Looking at sales suggests risk to the sector is years away. But looking at annual electric vehicles (EV) sales is like admiring an aggressor’s fist, not anticipating a sucker punch, even when it is obvious it is about to happen.
ed brost – bowman centre for sustainable energy
By Ed Brost – Managing Director, Innovation and Sustainable Development, Carbovate Development Corp. & Associate, Bowman Centre for Sustainable Energy.
Possibly of your interest: An energy transition or a revolution?
An inflection point
“There are moments in history when everything changes. Inflection points. We believe such a point is upon us for the mass adoption of electric vehicles,“ Deborah Wahl, GM Global Chief Marketing Officer. “
Could the ‘inflection point’ be as soon as mid this decade? If so, leaders need to decide to stay with past business models or imagine new businesses. Risk stagnation or risk innovation.
The temptation to continue undue reliance on 20th-century fuels is rooted in syllogisms like; vehicle sales are growing in developing countries, vehicles need fuel; so, oil demand will increase. And we will need oil for decades to come. Is this sound logic? Arguing we will need oil for decades to come, although true, says nothing about oil prices. Is oil the fuel?
No one disputes there will be vestigial demand for oil for decades to come. Also, that chronically low oil prices threaten the sector’s viability. Furthermore, no one questions it will take decades to complete a transition to electrified transport.
But does a transition need to be complete before contributing to chronically low oil prices? What will the supply-demand balance look like later this decade? Will prices be high enough to sustain the more expensive oil sources? Few will dispute that someday Electric Vehicles (EV) will threaten oil demand and thus prices.
The problem with assessing electric vehicles impact through annual EV sales
Annual electric vehicles sales are often used to assess and dismiss this threat. Looking at sales suggests risk to the sector is years away. But looking at annual electric vehicles sales is like admiring an aggressor’s fist, not anticipating a sucker punch, even when it is obvious it is about to happen.
Annual electric vehicles sales data fails to recognize that it remains in use for over a decade once an EV enters service. Every fossil-fueled vehicle displaced by an EV permanently removes oil demand for that service. Cumulative EVs is the critical factor, not annual sales. So, how many electric vehicles are required to impact oil prices? When might that occur? Is it decades into the future? OR is it imminent? How much does a small drop in oil demand, relative to supply, impact price?
A 2% oil surplus led to a 70% drop in oil prices between 2014 and 2015. That surplus was partly due to Saudi Arabian mischief. But that mischief, like today and compounded by COVID 19, is causing acute problems. However, electrification of transport is chronic. That chronic effect on oil prices will start imperceptibly small and increase over time. Until decades from now, when the transition is virtually complete.
But, as we saw in 2014 and again starting late 2019 (pre-COVID), a small supply-demand disconnect seriously affected crude prices. Since this chronic issue will grow, a return to long-term high prices is unlikely. Even if oil production increases, expect a growing chronic supply-demand disconnect and depressed oil prices.
How many electric vehicles will it take?
So, how many electric vehicles could cause a 2% oil supply-demand imbalance? A report by the Bowman Centre for Sustainable Energy estimated under 40 million EVs worldwide. And it could happen by mid-decade. So, what to do?
First, we need to recognize the severity of problems currently facing the oil sector. Jobs are disappearing; companies are under financial stress leading to serious ripple effects. These challenges are being imposed on us by global forces. Even if they wanted to, our government and industry leaders’ rhetoric could not slow this global shift.
Governments need to develop and implement transition plans designed for oil sector workers and society at large. Equitable, data-driven, and realistic transition plans will embrace the electrification of transport as an opportunity. Visionary, courageous, and cooperative leadership is required to drive technical and social solutions. Leadership that provides opportunities and prepares the country, citizens, and companies for a punch that seems obviously about to happen.
Finally, what if we are wrong? Nothing. There is no downside. Implementing a transition plan will create jobs in addition to those in a scenario where the oil sector prospers as in the past.
Recall the adage; the stone age did not end because we ran out of stones.
About the author
Ed is a Professional Chemical Engineer and holds an M.Sc. in Environment and Management from Royal Roads University. Ed has over 35 years of experience in the energy sector with Shell, Ontario Hydro, and Atomic Energy of Canada. After retiring from Shell, Ed formed his own consulting company to pursue his passion for sustainable energy.
Ed is currently Managing Director, Innovation and Sustainable Development, with Carbovate Development Corp. and volunteers his time as an Associate with a non-profit corporation, the Bowman Centre for Sustainable Energy.
