Report: Electric cars will soon be cheaper to fuel
- The report claims oil companies will need to produce oil at significantly lower prices if they want to stay competitive with renewables.
- Continuing to invest in oil production represents a multi-trillion-dollar opportunity cost to global society, the report states.
- As renewable energies are becoming cheaper, so are electric cars, thanks mainly to cheaper and more efficient batteries.
Renewable energies will soon be a much cheaper fuel source for cars than gasoline, according to a new report on the future of the oil industry.
“The oil industry has never before in its history faced the kind of threat that renewable electricity in tandem with [electric vehicles] poses to its business model,” states the report from BNP Paribas, the world’s eighth largest bank by total assets.
The report uses a metric called Energy Return on Capital Invested (EROCI) to compare how much useful energy the mobility industry gets for every dollar spent on oil versus renewables, specifically referring to vehicles powered by solar and wind power. As renewables become cheaper and more efficient, their advantages over oil are becoming more apparent, including:
- the environmental benefits in terms of climate change and cleaner air
- the public-health benefits that flow from this
- the fact that electricity is much easier to transport than oil
- the much greater price stability of wind- and solar-generated electricity compared with the price volatility of oil
If the oil industry wants to remain competitive as a fuel source for cars over the long term, it needs to produce oil profitably at about $10 a barrel, according to the report. Oil currently costs about $55 a barrel. Continuing to invest in the oil industry, the report states, represents a $24 trillion opportunity cost to “society as a whole,” and that’s not even factoring in the environmental consequences of fossil fuel production on the planet.
But oil producers could soon face pressure from both the supply and demand sides.
“On the demand side, up to 36% of the barrels they have traditionally produced will be at long-term risk of disintermediation from EVs,” the report states. “On the supply side, and in direct response to this very same demand risk, NOCs might decide to ramp up production of cheap oil so as to remain competitive with the 36% of current demand that will be increasingly vulnerable to competition from wind- and solar-powered EVs over the longer term.”
The methodology and conclusions reached in the report are debatable. But what’s certain is that, as a fuel source for cars, renewables are becoming increasingly cheap and efficient — as are the electric cars themselves.
According to a recent report by transportation experts at Bloomberg New Energy Finance, the price of electric cars will become competitive with combustion-engine cars by 2022. One factor that’s driving costs down is more efficient electric car batteries. In 2015, for example, a battery made up more than half of the total price of an electric car. By 2025, that percentage is expected to drop to 25 percent.