Oil goes into many things. It goes to make plastics, for instance. It also gets used in some power plants. It is used in backup diesel generators.
But the bulk of the revenues for the oil companies come from its use in automobiles.
If, in a few decades, all vehicles go electric, what will the oil companies do?
There are of course many conspiracy theories on how the Big Oil companies tried to prevent the electric vehicle revolution from happening earlier along with top automakers (there’s even a famous documentary on this – Who Killed the Electric Car? – Wikipedia, YouTube , and its sequel Revenge of the electric car). Whether or not these rumours are true, I think this time round the oil companies are convinced that the EV phenomenon is for real, and there is perhaps no stopping it.
End of oil is some time away
Electrification of most transport is still at a nascent state. Less than 0,5% of total number of vehicles on road are electric, worldwide. Estimates suggest that only by about 2040 will electric vehicles gather enough momentum to be found in numbers in comparison to conventional vehicles. If these estimates hold good, the oil & gas companies still have about 20 years to figure how best to play the game. 20 years is not a long time for the oil & gas industry, but it not tomorrow either.
I recall sitting in a conference in New Delhi in 2019 when global oil demand forecast was provided by OPEC and IEA directors. I imagined a steep fall in total oil production estimate over the subsequent 20 years; instead, the executives actually predicted an almost status quo, in fact a small increase – from about 95 million barrels a day to about 105 million barrels a day by 2040. That was surprising, given that they themselves admitted that there could be a good amount of EV penetration by then. But then, it should not have been surprising, because in 2019, there were about 1.4 billion cars on the road, and by 2040, it could be almost double that, 2.5-2.8 billion cars. The number of vehicles would have doubled, but the oil demand would have gone up by hardly 10% – you get the picture.
The end of oil is not imminent, though end of fat profits for oil companies might be.
The petrochem opportunity
One of the ways oil companies are trying to increase the demand for their oil is to look at petrochemicals – a fast growing market that includes a range of industrial & consumer market chemicals and plastics – to absorb more of their production.
The world used about 330 million tons of plastics (consumer + industrial polymers) a year, and about 8-10% of all oil produced (about 7-8 million barrels a day) are used to making plastics, and this is set to grow significantly in the next decade.
While such growth in plastics could indeed result in some additional demand, it will not be able to compensate for a drastic fall in demand for oil from transportation, should that happen in the near or medium term owing to electrification of transport. (The petrochemicals and plastics industries are also in parallel trying to wean themselves away from oil through efforts for producing green chemicals and bioplastics, so oil companies need to watch out that front too!)
Electric vehicles still have wheels and transmission, so lubricants will still be needed, and in fact the EVs could require lubricants that are of a higher grade than are used in ICE vehicles, so this could present a premium opportunity for the oil industry. This is one area where oil companies will still be able to give something to electric vehicles in the form of oil.
Worldwide, about 35 million tons of lubricants are produced every year (auto lubricants, about 25 million ton), a very large portion from crude oil (bio-base lubricants contribute a fairly small share as of 2021). The quantum of lubricants required by electric vehicles will surely be much less than that for ICE vehicles, as most lubricants are used in the form of engine oils (an excellent McKinsey analysis of lubricant demand forecasts for the auto industry)
ExxonMobil’s efforts in lubrication for EVs is a case in point. The oil giant announced the global launch of its Mobil EV offering at the 2019 IAA, which features a full suite of fluids and greases designed to meet the evolving drivetrain requirements of battery electric vehicle, a market predicted to exceed 20 percent of the world’s light-duty fleet by 2040.
Mobil EV Therm series of thermal management fluids, formulated to help efficiently remove heat and increase equipment life in applications such as batteries, electric motors, and power electronics.
Mobil EV Drive series of lubricants for electric vehicle reduction gearboxes, designed to protect gears and bearings from wear for a longer service life.
Mobil EV Cool Drive series of fluids for electric vehicle reduction gearboxes with integrated electric motors, designed to lubricate gears and bearings while providing the necessary cooling for electric motors and power electronics.
Mobil EV Grease products ensuring protection, performance and reliability for electric vehicle applications including e-motors, bearings and constant velocity joints across a wide range of driving conditions.
Investing in EVs themselves
Of course, one of the things these largest corporates are good understanding is the statement “if you can’t beat them, join them”. A good number of oil/gas companies are investing their large piles of cash into a range of players across the e-mobility ecosystem.
Utilizing their gas stations
One interesting aspect oil & gas companies can look at is their assets in the form of gas stations that they own in large numbers in their regions of operations. How can they leverage it and align them to the EV growth? Is it possible to locate charging stations at or near the gas stations? Swapping stations?
Oil companies could be more interested in the EV charging part of the e-mobility ecosystem than anything else. The only other domain that comes close is battery production, but that is a highly competed field, and a domain in which large parts are very new to oil companies.
The global oil major is investing in a massive electric vehicle charging network in China, in partnership with a ride-hailing company called Didi Chuxing.
The oil company will create additional charging hubs for both Didi users (there are over 550 million, using 600,000 EVs) and public users.
Also in 2018, BP completed its acquisition of Chargemaster, the largest EV charging network in the UK. It has also invested in StoreDot, a company that develops battery technology suitable for fast-charging.
For instance, India’s largest oil marketing company, Indian Oil announced that it had already set up 54 battery charging/swapping stations for EVs in partnership with various companies and also plans in future to set up solar-power based electric vehicle (EV) charging stations. These EV charging system has three main features — EVs charged with solar power, no upgrades required in grid infrastructure, and improved grid resilience, especially in remote areas. Indian oil has also invested in an Israeli startup, Phinergy, which develops Al-air batteries; IOC aims to bring this technology to India.
Oil companies understand chemistry & liquid/gaseous fuels much better than electrons. Hydrogen is much closer to their comfort zones than are electrons and electricity. Expect many oil companies to be keenly watching – and involving themselves in – the developments in hydrogen fuel cells. (Do petroleum refineries emit H2 – Need to find out.)
Zero carbon power generation
Another domain within the e-mobility ecosystem that could be of interest to oil & gas companies is power generation, as this is a domain they are highly familiar with. With solar power gaining significant traction worldwide and with solar being the power source of choice (where feasible) for electric vehicle charging, could oil companies be interested in investing in the intersection of solar power + EV charging?
Lastly, electrification is not the only way to move towards a low or zero carbon transport. Biofuels are a net zero carbon source as well. Biofuels is liquid fuel, it is chemistry though perhaps biology comes first here. In the past decade, there have been significant investments from almost all the world’s prominent oil companies in biofuels. While biofuels – both ethanol and biodiesel – are taking time to scale, especially biodiesel, oil companies would be hoping that they still hold a card in the sustainable transport game with biofuels, though how exactly the battle between EVs and biofuel driven transport will pan out in the medium and long term is a bit difficult to predict right now.
EV Innovation Insights from EVNext
Tesla’s Valuation | EV’s in different countries | Purpose built EVs | Mainstream Fuel Cells | IT in Emobility | EVs versus ICEs | Advent of China in Emobility | Charging vs Swapping | Micromobility & EVs | Electric Aviation | Li-ion alternatives | Million Mile Battery | Battery Startups versus Giants | Sales & Financing Models | Ultrafast Charging a Norm | Heavy Electric Vehicles | Material Sciences in Emobility | Lithium Scarcity | Solar Power in EV Ecosystem | EV Manufacturing Paradigm | Innovations in Motors | EV Startups – a speciality | Oil Companies’ Strategies | EV Adoption Paths | Covid-19 affect on the EV Industry |
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