Rise of electric vehicles threatens oil industry
Refiners and oil executives are beginning to look at the threat that electric cars pose to the future of diesel and gasoline as the vehicles gain staying power.
The issue is being raised more as China and Europe announce they will phase out liquid fuels and shift vehicle fleets to all-electric cars, trucks, and buses.
In addition, companies are pledging to begin producing more electric cars. Volkswagen, the largest global automaker by sales, announced that it will sell an electric version of all 300 of its car models by 2030.
Some oil CEOs say the issue is not getting enough attention, but it should.
“Seventy percent of oil consumption is as a transportation fuel. So, if you move those numbers in the long-term it can cause titanic shifts,” said Dan Eberhart, an oil executive who owns Canary, one of the largest oil drilling wellhead manufacturers in the country.
Eberhart, who donates to President Trump and has ventured deeper into energy policy in recent months, is working on a book on the long-term implications of the electric car on the demand for oil.
He believes that most news outlets miss the significance of the electric car on refiners and oil producers.
They “bifurcate the electric car story and they relate it to the automobile companies, and 10 minutes later they talk about oil prices,” he explained. “But they never connect the two.”
The issue is gaining the attention of the refinery industry, which is starting to examine the impact in their long-term planning scenarios.
The refiners aren’t being “squeezed” by electric vehicles, yet, according to Stephen Brown, vice president for federal affairs at the large independent refiner Andeavor, formerly Tesoro. “But [we] need to look 15-25-30 years down the road and to work with market forces rather than government mandates supported by subsidies, which is all that EVs have going for them right now.”
BP’s 2017 energy outlook looked at the reduction in fuel demand due to electric vehicle penetration. The company expects fuel demand to rise, but how much depends on the speed at which electrification takes place, driven by increasingly stringent fuel economy regulations in the U.S. and around the world.
While the oil giant expects fuel-efficiency regulations and the growth of electric cars to push down oil demand significantly by 2035, BP is betting that increased demand from developing nations will offset that drop.
Brown estimates that as much as 4.8 billion gallons of gasoline will be displaced in the U.S. by 2025 because of electric vehicles. In 2016, about 143.37 billion gallons of gasoline were consumed, an historically large amount, according to federal data.
Brown said much of future demand will hinge on regulations governing mileage standards.Trump is looking to redo strict fuel economy standards by the Obama administration. Trump may slow the pace of the regulations, but Brown doesn’t see the rules vanishing.
The International Energy Agency, an inter-governmental agency that includes the U.S., reported this year that electric vehicle sales worldwide landed at 750,000 in 2016, which is about 1 percent of sales — the same percentage as in the U.S. But in some countries such as Norway, the penetration rates are as high as 29 percent. Norway has the highest market share of electric vehicles in the world, according to the energy agency.
The agency expects the number of electric vehicles on the road to reach as many as 20 million by 2020 and between 40 million and 70 million by 2025, from 2 million last year.
More aggressive scenarios using different policy targets, including the Paris climate agreement goals, could see the vehicle number jump much higher by 2030.
The cars just experienced their largest sales year in the U.S. since 2011, reaching 170,000 vehicles sold through November, based on a study compiled by energy security think tank Secure America’s Future Energy. The study compiled sales numbers taken directly from the automakers.
The group supports policies that reduce dependence on foreign sources of oil to free the U.S. from global energy markets that make it vulnerable to price spikes. Electric cars are one way to get to that goal by relying on electricity instead of oil for fuel.
Electric vehicles saw that success even as overall vehicle sales, particularly light-duty trucks and SUVs, fell from last year.
“Total light-duty vehicles sales are down, and gasoline prices are still pretty low and yet we’re seeing this growth in this EV market,” said Leslie Hayward, the group’s vice president of communications strategy and content. “We see that as a really positive sign.”
The group understands that refiners are worried, but it points out that the electric car is still in its “absolute infancy,” Hayward said. Nevertheless, SAFE does not want to see the U.S. follow China and Europe, which are setting firm dates for switching to all-electric cars because it could hurt consumer choice and stifle recent sales gains, Hayward said.
“We’re seeing what’s happening in certain cities and countries around the world where they have these outright bans projected by whatever decade on conventional gasoline or diesel vehicles, and we actually don’t think that that’s good policy, at least not in the United States in terms of energy security,” Hayward said.