Oil Needs to Fall Below $20 to Compete With Green Alternatives
bloomberg.com
bloomberg.com
I think 30-year oil investments are relatively safe if this is their threat. I can’t see this happening in less than 30 years.
You also have to bear in mind that electrification is most attractive for vehicles which travel the most distance, and consume the most fuel. Even 20% electrification of the fleet will have a massively outsized impact on oil consumption if it represents all taxis, buses, long distance commuters, road freight, etc. See Bloomberg’s previous research about displacement of fuel from buses:
https://www.bloomberg.com/news/articles/2019-03-19/forget-te...
As long as OTR trucking's primary regulatory irritants are weight and working hours it will resist electrification (unless electric somehow magically becomes so dirt cheap to run that it makes up for the limitations).
Working hours could actually be beneficial in Europe. Drivers require regular breaks over here. If batteries and chargers can sync with the required break cycle, then there's no reason not to go electric.
However, I do think that charging infrastructure will be the main issue, seeing as often tens of trucks will be at the same stop, they'll need a lot of power to get all of them charged within their breaks. Because existing rest stops don't seem located near power lines, that might be a challenge.
Do you really believe that hundred-year-old companies aren't planning their future? Sure, some companies will fail (they always do), but others adapt. Every oil company is well aware of the effects and politics of climate change, and most have massive renewable investment in the works. What gives you the slightest idea that you see something that "they" don't?
My comment was about the investments, not the companies. Some oil companies have significant investments in electricity grids, electric vehicle charging, renewable generation etc, and some do not. Even if they do, it’s not obvious they are best placed to be competitive in those industries or sustain the same profits, although hopefully they can do well. BP made a big investment in solar which it gave up on, now they are investing in charging infrastructure, hopefully that will turn out better.
I don't think that anyone thinks the oil industry is the same as 50 years ago. I also don't think there is anyone (on the professional side at least) who does not know that oil companies, specifically the majors, trade with the price of oil. If these are actually unsafe stocks then there is a huge amount of money to be made by betting against them in a variety of ways. I actually don't think it will be as catastrophic as you think since in an such an environment a lot of oil companies in the US would go out of business, or be substantially reorganized. The prices of certain things would increase and maybe alternatives would arise.
If in 30 years we are going to need substantially less oil than we do today, in 10 years we should be starting to see that reflected in the price. So if you really believe that you should be selling long dated futures contracts, or shorting major oil company stocks, or shorting companies specializing in oil transportation, or probably a variety of other things.
Less than 0.3% of electricity in the US is generated by oil (in 2018). The proper comparison for wind/solar for grid energy would be against natural gas/nuclear/hydropower.
As far as the long-term prospect goes, it's very hard to say yet whether electric cars will replace enough of the gas infrastructure to drive down total oil demand.
On balance, I think not. If users were especially price conscious about their fuel usage, high-efficiency vehicles would be a bigger share of the market. They aren't. And beyond fuel efficiency, electric vehicles offer consumers very little that gas vehicles do not, and have very serious drawbacks that are unlikely to go away.
Given the current state of electric vehicle performance, vanishing tax incentives, and incomplete infrastructure. I think that the American consumer is going to pull back from this 2% dalliance with electric vehicles with its hands badly burned. It might be another generation before they make another attempt at a comeback.
This is mostly true but irrelevant, because as I say the linked analysis is about 25 years.
> If electric vehicles do fully displace gas vehicles, the article is still wrong, because oil will not be competitive with grid energy even at $20/barrel.
That is close to analysis they have done, if anticipated cost reductions for EVs continue over that 25 year period, oil will have to be priced at $9 a barrel to undercut it for that market segment.
> Given the current state of electric vehicle performance, vanishing tax incentives, and incomplete infrastructure. I think that the American consumer is going to pull back from this 2% dalliance with electric vehicles with its hands badly burned.
Sounds like motivated reasoning, to be honest. People will almost certainly drive what is cheaper, all the more so in America where consumption is high. The mechanisms driving reductions in cost are assisted but not driven by the US market, the transition is happening in the EU and in China, which gives scale, which reduces cost. As that happens, whole classes of vehicles will fall below the equivalent gasoline TCO.
Which is why hybrids and small cars dominate the American market? Fuel consciousness is only one thing driving purchasing decisions, and not the most important.
Americans could well decide to continue buying cars that can go on long journeys, don't have costly battery replacement issues, and don't take an hour to refuel at a special station.
Battery replacement actually isn’t an issue for EVs with good thermal management. There’s already plenty of data out there for Teslas which indicate very few battery problems, no more than the kind of occasional drivetrain failures you get with internal combustion cars. The idea that owners will have to replace batteries as a matter or course was valid for some early and basic cars, but is clearly not an issue any more for most vehicles, and no vehicle at the premium end.
Short range and charging is an issue depending on what segment of the market you’re talking about. The current state of the art, which will likely be normal in 5-10 years, is 6 hours of driving for 35 minutes of charging. And, of course, the car starts the day full. That will be a restriction for a part of the market, but you’re claiming 2% is an overextension, which seems manifestly unlikely to me.
EV’s have other benefits as well, not least the immediate torque and acceleration, which has previously been a differentiator.
But gas vehicles remain very competitive against electric vehicles on total cost of ownership, even with oil prices far higher than $20/barrel. And since gas is so much easier to transport, gas vehicles have numerous technical advantages.
If electric vehicles do not fully displace gas vehicles, then this article is wrong. Oil prices can stay high.
If electric vehicles do fully displace gas vehicles, the article is still wrong, because oil will not be competitive with grid energy even at $20/barrel.
Typically one needs to drive to a gas station to refuel a gas vehicle, whereas an electric vehicle can be recharged at any mains power outlet.
A Kia e-Niro is £32,995 (including the recently cut Government subsidy) whilst a similar size+spec petrol car (The Kia Rio 3) is £17,285.
The Nissan Leaf is from £27,995 whilst the larger Qashqai is from £19,995.
I know that the up-front cost issue is similar in many countries, but that's where Government subsidies usually kick in. America has the $7,500 federal tax credit on EVs (to a point), plus state subsidies sometimes top it up to $10k. This compares to the UK which has recently cut the £4,500 subsidy down to £3,500 for EVs.
An electric car would be useful to me for about 400 km before it runs dry - that's about four days of driving for me.
Supply, demand, and subsidies.
Supply, demand, subsidies and political stability of the country that produces it.
In short: oil prices are affected by many factors.
Oil has unpaid for economic externalities, specifically climate change. This is not the same as a subsidy.
(The article also discusses some of the indirect subsidies that you're describing as a 'tired trope', but the main theme is economic stimulus that directly supports extraction, exploration, distribution, transport and consumption of fossil fuels).
https://www.vox.com/energy-and-environment/2017/10/6/1642845...
>Yet this fact, so inconvenient to the conservative worldview
Can you explain what "the conservative worldview" is for the readers? Sounds like the author has an obvious political leaning.
Precisely. Energy of all types receive subsidies, and oil receives fewer subsidies per unit of energy produced than other types of energy. And, in most advanced nations, it's taxed at extremely high levels on the consumer side.
We need to reduce our fossil fuel use, we get it. But this idea that we only burn oil because it's subsidized is bunk. Oil (and coal) is cheap, regardless.
If it wasn't for oil, then for what? Those chemical weapons that were never found? All wars that US starts (and 80 percent of all wars in the world are started by US) are either for oil, or other economic interests. "Spreading democracy" is just an excuse used by government's public relations division, but it is not even remotely true. There are many non-democratic countries, which US leave alone, because they have not enough natural resources or other wealth to be taken from them to pay the bill for war - Cuba is one such example.
You have a pretty simplified political view, my friend.
Iraq sells oil into a market; how did invading them "get us the oil"?
"Cost of extraction" is a fuzzy term. If it costs $100 to set up a well that lasts 10 years and $1 to pump 1 barrel of oil a year, then is the economic cost is around $11 per barrel (loosely estimated) and the marginal cost $1 per barrel.
This is how an existing well can price below the economic cost of extraction but above the marginal cost. It doesn't make sense to compete with them by setting up new pumps. But pumps last a long time, and there are a lot of pumps out there.
This is a statement about demand, not cost.
Nobody is saying oil is going to zero. And the cost curve for oil production varies greatly from well to well. Many wells are already extracting at total costs above price.
A barrel which costs $50 to produce will cost $50 to produce regardless of its use. There is no "dividing out" costs.
This assumes a perfectly competitive market, which is far from reality. Oil production is dominated by a cartel.
As a cartel can increase prices to maximise profitability, to a large extent, the price of oil is controlled by the price elasticity of demand.
There is of course plenty of oil left but it is not the same cheap oil that we were used to last century where you basically stuck a pipe in a ground in a place like Texas and cheap oil would come out. Most of that oil is gone. Also, not all oil is created equally and some oil is a lot nicer to work with than other oil when it comes to refining it. Which is why the US still imports oil from the middle east. Refining is not free either obviously and actually uses lots of energy. Ironically, a lot of wind/solar is being used for that.
This is indeed not news. Oil investors have known this for some time and have been voting with their feet. Also, most EV owners are well familiar with the fact that the cost of recharging is peanuts compared to filling up a car with petrol/diesel. I'd say that 20$ is going to come down by 2-4x over the next 20 years.
A multitude of materials (ex plastic in multiple shapes forms and solidness & nylon), energy (not just electricity), pesticides (no matter what you think of them they still make sure we are fed) lubricants.
I could go on. When we extract oil we don't just extract gasoline for our cars and houses we use it for so many things that simply doesn't have any alternatives.
Also i read all this gloom and doom about lithum reserves and how long they will last and how sustainable it is to the point i dont know what to believe. So are the batteries going to get more expensive as countries with lithium reserves realize what they have and start charging more?
I wish i could afford an EV or a hybrid, but they are out of my price range.
Per billion invested in Renovables you can produce at most 10% of the kwh and for just a few years even months, till it's necessary costly maintenance
So that means, you need a battery. The price of the battery, its decay and so on, has to be taken into account in that price. Does that aforementioned price for the barrel of oil includes that? I think not.
If everybody would go electric Today, the price of a battery would go to infinity, as there is not enough supply for that demand. If the changes happens too fast, the price for the battery and it's longtime cost would be higher than oil, even with oil at $100. Which for me makes all this argumentation that oil will die useless and pointless.
And to those prophets of "Oil will disappear": Oil will still exist, but won't have a monopoly in cars, some machinery etc anymore. I believe consumers will still buy cars powered by oil as long as it is worth it.
It's an industry that generates a lot of jobs, has a huge effect on GDP and I'm very sure countries will change very gradually to electric vehicles.
That is the analysis they have done.
> If everybody would go electric Today, the price of a battery would go to infinity, as there is not enough supply for that demand.
I don’t understand why this is relevant, they are talking about a comparison for projected costs in 25 years, there’s plenty of time for battery production to increase, it would be 15% a year over that timeframe even for a total transition, and the industry is currently sustaining 75% a year growth.
25 years seems like a long time, but it’s a relevant timescale for oil investments made today and in the next years.
It is possible to create electric cars nowadays, but as we live in a capitalistic society we forget easily that we don't have unlimited resources on this planet. Lithium is still more rare than oil. I don't see how this is sustainable at all.
As long as it is legal
https://en.wikipedia.org/wiki/Phase-out_of_fossil_fuel_vehic...