by Tim Donovan
How we got here
Petroleum products are truly amazing. The energy density of a gallon of gasoline is equivalent to about 600 hours of human energy. This incredible fuel has allowed our economy to grow at an astounding rate. Take the example of moving goods the 100 miles from Cincinnati to Columbus. A horse and cart would take roughly three days to get its cargo to the destination. A diesel powered truck can move significantly more cargo in much less time - about an hour and a half. When our ancestors had to rely on human or animal muscle to power the economy, we were limited in our ability to grow. Petroleum powered machines have added tremendous value to our lives as we use fossil fuels to provide light, heat, and mobility.
Unfortunately, these fossil fuels have a cost to our environment associated with their use. We have known for decades that burning fossil fuels creates pollution and emits massive amounts of carbon. This ancient carbon - long sequestered in the earth's crust but now being released into the atmosphere - is impacting our planet today and will continue to cause issues for generations to come.
Fortunately, we have an alternative in electric vehicles. But moving away from fossil fuels represents a massive sea change and while signs point to the inevitability of this transition, it won’t be without significant turmoil.
The great transition
It wasn’t until the last decade that battery electric vehicles (BEVs) became a credible alternative to cars powered by an internal combustion engine (ICE); and it’s only in the last couple of years that BEVs have become a financially viable alternative. BloombergNEF predicts that half of all cars sold will be BEVs by the middle of the next decade.(1)
This transition will continue to accelerate as more automotive manufacturers enter the market with their BEVS. By 2022, there will be over 100 BEV models in the US market. Tesla has dominated the US BEV market to date but 2020 saw Tesla lose a small amount of market share as more options came to market. Fleets will drive the transition to electric with several larger fleets already announcing their intention to convert their fleet of vehicles, most notably Amazon who has committed to purchase 100,000 electric delivery vehicles from Rivian.
What it all means
This transition will have a serious impact on the oil industry. Globally, we extract, produce, refine, and consume 100,000,000 barrels of oil a day. Roughly 58% of that crude is refined into ground transportation fuels through a very tight supply chain. As electric vehicles garner more market share, the demand for gasoline and diesel will wane. This decline in demand will have an impact on the global hydrocarbon supply chain. Refineries will be forced to adjust their product mix and the number of gas stations will shrink as their volumes fall.
While this transition has yet to hit full swing on a consumer level, the tides are already shifting on a business level. It's not too early for ANY business - not just fleet operators - to consider installing electric vehicle charging stations.
(1) BNEF 2019 Executive Factbook