Oil, gas and EVs

C&I Issue 4, 2017

David Elmes, professor, Warwick Business School, and chair, Global Energy Network

BP’s recent Energy Outlook draws up the battle lines between the more efficient use of petrol in cars, and the switch to electric vehicles. However, BP’s view is that the growth in electric vehicles will have a much smaller effect on how our need for oil will change than efficiency improvements in petrol based cars. 

BP suggests that efficiency will reduce oil demand nearly fifteen times more than a switch to EVs. 

BP admits there are uncertainties here – the big one being how fast car battery costs will decline.  Arguably it takes less time for a car company to switch investment and produce more EVs than it does for an oil company to find and develop a major new oil field so we may start to see it become a question of who can react faster.

Slowing oil demand combined with the abundance of relatively cheap oil available today leads BP’s chief economist, Spencer Dale to comment that 'Not all barrels of recoverable oil will be produced'. That raises an interesting question for the role of companies like BP.

It implies much the oil will be produced by the national oil companies, including those in OPEC, and so what part of the market will be left for companies like BP?

Possibly the largest uncertainty in BP’s view of the future relates to tackling climate change. The company sees good news in a significant decline in the growth of emissions, but that’s not enough to meet the goals of the Climate Agreement reached in Paris in 2015. 

When it comes to making serious efforts to tackle climate change, BP joins the other oil and gas companies in pointing to the use of coal in power stations, especially in developing countries. There’s a logic to this, and they would happily see gas take its place. 

But research by colleagues at Warwick and elsewhere suggests one needs to be cautious of this. In countries like the UK, switching to gas doesn’t offer much time before there’s the need to switch again to a lower carbon source of energy. And that means investing in new gas power stations doesn’t look very attractive.

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