Oil companies may be facing uncertainty as the coronavirus pandemic triggers a collapse in demand for their products, but automakers are betting the crisis will help accelerate an electric future.
With economies reeling from lockdowns to curb the virus, the sharpest plunge in oil prices in two decades has slashed the cost of filling up a tank of gas, eroding some of the incentive to make the switch to cleaner fuels.
Looking ahead, cuts in capital spending forced upon energy companies as their revenues crumble could tighten supply enough to cause a spike in oil prices, making electric vehicles more attractive just as automakers ramp up production, analysts say.
“We think this will lead to a tipping point, accelerating the switch to electric vehicles in many more countries around 2023-24,” Per Magnus Nysveen, senior partner at Rystad Energy, a consultancy in Oslo, told Reuters.
“We will start to see that this starts to dig into global oil demand in a very significant way,” he said.
According to a Reuters analysis of 27 automakers compiled in partnership with Constellation Research & Technology, most companies apart from Elon Musk’s Tesla Inc and China’s BYD Co Ltd are still in the early stages of transitioning to EVs, which make up a fraction of global sales.
With mid-sized to large petroleum-fuelled SUVs and trucks driving much of the recent growth in the auto sector, many companies are banking on these high-emitting gas-guzzlers to drive their near-term performance.
Nevertheless, with China’s BAIC Motor Corp and German rivals Volkswagen Group and Daimler AG pursuing some of the industry’s most ambitious decarbonisation targets, investors are increasingly using a company’s EV prospects as a proxy for future success.
“All the growth in transportation is being eaten by electricity,” said Harry Benham, chairman of Ember-Climate, a British energy transition think-tank. “Oil and gas companies have got no ability to defeat electricity as a transport fuel.”
PEAK OIL DEMAND?
With fuel for road transport accounting for about half of all oil demand, the possibility of a faster-than-expected switch to EVs in the wake of the pandemic is one of the main reasons some forecasts for a peak have been brought forward.
Global oil demand hit a record of just over 100 million barrels per day (bpd) in 2019. Rystad now sees demand topping out at 106.5 million-107 million bpd in 2027-2028. The consultancy had previously forecast a marginally higher peak in 2030.
Although the oil industry has defied numerous attempts to call “peak oil” in the past, the fact that the International Energy Agency projects that demand will plunge by a record 8.6 million bpd this year has reignited the debate.
Though as yet a minority view, some believe the pandemic is reshaping patterns of work, aviation and commuting so profoundly that oil demand might never return to 2019 levels - a potential boost to hopes of avoiding the worst impacts of climate change.
“It’s inconceivable that all that demand for oil comes back in one go, so the real question is how much of that is lost permanently,” said Mark Lewis, head of sustainability research at BNP Paribas Asset Management.
Underscoring the changing economics of transport, Reuters revealed last week that Tesla plans to introduce a new low-cost, long-life battery in its Model 3 sedan in China that it expects to bring the cost of EVs in line with gasoline models.
Despite such potential breakthroughs, the Constellation data shows that automakers still have a long way to go to align themselves with climate goals enshrined in the 2015 Paris Agreement, with Ford Motor Co and Fiat Chrysler Automobiles among the biggest laggards.