
Oil Needs to Fall Below $20 to Compete With Green Alternatives - pseudolus
https://www.bloomberg.com/news/articles/2019-08-05/oil-needs-to-fall-below-20-to-compete-in-green-transport-future
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Brakenshire
The worry is that oil companies are making investments now for 10, 20 or 30
years into the future and not taking into account the realities of making a
return. There are all sorts of long term capital costs for setting up oil
fields, refineries, pipelines and so on, and then marginal costs for each
barrel thereafter. Under a scenario of total road transport electrification,
demand would be drastically reduced, meaning the capital costs would have to
be substantially written off. Investors would lose their shirts, which would
cause a lot of financial problems, not least that pension funds still seem to
be thinking these are safe stocks, that the oil industry is in the same
position as it was 50 years ago. It would also be catastrophic for the
environment, because you’d have a glut of supply which producers would then be
trying to sell below the actual cost of production, but anywhere above the
marginal cost. It’s vital these investments are properly priced, and that any
investor who can’t take the hit doesn’t get involved.

~~~
runeks
> Under a scenario of total road transport electrification [...]

I think 30-year oil investments are relatively safe if this is their threat. I
can’t see this happening in less than 30 years.

~~~
Brakenshire
I’d say personally total electrification won’t happen for a long time, if
ever, but there will be major markets, notably China and the EU, which are
substantially electrified over a 30 year timescale.

You also have to bear in mind that electrification is most attractive for
vehicles which travel the most distance, and consume the most fuel. Even 20%
electrification of the fleet will have a massively outsized impact on oil
consumption if it represents all taxis, buses, long distance commuters, road
freight, etc. See Bloomberg’s previous research about displacement of fuel
from buses:

[https://www.bloomberg.com/news/articles/2019-03-19/forget-
te...](https://www.bloomberg.com/news/articles/2019-03-19/forget-tesla-it-s-
china-s-e-buses-that-are-denting-oil-demand)

~~~
dsfyu404ed
Taxis and buses will be electrified quickly because it makes a lot of sense

As long as OTR trucking's primary regulatory irritants are weight and working
hours it will resist electrification (unless electric somehow magically
becomes so dirt cheap to run that it makes up for the limitations).

~~~
donkeyd
> irritants are weight and working hours

Working hours could actually be beneficial in Europe. Drivers require regular
breaks over here. If batteries and chargers can sync with the required break
cycle, then there's no reason not to go electric.

However, I do think that charging infrastructure will be the main issue,
seeing as often tens of trucks will be at the same stop, they'll need a lot of
power to get all of them charged within their breaks. Because existing rest
stops don't seem located near power lines, that might be a challenge.

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romaaeterna
> new wind and solar energy projects combined with battery-powered electric
> vehicles

Less than 0.3% of electricity in the US is generated by oil (in 2018). The
proper comparison for wind/solar for grid energy would be against natural
gas/nuclear/hydropower.

~~~
Brakenshire
The report is comparing petrol/diesel against solar/wind plus batteries
specifically in the context of road transport.

~~~
romaaeterna
See my reply to gnode. But clearly solar/wind should not have been mentioned
at all. They are talking about competing with grid electricity in that case,
and making a very unlikely argument.

~~~
Brakenshire
Your argument is about today, but the analysis is about 25 years time, i.e.
the scale of long term oil investments.

~~~
romaaeterna
My argument was about electric cars displacing gas. I'm curious why you think
I'm talking about today, when they are 2% of the current market.

As far as the long-term prospect goes, it's very hard to say yet whether
electric cars will replace enough of the gas infrastructure to drive down
total oil demand.

On balance, I think not. If users were especially price conscious about their
fuel usage, high-efficiency vehicles would be a bigger share of the market.
They aren't. And beyond fuel efficiency, electric vehicles offer consumers
very little that gas vehicles do not, and have very serious drawbacks that are
unlikely to go away.

Given the current state of electric vehicle performance, vanishing tax
incentives, and incomplete infrastructure. I think that the American consumer
is going to pull back from this 2% dalliance with electric vehicles with its
hands badly burned. It might be another generation before they make another
attempt at a comeback.

~~~
Brakenshire
> But gas vehicles remain very competitive against electric vehicles on total
> cost of ownership, even with oil prices far higher than $20/barrel.

This is mostly true but irrelevant, because as I say the linked analysis is
about 25 years.

> If electric vehicles do fully displace gas vehicles, the article is still
> wrong, because oil will not be competitive with grid energy even at
> $20/barrel.

That is close to analysis they have done, if anticipated cost reductions for
EVs continue over that 25 year period, oil will have to be priced at $9 a
barrel to undercut it for that market segment.

> Given the current state of electric vehicle performance, vanishing tax
> incentives, and incomplete infrastructure. I think that the American
> consumer is going to pull back from this 2% dalliance with electric vehicles
> with its hands badly burned.

Sounds like motivated reasoning, to be honest. People will almost certainly
drive what is cheaper, all the more so in America where consumption is high.
The mechanisms driving reductions in cost are assisted but not driven by the
US market, the transition is happening in the EU and in China, which gives
scale, which reduces cost. As that happens, whole classes of vehicles will
fall below the equivalent gasoline TCO.

~~~
romaaeterna
> People will almost certainly drive what is cheaper, all the more so in
> America where consumption is high.

Which is why hybrids and small cars dominate the American market? Fuel
consciousness is only one thing driving purchasing decisions, and not the most
important.

Americans could well decide to continue buying cars that can go on long
journeys, don't have costly battery replacement issues, and don't take an hour
to refuel at a special station.

~~~
Brakenshire
They will go for the cheaper option all else being the same.

Battery replacement actually isn’t an issue for EVs with good thermal
management. There’s already plenty of data out there for Teslas which indicate
very few battery problems, no more than the kind of occasional drivetrain
failures you get with internal combustion cars. The idea that owners will have
to replace batteries as a matter or course was valid for some early and basic
cars, but is clearly not an issue any more for most vehicles, and no vehicle
at the premium end.

Short range and charging is an issue depending on what segment of the market
you’re talking about. The current state of the art, which will likely be
normal in 5-10 years, is 6 hours of driving for 35 minutes of charging. And,
of course, the car starts the day full. That will be a restriction for a part
of the market, but you’re claiming 2% is an overextension, which seems
manifestly unlikely to me.

EV’s have other benefits as well, not least the immediate torque and
acceleration, which has previously been a differentiator.

------
tim333
In the UK we have large taxes on oil as fuel (57.95 p duty + ~ 20p VAT on a
litre), large subsidies for renewables, oil prices up to $80/barrel and still
most people drive petrol or diesel vehicles.

~~~
tristanperry
Sure, and whilst this is _slowly_ changing, a large part is the high up-front
cost.

A Kia e-Niro is £32,995 (including the recently cut Government subsidy) whilst
a similar size+spec petrol car (The Kia Rio 3) is £17,285.

The Nissan Leaf is from £27,995 whilst the larger Qashqai is from £19,995.

I know that the up-front cost issue is similar in many countries, but that's
where Government subsidies usually kick in. America has the $7,500 federal tax
credit on EVs (to a point), plus state subsidies sometimes top it up to $10k.
This compares to the UK which has recently cut the £4,500 subsidy down to
£3,500 for EVs.

~~~
DocTomoe
I don't care about the cost of the vehicle, I care about not having a place
where I can load it. Parking is next to the road, and no electrical outlets
exist there. Parking at the job is a new parking garage - again without
electrical outlets.

An electric car would be useful to me for about 400 km before it runs dry -
that's about four days of driving for me.

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carlmr
Oil will be priced according to supply and demand. There may still be use
cases which require oil. And however cheap the competition can produce oil it
will be priced. This is non-news.

~~~
tristanperry
OPEC are much less powerful than the decades of past - thankfully - but it'll
be a while before oil will be _truly_ priced by supply and demand and nothing
else.

~~~
audiometry
Their back was broken when they tried to kill shale oil in 2016 and failed.

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ThomPete
Which green alternatives gives us:

A multitude of materials (ex plastic in multiple shapes forms and solidness &
nylon), energy (not just electricity), pesticides (no matter what you think of
them they still make sure we are fed) lubricants.

I could go on. When we extract oil we don't just extract gasoline for our cars
and houses we use it for so many things that simply doesn't have any
alternatives.

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kartickv
Does this take the higher cost of EVs into account?

~~~
Brakenshire
It’s looking at the cost of EVs over a 25 year time period, so I presume for a
new vehicle which is bought in 2045. EVs are expensive now because of battery
costs, but battery costs have consistently fallen by 20-30% over the last ten
years, and the trend is expected to continue.

~~~
siffland
It would be nice to see the long term expected prices of EV's vs gasoline
powered vehicles. Currently you can buy a cheap gasoline vehicle and years of
gas for the cost of an equvilent EV.

Also i read all this gloom and doom about lithum reserves and how long they
will last and how sustainable it is to the point i dont know what to believe.
So are the batteries going to get more expensive as countries with lithium
reserves realize what they have and start charging more?

I wish i could afford an EV or a hybrid, but they are out of my price range.

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JackPoach
Oil primary use is as motor fuel for cars, trucks, planes and ships, and it's
also used a a feedstock for the chemical industry. Renewables haven't been
successful in either yet. This article assumes that electric cars are going to
take off and replace internal combustion engines, which may not happen after
all.

~~~
Brakenshire
The report is assuming that road transport will go to whichever technology is
cheaper, and that current learning rates for batteries and wind/solar will
continue for the next 25 years.

~~~
JackPoach
Yeah, it's kind of like assuming that all religions will die in 25 years,
because everyone will be 'rational'.

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thb567
It does not matter, per billion invested in fossils you produce millions of
kwh during decades.

Per billion invested in Renovables you can produce at most 10% of the kwh and
for just a few years even months, till it's necessary costly maintenance

------
thiago_fm
What people need to have in mind is that oil, when compared with solar/wind
power, acts both as a storage for energy(battery) and also the power/energy
itself.

So that means, you need a battery. The price of the battery, its decay and so
on, has to be taken into account in that price. Does that aforementioned price
for the barrel of oil includes that? I think not.

If everybody would go electric Today, the price of a battery would go to
infinity, as there is not enough supply for that demand. If the changes
happens too fast, the price for the battery and it's longtime cost would be
higher than oil, even with oil at $100. Which for me makes all this
argumentation that oil will die useless and pointless.

And to those prophets of "Oil will disappear": Oil will still exist, but won't
have a monopoly in cars, some machinery etc anymore. I believe consumers will
still buy cars powered by oil as long as it is worth it.

It's an industry that generates a lot of jobs, has a huge effect on GDP and
I'm very sure countries will change very gradually to electric vehicles.

~~~
Brakenshire
> So that means, you need a battery. The price of the battery, its decay and
> so on, has to be taken into account

That is the analysis they have done.

> If everybody would go electric Today, the price of a battery would go to
> infinity, as there is not enough supply for that demand.

I don’t understand why this is relevant, they are talking about a comparison
for projected costs in 25 years, there’s plenty of time for battery production
to increase, it would be 15% a year over that timeframe even for a total
transition, and the industry is currently sustaining 75% a year growth.

25 years seems like a long time, but it’s a relevant timescale for oil
investments made today and in the next years.

~~~
thiago_fm
Maybe there isn't even enough lithium to power cars for the next 25 years.
They either flop the market completely with new technology, or this will fail
badly.

It is possible to create electric cars nowadays, but as we live in a
capitalistic society we forget easily that we don't have unlimited resources
on this planet. Lithium is still more rare than oil. I don't see how this is
sustainable at all.

