scenario Chart

Plug-In Electric Vehicle Growth Scenario Chart

Is a 50% growth rate over the next 5 years possible, or even realistic?  Don’t bet against it.  The EV market is finally reaching that critical level where cost and value intersect.  It’s actually staggering to think about the growth of the Tesla Model S in recent years.  You can’t drive a mile in Houston without seeing 1 or 2.  And this is not exactly a west coast community full of “tree huggers”.   A special thank you to all the early adopters who bought a Nissan LEAF in 2011, but you were essentially paying 30 grand for a Nissan Versa that might struggle to go 70 miles when it was cold.

Tesla Gallery In Houston, Texas(Image: Josh B/InsideEVs)

Tesla Gallery In Houston, Texas(Image: Josh B/InsideEVs)

It was a huge market signal in January when GM unveiled the production Chevy Bolt, not just at the target price point of $37,500 but with an impressive 60 kwh battery.  If GM can do it in 2016, then surely Tesla can do it with the Model 3, and Nissan with the second generation LEAF.  There is huge pent up demand for these mid-priced, longer range EVs as Tesla will prove when they start accepting deposits on the Model 3.

Then consider the sheer volume of PHEVs that are coming to market right now for all the drivers not ready to go fully electric – Audi A3 e-tron, BMW X5 xDrive40e, Hyundai Sonata PHV.  There are many more to come.  BMW has announced they will release a PHEV of every core model.  The electric car community seems to be largely unimpressed with these PHEV offerings, but each one sold reduces a driver’s gas usage by about 50% and further advances the technology.

However long it ultimately takes the electric car adoption cycle to play out, it seems inevitable that the oil industry will need to stop using “Lower for Longer” and get used to “Lower Forever”.

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100 Comments on "Lower Forever: Electric Cars and the Inevitable Reality of the Oil Market"

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John
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John

And it begins.

We’ll be telling our grandkids that we remember when cars ran by having thousands of controlled explosions in a metal box under the hood, expelling poison from a pipe in the back.

They won’t believe us…they won’t think we could ever have been that stupid.

Big Solar
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Big Solar

Very sad and hilarious at the same time.

Speculawyer
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Speculawyer

Yeah, it is just not a good way of doing things. Like so many things “it made sense at the time” but now with over 7 billion people on the planet and CO2 level growing every year, it no longer makes sense. We can do better.

Mister G
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Mister G

You nailed it…200 plus years from today future humans will equate the “age of oil” as the “age of stupidity and obesity” lol

BraveLilToaster
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BraveLilToaster

I really don’t see how the part where people being fat is going to change with the acceptance and widespread use of the electric car. The combustion engine (external or internal) has certainly made it so that we don’t have to do a lot of physical work ourselves, that’s for sure. But changing the type of engine we use to do these things isn’t going to change that fact.

Mister G
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Mister G

Where do you think all the calories provided by oil are going? Look around there is an obesity crisis.

Robb Stark
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Robb Stark

Renewables will provide more calories cheaper.

Nathanael
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Nathanael

There’s strong evidence that obesity is mostly caused by hormone-disrupting chemicals in our food and in our in environment and imbalance in gut bacteria — not by actual calories eaten. 🙁 I hope we fix this sometime soon.

James
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James

I like the way you worded that.

Mind if I use this when debating gasoline usage with my gearhead friends?

evcarnut
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evcarnut

We can tell them that we were not stupid ., we did it for the BIG MONEY Factor #$$$$$$$$$….Well, Not exactly We, but , More like they did it for the BIG MONEY $$$$$

pjwood1
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pjwood1

New writing staff? Nice.

“A huge psychological threshold will be crossed when electric cars beginning displacing about 50% of annual oil demand growth.”

Interesting way of calling out a mile marker to peak oil. Another stepping stone will be when electric battery and drive systems are cheaper than internal combustion to produce. The Bolt could have 300 miles of range and cost consumers $20k. GM would still hold the cards to how many make it out the door, toward the 13,129,496. “$145/kwh” was something to brag about. That’s still an $8,700 fuel tank, in something like the Sonic. Maybe someone else can speculate what GM pays for the average 4-cylinder engine?

Mart
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Mart

The psychological threshold for armies to break into retreat is usually much lower, around 15%.

Nathanael
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Nathanael

15% market share equals 12.42 million cars per year.

Ryan
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Ryan

Don’t forget the rest of the drivetrain, but that is where dealers make all their service dollars. Those dollars are usually more than profit per car so there is a lot of pressure to suppress supply.

Alpha777
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Alpha777

Engine, transmission, exhaust system, cooling system, And it’s got to pass tougher emissions year after year.

With electric, all that testing and certification goes away,besides the heavy steal.
The batteries will also be getting smaller, cheaper and lighter.

ModernMarvelFan
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ModernMarvelFan

“Maybe someone else can speculate what GM pays for the average 4-cylinder engine?”

About $300-$500.

Just the engine itself, none turbo charged.

If you add all the accessories and exhaust, fuel and air system. No more than $1500…

jerryd
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jerryd

It was a very good article but missed a few things.
First is CAFE will have a far larger effect than EV’s and EV’s can’t ramp up fast enough for at least 10 yrs.
But the oil supply numbers are wrong. It is likely we have seen the highest oil production there will ever be. If they keep pumping that rate they will damage their wells if they haven’t already.
So oil supplies will shrink, not grow.
And there will be 5B new customers as undeveloped countries develop and want their share of oil will keep prices high.
It’ll take 10 yrs for enough EV’s, CAFE and not mentioned at all, bio/waste/syn/sun fuels to together just stop the rise in oil prices, then slowly drop them until no one can afford to drill for oil at that rate, about $3/gal then.
I’ve watched oil for 45 yrs and driven EV’s for 23 yrs, long before they were cool.

TNT
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TNT

It would be interesting to factor in electric buses & delivery trucks. How will they cut into demand for oil?

Alpha777
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Alpha777

Imagine a city with No Diesel Buses.
That would be nice.

David Murray
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David Murray

I don’t think we’ll see a huge expansion of EVs until they start to produce plug-in Pickup Trucks and large SUVs that seem so popular. Right now one big problem is that certain people are simply not interested in small cars, no matter how efficient, no matter how much money they save, or how much less they pollute.

andre
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andre

if it is completely true(not in Scandinavia!)…..than it is very saddening about intelligence,care about future…and others.

BraveLilToaster
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BraveLilToaster

That’s because it’s all about selfishness. To be honest though, people aren’t very good at being selfless.

Josh
Guest

I agree, PHEV SUVs are the real key to sales growth and diminished gasoline demand.

Speculawyer
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Speculawyer

And that is why the Mitsubishi Outlander PHEV has been a big success in Europe.

It needs to come to the USA>

Get Real
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Get Real

Or how about GM step up and make a Voltec-based SUV???

Speculawyer
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Speculawyer

🙂 I think I’ve posted that sentiment a thousand times. Indeed, GM . . . do it!

scott franco
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scott franco

“I don’t think we’ll see a huge expansion of EVs until they start to produce plug-in Pickup Trucks and large SUVs that seem so popular. Right now one big problem is that certain people are simply not interested in small cars, no matter how efficient, no matter how much money they save, or how much less they pollute.”

Why don’t you speak for your own little biased self. I have a truck because I actually WORK for a living, not sit around waiting for the next government check. My truck is either hauling lumber and building supplies, or my camper.

I have TWO BEVs, which is, I’ll bet, two more than most of you blowhards here.

Kootenay EV Family
Guest

There are certainly people out there who use trucks for their intended purpose. I own an EV and a small SUV, but have utilized work pick-ups for many years.

Sometimes I really needed a pick-up, but many other times the company just had the blinders on to other possibilities.

Now that doesn’t even account for the personal choices – of which over the years I’ve seen many many choices of pristeen pick-ups used for commuting that very rarely, if ever, get used as trucks.

Sondre
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Sondre

The world is wider than only the US

Silent Lurker
Guest

David you need to get out more, especially Europe and Asia. It is rare in deed to see a full sized pickup truck or mid to large SUV there. The only full sized cars you see are generally embassy cars. A few limos and hardly ever a privately owned full sized vehicle. Never a large taxi. The US is just way behind at this point. fourty years ago foreign cars were a joke now the rule the road. This same thing will happen with EV’s in the next twenty years also.

Randy
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Randy

Just like we’ll also be telling stories of how we’d all drive around by hand, running in to each other and stopping to trade insurance cards.

SparkEV
Guest

I doubt we’ll get off oil in gradual way as this article alludes. Oil is too cheap (dig a hole). But once cheap electricity becomes the norm, there will be dramatic and rapid shift, kind of like how gas cars displaced horses after Ford + Standard oil.

Current EV is like Ford (or pre-Ford). Standard oil equivalent will take a revolution, such as Fusion energy. To think of it another way, when Fusion becomes reality, there will be no need to burn gas for cars. That’s only 5 to 10 years away, as it’s been for decades.

Brian
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Brian

Fusion is already a reality. Many of us, myself included, power our EVs from a Fusion reactor. For safety’s sake, though, we keep it 93,000,000 miles away.

BraveLilToaster
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BraveLilToaster

+1!

MisterG
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MisterG

True…so true lol

SparkEV
Guest

My point is that electricity has to be much cheaper with Fusion generator as an example. Solar is still too pricey. What’s needed is cost that’s much cheaper than oil. Currently, 33.7kWh (gallon of gas) = $2 => $0.06/kWh while solar is about $0.07/kWh with subsidy, and netmetering (or lack of) makes it cost even more.

If electricity is an order of magnitude cheaper ($0.005/kWh), then we’ll see some dramatic shift. That’s pretty much what Standard oil did: lower the oil price, and ICE took off.

Josh
Guest

You forgot the critical conversion factor in there.

An ICE is ~30% efficient, so $2 gas is $0.18 kWh. But then you need to factor about 90% efficiency of an EV so…

$2 gas and $0.16 / kWh are roughly equal. All (normal) sources of electricity are cheaper than that.

PPAs for utility scale wind in West Texas run about $3 – $3.5 per MWh these days. Add about $4 per MWh for transmission and you have $0.075 / kWh to the consumer (potentially).

darth
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darth

Josh is correct. I would only add that solar PPA’s have recently sold for under $0.04 per KwH

Doggydogworld
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Doggydogworld

$3.50/MWh for wind would translate to less than a penny per kWh. I think the actual number is $35/MWh.

Nathanael
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Nathanael

Josh is correct about the efficiency factor, but got his math a bit wrong. With 30% efficiency for ICE and 90% efficiency for BEV, $2 gas is roughly price-competitive with $0.18/kwh. (Josh, your calculation used 33% efficiency for ICE.)

I tend to do the math in a different manner by computing the “dollars per mile”. A typical BEV at 11 cents/kwh costs $0.04/mile to operate. At $2/gallon gasoline, an ICE needs to get 50 mpg to compete with that.

As soon as the upfront purchase price is similar, BEVs will start taking over really fast.

The wild card here is serial hybrids, which actually can get better than 50 mpg. But if you have a serial hybrid with a plug (PHEV) and a serial hybrid without a plug, I would expect the serial hybrid with a plug to sell better and cost about the same.

Rick Hannah
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Rick Hannah

Installing turnkey 12,720 watts on ground mount in east central Illinois.
$37,139.00 – $11,141.00 federal tax credit – $16,023.00 in SRECs ( 5 year contract for 80 SRECs at $200.00 each) = $9,974.00

Production of 16,306 KWHs per year X 20 years = 326,112 KWHs.

$9,974.00 divided by 326,112 = $ .031 per KWH. Buy or lease your electric car this fall I am going to be a Bolt leader myself.

mr. M
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mr. M

Atom reactors are splitting not fusing. Fusion is currently developed to acchieve energy parity at ITER or the Wendelstein X7. After energy parity (input = output) you can start with devoloping comercial applications. This is expected to be available by 2050.

mxs
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mxs

No to burst your bubble as you clearly put some work into the article.

But, for a while now, we have lived in economic times where most market related things are based on speculation. Nothing reflects reality or things which it should.

So, however, you spin the numbers, the future price of oil is completely unknown, unless you are telling me that you have seen the oil crash coming a year or so ago …. unfortunately nobody has which just supports the speculative markets we live in.

Secondly, and perhaps more importantly, you are kind of forgetting that cars consume only between 30-40% of oil daily production and these numbers get lower and lower.

I wouldn’t waste bandwidth on another article like this anytime soon. And I am not trying to be mean. Keep rather writing about technical side of EV things, which is much more useful to all of us rather than trying to project/guess where price of oil is going.

ffbj
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ffbj

I take your main point, that no one knows for sure where oil is going, howsoever you make a number of speculative statements yourself.

It is true that there is a lot of speculation in the market, but saying that they do not reflect actual conditions is a stretch.
Sure on any given day that could be true. Today for instance where builds of crude hit new highs, 13 million barrels as opposed to the forecast 3 million, so oil gets hammered.

As I have said before the price of oil will dance to the jig the Saudi’s pipe. At the moment they are piping a lively one producing at a high rate, so oil will stay low as long as they do so.

Mxs
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Mxs

The oil price is absolute crap, so why is the price of fuel still only marginally lower than it was a year ago …. Market speculation/cartel agreements …. Whatever, the bottom line is most prices of commodities effecting your daily life are based on speculation in control of few for the “benefit” of many.

I personally like the EV idea, but to expect that oil prices will accelerate their adoption is naive at best.

MikeG
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MikeG

I disagree. Eric wrote a thoughtful analysis on the destruction of oil demand due to increased adoption of EVs.

While Eric wasn’t claiming he knows what the oil price will be at some point in the future, his analysis of how oil markets function is correct.

Pushmi-Pullyu
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Pushmi-Pullyu

mxs said:

“…you are kind of forgetting that cars consume only between 30-40% of oil daily production and these numbers get lower and lower.”

Hmmm, a bit of Googling shows your numbers are rather far off. Perhaps you’re counting only automobiles, and not trucks and other forms of transportation? Every form of transportation except commercial airliners, every form including ships and trains, should eventually be transitioned to electric power. Passenger cars are just the first step.

One source says U.S. petroleum consumption is 71% transportation, and another says worldwide in 2012 it was 63.7%:

http://1.bp.blogspot.com/-bjp4nwfUaDM/TzcCMgKQ14I/AAAAAAAAAlM/h0JoBgyLWeI/s1600/Petro-consumption-by-sector.jpg

http://www.globalpetrolprices.com/common_images/articles/39/World%20oil%20demand%20by%20sector%202012.png

Mxs
Guest
Mxs

First off, you took the first Google returned link …. I could find next 10 and each one would be different ….

Secondly, you are kind of stretching the goal posts, and not by little …. Let’s stick to cars up to a bus size. Anything else will need a leap in development and huge one at that. Airliners?? Seriously …. Let it go or don’t fly.

I think the author meant well, but it’s a crystal ball talk rather than number based talk. We agree to disagree …

Djoni
Guest
Djoni

Agreed, future is pretty hard to predict.
BTW, train are already electrifies many place.
The other question I have no answer is whatever the percentage of oil production is for transportation, do they count all the externality, exploration, extraction, pumping, refining and so on?

Priusmaniac
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Priusmaniac

I would also factor in the other big oil consumer, heating. Most houses still don’t have decent insulation, not that they are not passive but that they don’t have insulation at all. That makes it all the more damageable since they are the ones that are likely not yet using a heat pump also. In the best case they use a pellet heater but in the worse case they use a fuel or fossil gas heater. More insulation and generalized heat pumps or pellet heaters is at least as important than changing the cars to get rid of oil.

Someone out there
Guest
Someone out there

“[OPEC] forecasts BEVs to be just 1% of the market by 2040”

Yeah, that is a huge underestimate! It seems every manufacturer has a 300 mile EV in the pipeline for 2018-2020 now and the competition will drive prices down. By 2030 even it will be difficult to sell a gas car, the only thing possibly saving the gas car is a difficulty producing enough EVs to cover market demand.

BraveLilToaster
Guest
BraveLilToaster

That’s even more speculative than OPEC’s predictions. People are going to keep arguing that EVs are crap that can’t get you far enough until *years* after that’s completely untrue, when 300 mile cars with more DCQCs than gas stations are a reality. I’m shocked that people aren’t still calling them glorified golf carts, TBH.

Pushmi-Pullyu
Guest
Pushmi-Pullyu

Just because there will inevitably be some diehards doesn’t mean there won’t be an exponential, “S” curve of growth in plug-in EV sales. People were still saying “Get a horse!” decades after the introduction of the Model T Ford, too. Sometimes the older generation has to die off to make room for new ideas.

Surya
Guest
Surya

I’m nog going to make estimates myself (I am not an analyst), but 1% by 2040 seems way pessimistic indeed.

Counter-Strike Cat
Guest

Yet another wannabe peak oil analyst.

World population growth faster, there are entire continents with billion young population, who had never owned a car yet and their first car will not be an EV.

Mankind will continue to use oil until the last drop is consumed.

enerc77
Guest
enerc77

Wrong. New generation don’t buy cars: they use car sharing.

Josh
Guest

A shared car does not change the fact that it is using energy to transport someone in a vehicle. In fact it uses more energy because the car has to get to the person before making the trip.

If they changed to mass transit only (unrealistic in the US), that would shift things.

Autonomous EV car services (Future of Uber), would make a difference in oil use, but they would still require electricity to run.

BraveLilToaster
Guest
BraveLilToaster

In India and China, where car ownership is still one of those things that’s an icon of insane wealth? I don’t think so.

HeisenberghtNUTS
Guest
HeisenberghtNUTS

Well I don’t know too much about India, but I do know that there are quite a lot very smart engineers with origin in India.

It’s just a matter of time until one of them starts to buy old ice cars with broken engine for 500$ add one or two of those 30kW peak power brushless motors that we use to build 1/5 scale RC trucks at 300$ each including motor controller, adds 10kWh of battery for let’s say 2000$ and end up with a smile.

This will be the true game changer for oil demand. Retrofit old ice in cheap labor countries.

Pushmi-Pullyu
Guest
Pushmi-Pullyu

Counter-Strike Cat said:

“…there are entire continents with billion young population, who had never owned a car yet and their first car will not be an EV.”

I wonder how many years it will be before that looks like a foolish prediction. Hopefully not many!

The transition from gasmobiles to PEVs is a historic inevitability. The only question is how long it will take.

Josh
Guest

Good article, but I do agree with MXS above. There are more uses for Crude than gasoline.

There are fundamental costs with exploration/extraction/refining that do not go away. There is a floor to Crude prices (and we are near it or below it). There might be a short term downward shock if adoption hits unexpectedly quick (by the oil industry), but it will trend back toward the costs I mentioned with a margin for ROI.

The volumes of Crude Oil being extracted would go down though. Volume and price are two separate things.

Many of the other uses for Crude (lubricants, cosmetics, fertilizers, etc.) have higher prices. As they became more of the Crude Oil use, crude prices might actually rise. But consumers wouldn’t feel pain at the pump tied to oil prices anymore.

Josh
Guest

P.S Good to see another Houstonian on IEVs!

Speculawyer
Guest
Speculawyer

Indeed. Burning oil is a waste of a valuable resources.

It is much better used as in pharmaceuticals, lubricants, plastics, etc.

Pushmi-Pullyu
Guest
Pushmi-Pullyu

Josh said:

“Many of the other uses for Crude (lubricants, cosmetics, fertilizers, etc.) have higher prices. As they became more of the Crude Oil use, crude prices might actually rise.”

I agree, it’s entirely possible that prices will rise as the demand shrinks, due to reduction in volume of production.

But I question that we’ll be using petroleum forever for such things as making plastics and lubricants. I’m told that synthetic oil is a better lubricant for our gasmobiles, and plastics can be made from sugars rather than petroleum. In both cases it’s cheaper to use oil, but as the cheap sources of petroleum are exhausted and prices rise, the cost/benefit analysis may change.

Genetic engineering will almost certainly produce crops which fix nitrogen themselves, so hopefully the need for widespread use of fertilizer will drop drastically in the near future.

Josh
Guest

In the near and medium term, I think it is very unwise to trade food supply for fuel. You can count me as not a fan of the Ethanol business, for example.

Running things on electricity give you a diversity of options to produce energy. Not only does this give more options for reducing micro and macro emissions, it creates competition to keep costs for consumers in check.

As far as non-fuel uses, as long as the crude isn’t being burned, if it makes the most sense to use it for the product, go ahead and use it. We should have plenty here soon 😉

Priusmaniac
Guest
Priusmaniac

On the other hand the Ethanol business is necessary for the long term future since when the oil is gone or forbidden, the Ethanochemistry industry will be the sole supplier of the base materials for plastics, detergents, pharmaceutics and many more products that are today still made from oil.

Nathanael
Guest
Nathanael
The oil price floor for *new exploration and development* is roughly $40/bbl, with the exception of Onshore Middle East fields, some of which can be produced around $20/bbl. http://www.rystadenergy.com/AboutUs/NewsCenter/PressReleases/global-liquids-supply-cost-curve Assume that people are highly sensitive to upfront cost and won’t pay a premium upfront for an electric car; so electric cars compete with ICE cars of the same price. If electric (long range 200+ miles) and ICE have the same upfront price and the same operations price, electric wins because it’s nicer to drive. Electric *will* have the same upfront price for $35K and up cars starting in 2018 at the latest. To have the same *operational cost* as an electric car (333 kwh/mi) in a typical US market with 11 cent / kwh electricity, we find that for a given gas price, an ICE car needs to get a specific MPG to be competitive: $20/bbl -> $1.34 gas -> 37 mpg, which only the very most fuel-efficient gasmobiles can achieve $40/bbl -> $1.84 gas -> 51 mpg, which only certain Priuses can achieve Essentially it is already permanently impossible for gasoline cars to ever be cheaper to operate than electric cars, as long as oil demand is high enough… Read more »
philip d
Guest
philip d

I’m assuming the WOO accounts for ever increasing worldwide ICE fleet efficiency gains?

I would think that if they didn’t then the timetable would be moved up quite a bit if the average ICE mpg went up from 25 mpg today to 45 mpg over the next 10-15 years.

Pushmi-Pullyu
Guest
Pushmi-Pullyu

Greater efficiency of fuel use doesn’t necessarily mean less fuel is used. In some cases it may increase consumption, because when it’s cheaper, people use it more. This is called the “Jevons Paradox”.

This situation is particularly applicable to industrial growth in third-world countries such as China and India, where automobile sales are experiencing exponential growth.

https://en.wikipedia.org/wiki/Jevons_paradox

philip d
Guest
philip d
I understand that is certainly one factor that goes into the equation but my question is how detailed is this study? Does it even take all of this into consideration or does it assume a flat level average worldwide fleet fuel efficiency over time? Jevons Paradox would certainly need to be accounted for as part of the formula but you can’t simply say that more efficient cars will always yield more fuel consumption because of more driving. There is clearly a ceiling of average miles driven in a given country regardless of how cheap gas is. Then from that point more efficiency yields less gallons consumed. For example, drivers might drive 20% more miles than they normally would given that gas prices drop to record low levels. But there would be an ultimate floor on price even if the oil just jumped out of the ground into the refineries so that 20% more miles would become a constant from that point on unless oil prices went back up. Let’s then assume that the average gas car gets 25 mpg and over x number of years the average car increases efficiency by 100% to get 50 mpg. Even with more miles… Read more »
bad English
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bad English

Perhaps in Norway the process has begun and fuel consumption is already declining…

ffbj
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ffbj

Good point. From 2007-2015 oil consumption in Norway declined per year around to realize a 30% decrease in consumption.
An example of what could happen to gas consumption, in a microcosm.

http://www.indexmundi.com/energy.aspx/?country=no&product=gasoline&graph=consumption

ffbj
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ffbj

Btw to extent the chart. 2015 consumption was under 20k barrels a day.

Matti--
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Matti--

There isn’t much progress in Norway actually, they just bought diesel cars..

http://www.indexmundi.com/energy.aspx/?country=no&product=fuel-oil&graph=consumption

ffbj
Guest
ffbj

Trucks use diesel too. While it is certainly true that diesel fuels consumption rose over that period you would need actual numbers of diesel cars sold, to attribute that rise soley to a switch from gas to diesel.

Besides diesel is dying anyway. Luckily it never took off in the U.S. but not for lack of trying.

HeisenberghtNUTS
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HeisenberghtNUTS

There is what???

Well I do see that the data you linked is until 2010 but hey it’s 2016…

There is quite a lot happening in Norway… This year they are most likely hitting the 1/4 market share for plug in cars. Of course it will take some time until this reflects in a crude consumption reduction, but hey if not Norway, then who?

I would not wonder if they hit 75% in 2019.

AtlantaCourier
Guest
AtlantaCourier

Great article! I love the work you put into this and would like to see more articles like this.

However, the numbers used indicate that each PEV, on average, will displace the entire portion of a barrel oil, with gasoline comprising 19 gallons from each barrel, diesel 12, and aviation 4.

But I don’t believe this is the case for the near term. Only gasoline should be affected near term.

EV tech will not begin significantly displacing diesel and aviation fuel before 2024 because the primary consumption of those fuels is by tractor-trailer trucks and by airplanes, both of which are years away from adopting electrification.

So, should not the calculation for barrels of oil displaced be weighted to eliminate primarily the gasoline component (19 gallons) instead of the full 35 produced from a barrel of oil?

If so, then this would halve the number of barrels displaced for the timeframes indicated.

ES
Guest
ES

Yes, I was being conservative with my figures by using 35 instead of 19. In other words my figures indicate it takes 35 gallons of fuel savings to displace 1 barrel of oil.

If I used 19, the amount of displaced barrels would be about Doubled not Halved. 486 gallons saved/19 gallons per barrel = 25.6 barrels displaced per year by the avg PEV.

If I used that then the magic number would only be 500,000*365/25.6 = 7,128,906

Nathanael
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Nathanael

I think this calculation is actually more correct. I believe that right now, gasoline is the “marginal product” where demand causes additional refinery production to be activated, with the other fuels created as byproducts. Reduction in gasoline demand reduces oil refining quantities directly.

(Eventually, when gasoline demand reduces enough, diesel will become the “marginal product”, and drops in gasoline demand will not cause drops in oil refining. Long ago, kerosene was the “marginal product” and gasoline was a waste byproduct.)

PVH
Guest
PVH

I liked this article as well. Perhaps it would be safe to say that EV adoption pace will at least act as a damper on crude oil prices. For example If prices are again above $100 a barrel then EV adoption will be faster, which in turn will lower demand for oil thus puting a downwards pressure on crude prices. Opec is however right I believe in estimating that impact of EV adoption might be lower than some think. Indeed, it is not so much the EV adoption in the US or Norway that will matter but which first car one billion of Chinese, one billion of Indians and 1 billion of Africans will own. And for the next 10 years it will more likely be a $10K petrol car than a $25K EV. In 25 years from now, I don’t know and probably no one knows.

ffbj
Guest
ffbj
My take: casting pearls. 1. The Chinese government, as only a totalitarian government can do, will push mandates to accelerate the adoption of evs. They are doing this to a certain extent already but the measures they use will become increasingly draconian. 2. American and Chinese populations are aging into retirement and will drive less. This is already happening. Younger people will find alternatives to owning a car. Light rail, Uber, Lyft, biking. 3. Increase in carbon taxes and restrictions on gas and diesel powered vehicles will sour the consumer on the purchase of such. This coupled with introduction of cars such as the Bolt, Model III, Volt Gen II, Nissan Leaf…etc, will reduce purchases of non plugin vehicles. Diesel buses will increasingly be replaced, on mass, by municipalities for obvious,numerous, reasons 4. More startling evidence of worst case scenarios regarding long ignored predictions of catastrophic climate change cause the public to favor candidates who say they will and actually do something about them. 5. The old guard heavy industrial energy producers will continue to falter, as in the story of coal, as less polluting alternatives take up more of energy production. That’s the general outline. For a time line… Read more »
Nathanael
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Nathanael

Currently, in major cities in China, if you try to register a car, if it’s *electric* you can get a license plate immediately, but if it’s *fuel-based* you have to enter a lottery and wait up to five years.

I don’t see how they can get *more* Draconian than that!

Hot Rod Mama
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Hot Rod Mama

Just ordered my Tesla,can’t wait to help Mother Earth.

scott franco
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scott franco

Good article, thanks for this!

Scott.

Yoda
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Yoda

There are also small cities that get electricity from deseil and generators that the militaries use that are awitching to wind solar that will contribute to the decline of oil….

Pushmi-Pullyu
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Pushmi-Pullyu

Worldwide, only 1-2% of grid electricity comes from oil-fired generators. It’s not a significant market.

Fortunately, the U.S. military is now using some solar power generators instead of diesel, due to difficulty of supplying fuel to remote locations. Hopefully that trend will increase.

Felipe Angeles
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Felipe Angeles

I love the article, very insightful. I’ll pass on the knowledge

Pushmi-Pullyu
Guest
Pushmi-Pullyu

This is the best-written article I’ve ever seen at InsideEVs. Hats off to Eric Saibi! I hope we’ll see more from him.

That said, no matter how brilliant the analysis, just like any other, it must contain some guesswork. What we can be sure of is that actual market growth won’t follow any precise mathematical trend; there will be some variations, some degree of chaotic variation.

But kudos to Eric for showing the results of different assumptions; more aggressive growth vs. more lackluster. Here’s hoping that the actual growth in sales over the next several years is at least as strong as his 35% scenario!

One minor critique, Eric: You’ve labeled cumulative sales “Incremental” on your charts. I think it would be more clear what you mean if you’d re-label them “Cumulative”. Just a suggestion, of course.

Bill Howland
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Bill Howland

Too many mistakes in this article.. For one, a 42 gallon barrel gives 44.2 gallons of products. Guess he’s never heard of ‘refinery gain’.

Oil prices will go back up, but not in the next several months, unless they start a war.—

Also, although I’m not in favor of any nefarious things certain oil companies have done in the past or present, this fan of EV’s is not trying to put the oil companies ‘out of business’.

Modern Petroleum products have their place.

So please don’t include me.

ES
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ES

For this article, I only considered refined products that are commonly used for Transportation. A barrel of oil yields about 19 gallons of gasoline, 12 of diesel, and 4 of jet fuel. The other 10 or so gallons of product include things like petroleum coke, asphalt, heavy oil, and lubricants. If you disagree with these figures, please contact the EIA.

Bill Howland
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Bill Howland

No argument with the EIA. Static percentages have the nasty habit of changing.

Foo
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Foo

Picture is captioned with “500 Million Barrels A Day”. Story mentions 500,000 per day. Typo?

Three Electrics
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Three Electrics

Huh? If you’re pro-environment, you want oil prices to climb and remain high, not low. Low prices encourage carbon pollution. This should not be a goal.

darth
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darth

Yes but high prices encourage more destructive development like oil sands and artic drilling. Only low prices curb further expansion of oil exploration.

What we need is for EV adoption to cause demand destruction, then adopt a carbon price of some kind.

Three Electrics
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Three Electrics

At the end of the day, it’s not how much oil you find, it’s how much you burn. Cheap oil merely shifts production to Saudia Arabia, where pumping is pretty much free, and massively boosts demand. For example, in the US, where corn is cheap, corn use goes up–all food products end up containing corn. Oil is similar. In other words, the oil saved by EVs just flows somewhere else. I agree that a tax is the only solution.

Nathanael
Guest
Nathanael

Actually, you want oil prices to whipsaw violently from $150 to $10 and back.

This prevents anyone from investing in new oil exploration — to avoid the risks of cheap oil — while simultaneously causing consumers to buy electric cars — to avoid the risks of expensive oil.

This is, thankfully, *exactly what’s happening*.

Battery Bro
Guest

I think compounding growth will indeed bring us closer to our targets in five years.

But we do have so far to go, from the big picture.

jzj
Guest
jzj

1. There are two possible approaches to reduce oil demand: market (people opt for whatever’s cheapest) or policy (government mandate). The first thing to do is see what the market will do, and then see if we need policy.
3. To see what the market will do, we need to get rid of everything that hides true costs. This can be done by ending every single subsidy for everything everywhere; assign costs that the government currently absorbs; and assign future costs that the government will later absorb.
3. It is my opinion that, once oil (and renewable and EV) subsidies are removed, and costs such as health/medical, environmental damage, global warming, foreign policy/military, negative economic impact of foreign trade imbalance v. positive economic impact of domestic renewable energy production, etc., are properly assigned to toxic polluting foreign oil, EVs based on renewable energy will naturally drive the market, and we will not need government mandates. Which is, in the best of worlds, as it ought to be.

Eco
Guest

Great article, oil industry decline is inevitable!

JB Straubel (Tesla CTO) had a quote in one of his presentations:

“The stone age didn’t end for lack of stones and the oil age won’t end for lack of oil”.

The quote was from the Saudi Arabian Oil Minister!!!

Doggydogworld
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Doggydogworld

I like this type of analysis. But using your numbers, to cut oil demand growth in half each year you must sell 13 million PEVs each year. NOT 13 million total. This would take until 2032 under the 20% growth scenario.

Also, if you look at HEV growth rates you may not consider a sustained 20% growth to be ‘disappointing’.