“We think the economics of renewables are impossible for oil to compete with.”
Plunging prices for batteries and renewables are driving an electric vehicle (EV) revolution so rapidly that the economics of oil “are now in relentless and irreversible decline.”
That’s the startling conclusion of a detailed new analysis for “professional investors” of the economics of EVs versus gasoline cars produced by BNP Paribas, the world’s eighth largest bank by total assets.
The report is good news for humanity because it means peak oil demand may be less than a decade away, which in turn means ambitious climate goals will be more affordable than previously thought.
But the bank’s analysis, “Wells, Wires and Wheels,” is devastating for Big Oil. It concludes that “the oil industry has never before in its history faced the kind of threat that renewable electricity in tandem with EVs poses to its business model.”
Within a few years, electric vehicles (EVs) will be superior to gasoline powered cars in every respect. In part, that’s because electric motors are vastly more efficient than gasoline engines. And it’s also in part because solar and wind power and batteries have seen staggering price drops in the past decade — and are projected to see equally big drops in the coming years.
But one of the most startling findings is that because the cost of running EVs on solar or wind power is dropping so rapidly, the only way gasoline cars can compete with these renewable energy-powered EVs in the 2020s is if the price of oil were to drop to $11 to $12 per barrel. The current price of oil is over $50.
“We think the economics of renewables are impossible for oil to compete with when looked at over the cycle,” the study concludes.
“By the late 2020s” Lewis explains, a significant fraction of the oil produced today “might only be competitive at a price below [oil companies’] full cost of production.” Even worse, this fraction “will rise over the lifetime of these projects as the penetration rate of EVs increases.”
If you can’t produce oil profitably at under $10 or $20 a barrel, your oil company is in big trouble.
From a broader perspective, Lewis warns that all this money currently being spent on finding and producing new oil is a huge waste — “an opportunity cost to society as a whole.”
Exactly how big a cost? BNP Paribas calculates “the size of that opportunity cost is $24 trillion over the next 25 years on gasoline alone.” And that’s without counting the cost of saving a livable climate.
It’s time for investors and governments to walk away from Big Oil before the crash — and before it’s simply too late to save our children and future generations from catastrophe.
See more at ClimateProgress
— Joseph Romm