Oil production costs must fall to $10-20 per barrel for petrol and diesel to compete effectively against renewable power in the transport sector, a new report has claimed.
BNP Paribas Asset Management said the economics of petrol and diesel-powered vehicles is now in “relentless and irreversible decline, with far-reaching implications for both policymakers and the oil majors.”
The analysis focused on the amount of energy that can be produced for each unit of capital invested.
Assuming an oil price of $60 per barrel, the report said wind and solar installations powering electric vehicles (EVs) can produce six to seven times as much as “useful energy at the wheels” when compared to petrol. They can also produce three to four times as useful energy as diesel.
For diesel to remain cost-competitive in the transport sector, the long-term breakeven price would need to decline to $17-19 per barrel of oil. For petrol to remain competitive, the price would need to fall to just $9-10 per barrel.
The report said the findings should be “a flashing red light on the oil industry’s dashboard”, adding: “We think the oil majors should be accelerating the deployment of capital into renewable-energy and energy-storage technologies and/or reducing re-investment risk via higher dividend payouts to shareholders.”
“The clear conclusion of our analysis is that if we were building out the global energy system from scratch today, economics alone would dictate that at a minimum the road-transportation infrastructure would be built up around EVs powered by wind- and solar-generated electricity,” it stated.
“And that is before we factor in the other advantages of renewables and EVs over oil as a road-transportation fuel; namely the climate-change and clean-air benefits, the public-health benefits that flow from this, the fact that electricity is much easier to transport than oil, and the fact that the price of electricity generated from wind and solar is low and stable over the long term whereas the price of oil is notoriously volatile.”
Writing in the Financial Times, Mark Lewis, global head of sustainability research at BNP Paribas Asset Management, said: “The oil industry today enjoys massive scale advantages over wind and solar. But this advantage is now one only of incumbency and time-limited.
“The simple truth is that the oil industry has never before faced the kind of threat that renewable electricity and EVs pose to its business model. For the first time, there is a competing energy source with a short-run marginal cost of zero, that is much cleaner environmentally and will be able to replace up to 40 per cent of global oil demand once it has the necessary scale.
“The economics of energy are now on the side of the angels.”
This article first appeared on edie’s sister title, Utility Week