Electric Cars Could Wreak Havoc on Oil Markets by 2020

At least that was the idea behind the “peak oil” hypothesis that dominated economic thinking for decades. But it turns out that with fracking, deep-water drilling, and oil sands, there’s a lot more oil in the world than we once thought.

Oil pumping processes

The old “peak oil” theory are not happening. But what if instead of running out of oil we just stopped buying the stuff? Most oilmen scoff at the idea. There are once billion gas guzzling cars on the road worldwide today, and only 1/10 of 1% of them have a plug. OPEC contends that even in the year 2040, EVs (Electric Vehicles) will make up just 1%. But don’t be so sure.

In 2016 only 0.1% cars is electric car

And get 1% in 2040

Consider the “S Curve” – S curves are used to describe the spread of new technology over time, like early refrigerators and color TVs. Growth starts off slowly at first, and then when the product really starts to connect with everyday people: We have lift off. Eventually the market gets saturated and growth tapers off, forming the top of the “S”.

S-curve in Refrigerator, color TV, cell phone, and computer

Predicting the S Curve for electric cars is extremely difficult, because we’re making assumptions about demand for a type of vehicle that doesn’t even exist yet: fast, affordable, and spacious cars that have an electric range of at least 200 – 300 miles. But here’s what we know: in the next few years Tesla, Nissan and Chevy plan to start selling long-range electric cars in the $30,000 price.

And other carmakers and tech companies are investing Billions on dozens of new models due out in the next 4 years. By 2020, some of these will be faster, safer, cheaper, and more convenient than their gasoline counterparts. That sure seems like the point when the S curve goes vertical.

Features of Electric cars in 2020

To start an oil crash, you don’t need to replace all of the cars on the road today. You just need to reduce demand enough to cause a glut of unwanted oil. Consider the oil crash that started in 2014. That was caused by too much supply, when producers started pumping out an extra 2 million barrels a day.

Predicted S curve for electric cars

So when electric vehicles are able to displace that much on the demand side, it should also cause a crash. When might that happen?

Tesla is building factories to go from about 50,000 sales last year to 500,000 in 2020. Let’s assume for a minute that Tesla can meet its own forecasts. And let’s assume that other carmakers maintain their current combined market share for plugins. If each electric vehicle displace about 15 barrels a year, here’s the impact on oil from all the EVs worldwide. At this rate we hit our benchmark of 2 million barrels of oil a day displaced as early as 2023. That’s an oil crisis. And the thing is, it’s just the beginning. It’s not at all unreasonable to assume that by 2040 nearly half of the world’s new cars will have a plug.

Tesla Factory will produce 500,000 electric car per year in 2020

Sure you are skeptical. The price of electric cars still needs to come down, there aren’t yet enough fast charging stations for convenient long-distance road trips. Many new drivers in developing countries like China and India will still choose gasoline and diesel. But imagine a future when the rumbling streets of New York and New Delhi suddenly fall silent with electric engines. What if global demand for oil starts to fall – at first by a trickle, but then in a rush. Trillions invested in oil will be lost, while trillions in new energy will be won. The power of nations will be shuffled. That’s the promise of the new peak oil, and it may be coming sooner than you think.

Source: Bloomberg