Oil will have to drop to $10/barrel to stay competitive with EVs and renewables, BNP Paribas study says
Energize Weekly, August 14, 2019
The economics for electric vehicles (EVs) and renewable energy charging have become so competitive that in the future, the price of oil will have to be no more than $10 a barrel to compete, according to analysis by Paris-based BNP Paribas.
The analysis – Wells, Wires and Wheels – is based on a BNP Paribas-devised metric called Energy Return on Capital Invested (EROCI), which looks at the net energy, the useful energy, provided to the wheels of a light-duty vehicle for set dollar investment.
The BNP Paribas study looked at the energy return for oil and renewables for an outlay of $100 billion for oil and internal combustion engines (ICE), and for wind and solar generation and EVs.
Wind and solar generation in tandem with EVs produced six to seven times more useful energy at the wheels than gasoline-powered vehicles with oil at $60 a barrel, the study found.
Based on that ratio, the study calculates that the long-term break-even oil price for gasoline to remain competitive as a source of mobility is $9 to $10 a barrel and $17 to $19 a barrel for diesel.
The analysis used the cost of onshore wind projects at $60 a megawatt-hour (MWh), $70 a MWh for offshore wind and $65 a MWh for photovoltaic solar.
The oil industry, however, currently has market advantage in scale and infrastructure.
“The oil industry today enjoys a massive scale advantage over wind and solar of several orders of magnitude – oil supplied 33 percent of global energy in 2018 compared with only 3 percent from wind and solar,” the study said. “Moreover, EVs are currently more expensive than ICE and diesel vehicles on a sticker-price basis, and likely to remain so until 2023-25.”
The oil industry can provide substantial and instantaneous flows of energy through spot markets, while wind and solar are developed on 25-year flows of energy.
“Nonetheless, we think the economics of renewables are impossible for oil to compete with when looked at over the cycle,” the report said.
While supplanting oil in the vehicle market will require a considerable investment in generation and infrastructure, the report says even with those costs, “the economics of renewables still crush those of oil.”
The analysis estimated that the infrastructure costs for renewables and EVs to match the mobility provided by gasoline at $4.6 trillion to $5.6 trillion over the next 25 years. While the cost of oil-fueled mobility over the same period would be $25 trillion.
“We conclude that the economics of oil for gasoline and diesel vehicles versus wind- and solar-powered EVs are now in relentless and irreversible decline, with far-reaching implications for both policymakers and the oil majors,” the analysis said.
The risks to the oil industry are broad, the report said, with 27 percent of crude oil demand going to gasoline and diesel light-duty vehicles and another 9 percent going to light- and mid-heavy road transportation, which are also a target of electrification. Another 5 percent of oil demand comes from electricity generation, another area which could be supplanted by wind and solar.
“This is a tremor portending an earthquake for the oil-and-gas industry,” the report said.