London - Many carmakers are predicting a
significant shift to electric vehicles in the next decade.
Advances in battery technology and the growth of autonomous
driving and ride sharing - suited to electric vehicles - will
power this expansion, they reason.
But some oil executives take a different view, predicting
electricity will play only a bit part in transport out to 2040
at least. If they are on the wrong side of the argument, it
could come at a cost to an industry where new projects often
cost billions of dollars to build and need decades of at least
moderate crude prices to pay off.
Over half of all crude oil pumped is used for transport. An
overly pessimistic outlook for electric cars may lead oil
companies to adopt an overly optimistic outlook for oil
consumption and price growth, analysts say.
ENI CEO Claudio Descalzi is among
those who believe the threat posed to the oil industry by
electric vehicles is not significant.
"Electric cars, they can grow, but I don't think that is a
problem (for us)," Descalzi told Reuters on the sidelines of a
conference in London last month.
ExxonMobil, the largest western oil producer by
market value, and British rival BP Plc publish oil market
outlooks to 2035 and 2040 respectively that guide their
investment decisions.
Both predict that in 2035, less than 10 percent of new cars
will be electric vehicles (EVs) or plug-in hybrids - cars with a
backup combustion engine for when the battery runs flat.
"Our central view in the outlook is the penetration of
electric vehicles and electricity more generally is likely to be
pretty limited over the next 20 years," Spencer Dale, BP's Chief
Economist, said in February.
The carmakers don't produce comparable long-term outlooks
for vehicle production but their nearer term predictions for
vehicle roll-outs envisage a much faster take up of EVs.
Dieter Zetsche, CEO of Mercedes Benz manufacturer Daimler, said in September his goal was to have EVs make up
between 15 and 25 percent of group global sales by 2025.
BMW has said it could do the same. Ford
CEO Mark Fields said in April that by 2020, 40 percent of models
would be electrified.
"For over 100 years the internal combustion engine has been
a basic design assumption for our business, for our industry,"
Hau Thai-Tang, Ford vice President for Purchasing told analysts
at an investor day in September.
"This shift to electrification is game changing," he added.
For the oil companies, a lot is riding on the accuracy of
their demand forecasts, said Alex Griffiths, Group Credit
Officer for corporates at credit rating agency Fitch, who
produced a report about electric vehicles.
"Without that (oil) demand increase, you potentially find
that the market gets out of kilter which is not a good place
for the oil industry to be in," he said.
To be sure, some in the oil industry are predicting a rapid
expansion of EVs and some carmakers are conservative on EV
prospects, but they are in a minority.
Norway's Statoil, for instance, says electric
motors could roll out widely in the next two decades. And Fiat
Chrysler Automobiles NV CEO Sergio Marchionne has
expressed caution about the uptake of electric cars.
Advances
Where there is a variance in outlook between the oil and
auto industries, it is usually down to different expectations
around technological developments and what happens in emerging
markets.
Carmakers expect batteries to become cheaper and be able to
support greater vehicle range than some oil companies have
predicted.
Oil companies have said regulated caps on vehicle emissions
can be most efficiently achieved by improvements in combustion
engine efficiency.
undefinedBut carmakers say it is becoming increasingly expensive to
hit emissions targets with combustion technology. BMW Chairman
Harald Krueger told investors last year that electric motors
were the only way to meet CO2 emissions regulations coming into
force in Europe and elsewhere.
But an even bigger reason why many in the auto industry
believe the future for cars is electric is because of
developments in car ride sharing and autonomous vehicles.
Thanks largely to the involvement of Silicon Valley
companies like Google owner Alphabet Inc., driverless
cars have gone in a few years from the stuff of science fiction
to a reality.
Read also: Apple exploring charging stations for electric cars?
Many of the big carmakers are developing models and
predicting large-scale roll-outs in the 2020s. Indeed, they
predict the technology could change their business model from
selling vehicles to providing transport as a service.
That would be a big boost for electric engines. Electric
cars are expected to remain more expensive than combustion
engine vehicles for the foreseeable future but their operating
costs are much lower than gasoline.
That extra cost can be quickly recouped if the vehicle is
part of an autonomous fleet with a high utilization rate - as
ride hailers like Uber Technologies envisage emerging in the
next decade.
Also, with fewer moving parts, electric cars are cheaper to
maintain - another incentive for fleet owners. And perhaps most
crucially, driverless technology integrates better with an
electric engine than a combustion engine because such technology
needs electricity to operate, auto experts say.
"All those sensors and that computer platform, the beauty is
on board we've got a lot of capability to power all those
systems," Pam Fletcher, General Motors Chief Engineer
said at a conference in September.
There is no evidence oil companies have factored this change
into their calculations. Neither BP nor Exxon's outlooks
mentioned autonomous vehicles, although a policy document issued
by BP on Monday said driverless cars would be considered in its
next outlook due out in early 2017.
Nor were autonomous vehicles mentioned in the transcripts of
44 analyst presentations given in the past year by the seven
biggest Western oil companies - Exxon, BP, ENI, Royal Dutch
Shell, Chevron, ConocoPhillips and
France's Total - reviewed by Reuters.
The companies said they had not modeled the impact of
autonomous vehicles, or they declined to comment.
A spokesman for the International Energy Agency, which
advises developed nations and their oil companies on energy
policies, said it had not yet studied the potential impact of
driverless cars on oil demand.
China may be key
Oil executives' outlook for oil is also supported by an
expectation that increased car ownership in emerging markets can
more than make up for any increase in EV penetration.
"When we talk of electric cars, we are talking about the
OECD," ENI's Descalzi said, referring to the group of 35 largely
rich industrialized nations. "More than 1.3 billion (people)
have no electricity," he added.
But Simon Redmond, Director, Oil & Gas Corporate Ratings at
credit rating agency Standard & Poors said there was a risk that
developing countries' adoption of the automobile echoed their
experience with telecoms. In that case, consumers largely
skipped use of the established technology - fixed land lines -
and went straight to the latest technology - mobile phones.
Indeed, some in the auto industry think emerging markets
could well outpace some rich countries in adopting EVs.
Read also: Electric cars will rule the future
"We believe that China is going to lead in the penetration
of electric vehicles into the market," Mary Barra, General
Motors CEO, said in October.
Exxon predicts that by 2040, car ownership in China will
triple to about 30 vehicles per 1 000 people. BP predicts such
growth, and an increase in miles driven per vehicle over the
next 20 years, will help China overtake the United States to
become the world's largest liquids consumer in 2032.
Yet, China is already the largest market for electric
vehicles in the world, helped by government subsidies worth up
to $10,000 per car and exemptions from traffic restrictions in
cities such as Beijing and Shanghai.
Between January-October, sales of all-electric and plug-in
hybrid models totaled 337,000 and the country is targeting 5
million such vehicles on its roads by 2020.
The government also offers incentives to manufacture
electric vehicles in China, including more relaxed restrictions
on foreign ownership of carmakers, and plans to set quotas that
would require a certain proportion of cars built in China to be
zero-emission vehicles.
Analysts say the risk for oil companies is that, with growth
in crude demand baked into market analysts' forecasts, anything
which suggests the shift to electric vehicles will be quicker
than expected can impact oil prices years before the shift
occurs.
"The key risk for the industry is the rate of change," said
Redmond. "It does bring into question some of the economics of
the different type of projects that the (oil) majors may want to
look at," he added.