As declining renewable energy costs and rising demand for electric vehicles (EVs) effectively kill off the market for petrol and diesel cars, oil companies are engaged in a “race against time” to guard against a huge 40 per cent chunk of their business disappearing over the next 25 years.
That is the headline conclusion contained in startling new analysis released by BNP Paribas’s asset management arm, which argues that in only a few years’ time wind and solar will produce more energy for battery-powered EVs at a much cheaper price, than oil will for petrol and diesel cars.
British environmental news website BusinessGreen reports the paper argues these shifting economics mean it will soon make little financial sense to produce oil for petrol and diesel cars in the coming decades, when EVs powered by renewable energy offer a far cheaper, cleaner, and more efficient alternative.
Comparing the investment needed at today’s prices to produce oil and renewable energy over the next 25 years, the report found it would cost between 6.2 and seven times more to produce the same amount of energy for a petrol car from oil, than it would to generate renewable electricity from solar and wind for an EV.
The equivalent cost for fuelling diesel vehicles, meanwhile, is still around three-to-four times higher than for EVs.
As such, while renewable energy sources such as wind and solar still need to scale up rapidly to tackle the global climate emergency, the oil sector is now in “relentless and irreversible decline”, asserts the report, which was authored by Mark Lewis, the French banking giant’s global head of sustainable research.
“This is a tremor portending an earthquake for the oil and gas industry,” he states in the report.
“Forty per cent of global oil demand today is accounted for by uses that will not make any economic sense once wind and solar reach sufficient global scale and cost-competitive batteries accelerate the penetration rate of EVs.”
At present, around 36 per cent of global oil demand comes from petrol and diesel cars, on top of roughly five per cent for energy production.
With a significant scale up of renewable energy in the next decade or so, wind and solar could readily replace that chunk of the oil business, the report argues.
“On the most dramatic reading, it is only a matter of time before the economics of renewable energy and EVs overwhelm oil and displace up to 40 per cent of its current demand,” the report adds.
“For the oil majors, the challenge is on a scale that they have never faced before, and business-as-usual is simply not an option.”
BusinesGreen says the report estimates that in order to compete with renewable energy-powered EVs in future, oil companies would need to be selling barrels of oil at just US$9 to US$10 to produce petrol, and US$17 to US$19 for diesel cars, just to break even.
Today, a barrel of oil sells at roughly US$55.
BusinesGreen reports that Mr Lewis warns all in all, the findings are “stark” for oil companies, which if they continue investing to replace their oil reserves on a barrel-for-barrel basis face huge risks of being lumbered with stranded assets.
“In our view, this should be an extremely alarming prospect for the oil majors,” he writes.
“Accordingly, we think the oil majors should be accelerating the deployment of capital into renewable-energy and energy-storage technologies and/or reducing re-investment risk via higher dividend payouts to shareholders.”
To add further weight to the argument, the challenge faced by the oil industry is not unprecedented.
“If all of this sounds far-fetched, then the speed with which the competitive landscape of the European utility industry has been reshaped over the last decade by the rollout of wind and solar power, and the billions of euros of fossil-fuel generation assets that this has stranded, should be a flashing red light on the oil majors’ dashboard,” Mr Lewis added.
BusinessGreen reports the findings of the analysis come from a banking giant boasting more than US$400bn of assets under management worldwide, and they should sound a loud alarm for investors in the oil and fossil fuel auto sectors.
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