Will EVs cause the next oil crash? Published 3.15.2017
If electric vehicles (EVs) become a mainstream vehicle category, could they replace enough internal combustion engines to cause a crisis in the oil market? This is a question that was posed in the past year
— notably before Trump was elected president with his pro-fossil fuel and anti-climate change policies. Still, it is a question worth considering.
The “crash” of 2014-2016 was caused in this telling by a glut in supply, not a lack of demand, which has increased every year worldwide. Although China’s slow down could be considered a mitigating demand factor. But factories don’t run on oil, and the number of Chinese cars is growing not falling.
On Fridays, TTJ
considers the oil market, the recent evidence remains that supply is outstripping demand for oil. Attempts to slow production of oil in Middle Eastern countries has shown only small progress, and in the mean time, shale oil producers in the US have brought their wells back online. However, the number of EVs increases as projected, their may be an effect on the oil market.
In the next two years, Tesla and Chevy plan to start selling electric cars with a range of more than 200 miles priced in the $30,000 range. Ford is investing billions, Volkswagen is investing billions, and Nissan and BMW are investing billions. Nearly every major carmaker—as well as Apple and Google—is working on the next generation of plug-in cars.
Tesla claims it will be able to produce 500k cars by 2020. General Motors (GM), maker of Chevy, and the other legacy makers when they come to market will come in millions, not thousands.
To make his argument, the author’s assumption is that each EV replaces 15 barrels of oil. The magic number in 2014 to cause the crash was 2 million barrels a day excess supply. That means 1.33 million EVs on the road.The average US driver uses 1.8 barrels per month
which would be 21 barrels per year. If that is true then the witching number of EVs would be just over 95k. Nineteen gallons of gas is made from one barrel of crude
. The average US fleet fuel efficiency is 25 miles per gallon (mpg)
, and likely declining as cars get larger as oil prices decrease. But 25 mpg is used in the calculation. At that efficiency, 19 gallons of gas is used to go 475 miles.The average for all drivers is 13,476 miles per year
, to simplify the math, use15,000 miles. 15,000 miles is 600 gallons or 31.5 barrels of oil, which is twice the number Bloomberg used if the result is rounded down to 30. However, 25 mpg was for all
vehicles including trucks.
if we assume average car being replaced is instead 28 mpg, then 15,000 miles equates to 535 gallons or 28 barrels of oil, which is still much higher that Bloomberg numbers. Maybe the author was being conservative?
The bottom line is that although there are plenty of other reasons to doubt the ultimate success of EVs, the collapse of the oil market is not one of them. The world is awash in oil, much of it onshore, which is much cheaper to obtain than offshore oil.
After being artificially increased as a result of trader speculation, oil prices are again falling in the face of over supply. Oil demand is still increasing each year, and it is unlikely EVs will later that trajectory. This is particularly true in the time of Trump when it is likely that subsidies supporting the sale of EVs are likely to disappear. Disclaimer
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