Electric cars not to cause oil price crash as energy transition expected to be gradual: report

A report from Carbon Tracker, which predicts the decline of fossil fuels with the emergence of alternative sources of energy, has been disputed by some saying electric cars will not to cause oil prices to crash as energy transition would be gradual.

Last week, a report co-authored by the Grantham Institute at Imperial College London and the Carbon Tracker Initiative had projected global demand for oil and coal to start falling from 2020 (See: The world could do without oil, coal after 2020: study).

The analysis warned that big energy companies were seriously underestimating low-carbon advances with a business-as-usual (BAU) approach, and fossil fuel assets would fall by the wayside as the low- carbon transition gathered pace.

Growth in electric vehicles (EVs) alone could see demand cut by 2 million barrels of oil per day (mbd) by 2025 – the same volume that caused the oil price collapse in 2014-15.

This scenario saw a 16mbd of oil demand displaced by 2040 and 25mbd by 2050, as against the continuous growth in oil demand expected by industry.

However, according to Worstall, the supply side of oil had changed radically with the emergence of fracking, which had made oil supply highly elastic.

A new well could be brought on stream in 3 months, and it cost under $5 million to do so. Also that well would produce 90 per cent of its output in the first 12 months and most certainly within the first 18.

He says that due to the elastic nature of the marginal production, that was shale, there would not be any more great spikes, as for a fungible commodity like crude oil it was the marginal supply that set the market price.

Meanwhile, according to the report, the cost of solar panels had fallen 85 per cent over the last seven years and the report saw it becoming 'materially cheaper than alternative power options globally' with huge investment adding more than 5000 Gigawatts of supply between 2030 and 2040.

Electric vehicles are currently growing 60 per cent year-on-year and there are already over a million on the roads. Battery costs are down 73 per cent to $268 per kilowatt hour (kWh) in the seven years to 2015 and according to the US Department of Energy, and Tesla, they would be down to $100/kWh by 2020.

The report assumes that electric vehicles would become cheaper than conventional internal combustion engines by 2020.