Electric Vehicles Crash into Oil

By Murray Gingras

Two years ago, Bloomberg published an article “Here’s How Electric Cars Will Cause the Next Oil Crisis” https://www.bloomberg.com/features/2016-ev-oil-crisis/

The article circles around the idea that when enough electric vehicles (EV) displace gasoline-powered vehicles, an oil glut will hammer the oil and gas industry and the “Big Crash” will occur. They used 2 million barrels oil displacement by EV (similar in size to historically recent gluts) as a threshold. Bloomberg’s model is presented in their chart below.

 

In short, if EV adaptation continues at the rate shown (and it has) the offset in oil demand will be significant enough to put downward pressure on oil prices by 2023 / 2024. This is oversimplified thinking. Firstly, this has to assume, then, that we have reached peak-oil demand. What factors suggest that is entirely wrong? For starters a notable drop in oil discoveries in 2017 will mean that production of oil gas is likely to start slipping 10 years from now. Secondly, total energy demand will continue to increase as economies modernize globally with oil and gas likely to be positioned as the majority energy source for at least the next 40 years (almost all the think tanks agree on this). So, when does oil demand actually peak? That is difficult to forecast, but that moment is more like 15 years from now, and maybe as far off as 40 years from now. So, give me a break.

Which leads me to my EV rant. If EV are not burning gasoline, then what resources are being used when people hop in their Tesla? Well, in 2016, natural gas was the largest energy source for electricity generated in the United States. Natural gas was the source of about 34%. Coal was the second-largest energy source for U.S. electricity generation in 2016—about 30%. Canada is a little different, hydro power produces close to 60% of Canada’s electrical production, followed by fossil fuels at 28% and nuclear at 12%. By my reckoning, EV still burn hydrocarbons, and in Canada contribute to something I loath, the giving up of river valleys to artificial lakes for “free” hydro power. I agree with fighting climate change, but the real solutions are greater efficiencies in energy use and carbon capture. Let’s not kid ourselves about solutions that do not solve anything.

 

20 thoughts on “Electric Vehicles Crash into Oil”

  1. I agree, it’s a grand assumption to say oil has already peaked especially considering current models and predictions for oil growth (as show during our woodmack presentation). I also believe the increase in EV’s will surely offset oil demand in North America but there will not be an oil crash. The reason being is oil demand in modernizing countries such as China and Indian will increase, counteracting the effects of offset from increasing EV production in NA.

    In reference to your comments on EV’s, I think we must asses the cradle to grave impact and overall efficiencies of both vehicle types. At the end of day yes, both are consuming HC’s( whether it’s indirectly or directly) but the real question is which is more efficient, recyclable and has less of an environmental impact? Of course EV’s aren’t totally clean but compared to a typical vehicle are more efficient and consume less hydrocarbons, which therefore minimizes the influence of climate change.

    1. Well said. But, are EV cleaner? Moving electricity around is not as efficient as people believe (line losses etc). It is a relevant question. Still, I must admit that you may be right.

  2. As electrical vehicle use rises across the world, the demand for rechargeable batteries will also grow. While the batteries in these vehicles may be a small component in the grand scheme of things the fact is many of the components of these batteries (lithium & cobalt) are mined out of countries such as the Congo, China, Russia, Zambia, etc. Mining operations in these countries will have to expand/increase in order to attempt to satisfy the need for the increase of these products.

    We know that the mining operations in these counties are never held to the same environmental standards as say, the Canadian fossil fuel industry and as a result they will undoubtedly create a massive carbon footprint and have a large negative affect on the environment. Not to mention the ethical issues that are raised with mining in these countries such as child labour or high worker mortality rates https://www.ft.com/content/bec64762-c923-11e7-ab18-7a9fb7d6163e.

    But wait, isn’t the whole EV debate about attempting to curb carbon emissions and be responsible stewards of the Earth? Well, at what cost? While I also believe in fighting climate change, I don’t believe it should come at the cost of developing nations.

    Just a quick thought.

    1. Zing! It is definitely true that the procurement of materials for batteries and their final disposal is a bit of an issue.

  3. When we think of oil, it’s hard not to think of gasoline right away and yes it is a large contributor to the demand for oil, but realistically there are far more utilizations for crude that are being overlooked by the Bloomberg article and to think that just electric cars would crash the oil market is premature. Plastics rule our world and the demand for petroleum to fill a our societies love for plastics is only going up in my opinion. Also, cars in general, are increasingly manufactured using high quality plastics, so really, the use of petroleum in the manufacturing of theses vehicles is going to remain high in that regard as well. Lubrication products are also one of the top uses of oil and enlsss electric cars are going to drive around with squeaky wheels and moving parts that grind together, there will still be a need for oil in electric cars. Lastly, like you mentioned, the electricity for these vehicles needs to come from somewhere and humans rely on this energy for many other reasons other than electric cars and with China and India now reaching a point in their development where their demand for oil is at an all time high and probably growing, we’re still going to need a lot of oil. Considering these nations have the highest populations on earth by a long shot, it’s these nations that are going to drive the demand. So unless these countries lead the way in electric vehicle usage and just stop using oil in their everyday lives, I don’t think the oil market will crash. The oil market may decrease but not catostrophically like they make it out to be, it always seems like the prediction is that oil will free fall and crash and will never be seen again, yes there are downturns but not because the demand was low. I think the process of weaning today’s society of oil will be gradual and that we still rely so much on petroleum based products that as long as there is oil in the ground, there will be some sort of demand and we are going to try and get it out.

    1. Well said. For certain there has been a very big shift by producers to rely more on plastic production. Your forecast of a gradual decline seems likely.

  4. I agree with this opinion and I also believe that EV cannot take the place of gasoline-powered vehicles. The gasoline-powered vehicles will always has its own market for some people. In some developing country, EV is still too expensive for people and compared to gasoline-powered vehicles the practicality of the EV is still too low. Also, the increasing of air and marine transport business and the military equipment will still need a great amount of gas and oil. Finally, not only for U.S., fossil fuel is still the most important energy source for electricity generated, especially in Asian countries. Thus, the oil and gas are still playing an irreplaceable role in our life.

  5. There’s a lot that’s been said here that parallels with concepts that I’ve been exposed to in other university courses such as Human Geography. In these courses, discussions were had about how to calculate peak oil. The calculation made by the group (of which the name I can’t recall at the moment) was more or less correct in predicting peak oil in the 1900s. But since then, the amount of confounding factors has grown and perhaps any kinds of methods used to determine peak oil in modern times may need considerable refinement (assuming that the calculations made in the article you’re critiquing were based off of similar methods as were used decades ago).

    Another possible thing to consider is the influence of EROEI and how it has evolved over time, and perhaps how it has driven the exploration of more unconventional sources. EROEI stands for Energy Return On Energy Invested; essentially gauging the amount of “profit” oil/energy a producer recieves compared to how much oil/energy is required to get that oil in the first place. As the EROEI has historically decreased on average, new techniques become deveoloped in order to help increase EROEI for those exploring for new resources.

    Overall, these kinds of confounding influences can be a source of major uncertainty in calculations that end up being summarized as simple statements in papers like this one related to electric vehicles. Unfortunately, papers like these can get away with such generallized claims because many of the people who are exposed to the article / paper are unaware of these variable factors.

    1. Oh boy… for sure. The nuts and bolts of forecasting. There is a reason Economics is referred to as the Dismal Science… even though it is definitely not a science.

  6. I think that Electric Vehicles (EV) will not be able to cause the next Oil crisis anytime soon for the following reasons.
    1. In order for EV to become relevant enough to even consider an oil crisis there needs to be a steady sale of EV to people everywhere in the world not just select locations where it is popular at the moment, such as some European Countries.
    2. Like stated in the blog, producing enough electricity to power these EV takes hydrocarbons. So, unless we come up with some other method to produce the electricity need which is cleaner and more efficient, taking into consideration both cost and time needed for production, as well as the output amount of usable energy reached to the destination of sale. EV, may be cleaner looking at the broad spectrum, but we are still putting out toxins in the production of it.
    3. Vehicles are not the only things which are using oil and gas. Tanker ships are considered one of the biggest users in the oil market for transporting tradable goods all over the world.

    So, based off this model in the article, assuming that their calculations for peak oil demand is correct, yeah you could say EV could have effect on the oil demand but in my opinion, it will not be the sole reason when and if the oil market crashes.

    1. Good point: cars are not the only consumer of oil. They are a pretty big part of it. In any case, I think your point is dead-on. Reaching peak demand is dependant on many, many things–not just cars.

  7. Different train of thought: Yes EVs in countries with high-hydrocarbon energy sources are essentially not helping the fight against climate change. BUT, from an investor’s perspective, you would want infrastructure to slowly develop in cities. If I were an investor at Tesla, for example; I would want to know how many charging stations there are per city, and how many more will be projected. Essentially, as an investor, I would need to know that people are slowly starting to consider EVs, and cities are slowly building more and more EV infrastructure. If many North American cities didn’t have any EV charging stations… would people really be investing in EVs and green energy?

    Also, in a distant future (if we become more hydrocarbon independent) we would have had years of planning, and investments made on cities green infrastructures. So, I guess I’m thinking more futuristically: a city such as Edmonton or Calgary should be ready for the day were EVs become dominant; instead of waiting and investing into infrastructure all at once.

  8. I agree with you that their assumption that we’ve reached peak oil is invalid. It seems to me that we won’t know when we’ve reached peak oil until we’re over the hump. Articles like this tend to annoy me with their “sky is falling” attitude. There have been several reports of the impending decline of the oil industry, and big oil is still around. Although I’m sure over a long enough timeline, these reports will be correct.

    Concerning EVs and their power sources, I think that you’re right and for now, they’re not as clean as people would like to believe. However, just because Canada is currently generating 28% of its power from hydrocarbons does not mean that we must continue to do so. Canada has a suite of renewable energy sources that it can tap into, such as wind, solar, geothermal, and tidal. Climate change is a complex issue and requires a multi-pronged approach, which includes a diverse energy portfolio and – to your point – increases in energy efficiency and focus on other technologies like carbon capture. While switching to EVs is not the solution to climate change, it represents a shift in the way people think about how they consume energy, which is something.

  9. The argument that the next oil and gas crisis is going to happen due to the mass production of EV’s is a really good joke the way I look at it. I believe that if you think oil and gas is on its way out with in the next 10 years even up to maybe 30 years is pretty ignorant. Now I could not find out exactly how much petroleum products go into making a single car, but after some quick research I found out a couple of things.firstly, the reported amount of energy consumption in the U.S. in 2016 was around 97.4 quadrillion Btu. 66% of this energy was sourced from petroleum or natural gas, 37% and 29% respectively. Of the 37% of energy produced by petroleum, 71% of it went to the transport sector making up 92% of the transportation need. Now correct me if I am wrong, but the chances that Ev’s magically take over the world over the next five years, I think pretty slim. And although the production of Ev’s will eventually drop this number, I dont think Bloomberg’s model is very accurate. Secondly, I would like to touch on how much of that oil and gas went into residential and commercial. 74% of this sectors need came solely from natural gas.which corresponds to uses such as heating. Now if you ask me that EV’s are going to crash the petroleum industry i would probably say I hope not, I like my place warm and cozy in out 8 month winter. Finally, 27% of the electric power consumed was sourced from natural gas, with only 15% coming from all of renewable energy such as hydro, geo, solar, wind, biomass. Now this difference might not seem like a whole lot to the average viewer but you have to think if Ev’s really did cause the next crisis, and maybe the demise of the petroleum industry, where would this 27% of electral powder be sourced from… well currently, no wheres, meaning less people with electricity, heating, electricity to power there EV’s (haha) ect. You get my point. All in all i think that there won’t be a big crash due to EV’s, but there will be more demand for the oil and gas industry, as humans curiosity grows about outer space, new technologies, and moving to a more electrified world to meet the needs of humans.

    Last thing i want to mention, is that if oil and gas sector due crash I dont think it will be due to EV’s but a combination of two things. The day humans develop a small portable storage container, that can hold a lot of energy, quick charging and deliver the power a combustion/jet/rocket engine will hurt the industry hard. Additionally, the day we are able to harvest the natural solar and wind energy with near 100% efficiency will probably reduce the petroleum industry greatly, where the oil giants are only left. However, I believe that if people were not so sensitive about the topic, nuclear would solve the electric, and energy needs of people and we would see a reduction and a shift of that combine 95% (petroleum and natural gas) in the transportation consumption to more industry based sector.

    https://www.eia.gov/energyexplained/?page=us_energy_home

  10. I think oil crisis will come soon or later depends on how long whould you consider a “long time”. I believe the decreases on oil using will be adopted by using other energy real soon within several generations. Back in my country, almost half of the taxis are swapping gas engine to CNG (compressed Natural Gas) engine. No only they are volunteering to be the new generation of “environmental friendly cars”, governments are actually forcing them to make a change. Gasoline taxis are paying more taxes than CNG taxis. After I moved to North America, I was actually amazed that how many trucks cars is on the road, like GMC Sierra and Ford F-350. In my country there are not many vehicles are above 2.5 litre. All the trucks without special licenses are banned. Of course not all the gasoline are used on cars, but you can deny that the major gasoline consumption are from vehicles. I have to refuel gas every two weeks, I actually concern about how much I spend on gas. Technology is going fast. If better cars are costing less gas, then why not? Gas regulation might not be significant in NA, but there are actually serious pressure on governments. In terms of whether there will be gas crisis. If we are only talking about our own generations, we might not be able to experience the problem. Then, “yes” for the next generations. I would like top see other natural resources company compete with oil company on the future.

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