The global transition to electric vehicles and renewable sources of power will see oil company revenue plummet.
The rollout of 540 million electric vehicles by 2040 will cause oil demand to peak in the mid-2020s, slashing income by $19 trillion, according to Oxford, England-based Aurora Energy Research Ltd. Gas and power will provide more than half of final energy consumption, up from 39 per cent currently.
Aurora’s “analysis points to a possible energy future of mass electrification, digitization, and new technologies, in which the rise in electric vehicles and continued improvements in fuel efficiency lead to peak oil demand occurring in the mid-2020,” Richard Howard, head of research at Aurora, said in the report. “This flips the very idea of ‘peak oil’ – previously hypothesized for the supply side – as electricity grows in importance as a transport energy source.”
Oil companies are struggling to find an identity for themselves in a greener, more environmentally aware world. But they recognize that they need to change to survive. Royal Dutch Shell Plc and BP Plc are trying to find ways to offer EV charging alongside traditional gasoline pumps at service stations and are buying up renewable generation.
Bloomberg New Energy Finance estimates global power demand will surge 58 per cent by 2040 from 2016 levels, with $10.2 trillion of investment needed in the sector. During the same period the growth of electric vehicles is seen displacing about eight million barrels of oil a day – equivalent to the current total production of Iran and Iraq.
OPEC’s strategy will change to increase production to gain market share from one of restricting supply in order to prop up prices, according to Aurora. With demand declining in the 2030s, the company’s “burnout scenario” predicts that oil prices could fall to $32 per barrel in 2040 from about $80 currently.
Total fossil fuel revenue will fall to $21 trillion, 10 per cent of which is due to coal, as that fuel loses favour in power generation. Prices will collapse to $28 a tonne by 2040, from about $90 now, “barely above the marginal cost of production and transport.”
Natural gas will probably emerge as the main fossil fuel “winner” as it balances renewables in power generation and is used as a substitute for oil in petrochemicals. Long-term gas demand is set to increase by 15 per cent, or by 750 billion cubic metres, compared to business as usual, Aurora said.
© 2018 Bloomberg L.P