The Next Oil Crisis

Bloomberg Business thinks that the next oil crisis might be caused by the massive adoption of the electric car, and they might be right. In their first episode of Sooner Than You Think series, they discuss the economics behind the 2014 oil crisis, which was caused by the over supply of oil due to hydraulic fracturing technologies. Hydraulic fracturing or “Fracking” essentially debunked Peak Oil theory, which stated the peak in oil production has already occurred (1970) and extraction has become tougher and tougher, consequently driving up the price of oil. As of 2014 an over supply of 2 million barrels of oil produced per day was enough to cause massive drops in the price of oil.

Electric vehicles come into the picture by affecting the demand side of the market. Since electric vehicles (hybrids and pure electric) reduce or eliminate the need for gasoline, the growth in the electric vehicle market will proportionally reduce the demand for crude oil. At the current adoption rate annual growth of 60%, Bloomberg estimates that the next oil crisis can be triggered as early as 2023. A key assumption in this analysis is that it takes 2 million barrels of unwanted oil per day, which was enough to trigger the 2014 oil crisis, to trigger the next crash.

There’s a lot of other assumptions made here (such is the nature of forecasts) like the estimated electric vehicle adoption rate, which in of itself is an amalgamation of factors such as government rebates, cost of equipment, price of oil, etc. With a lower adoption rate growth of 45% the oil crash is delayed by another couple of years. Folks in the oil industry, whose interests don’t align with electric vehicles, would like to think that an adoption rate growth of 2% is more likely, which puts the next oil crisis to occur… not in your lifetime.

[ads1]

Personally, I’m ALL IN for electric vehicles. I drove the Tesla Model S and I genuinely think that this pure electric vehicle has raised the standard for automotive expectations. I believe that the price of batteries will continue to go down potentially making electric vehicles the cheapest you can buy on the market. However, there’s the lingering problem of electric vehicle’s reliance on infrastructure that’s not fully established yet. Tesla has been furiously building Supercharger stations across the contiguous 48 states to help reduce customers’ “range anxiety,” which is the fear of running out of juice before your next refill station.

[ads2]

Range anxiety isn’t such a prevalent problem with gasoline engines as gas stations are as plentiful as exits on highways. Most electric vehicle owners don’t have range anxiety because a routine has been established in their daily lives, but when it comes to the occasional ‘road-trip’ a lot more planning is involved. Suddenly, large blotches of the United States become “Do Not Travel” zones. On those occasions range anxiety will kick in and an electric car will not seem as capable as your traditional dinosaur-cocktail sipping vehicles.

The next oil crisis will eventually come, and it will most likely be the result of electric vehicle’s doing. Will it be as soon as 2023? Who knows, it might be even sooner than that as more people realize that electric vehicles don’t require oil changes or other complicated maintenance and repair procedures. However, the cynic in me wonders what the oil lobbyists are scheming to ensure the long and prosperous health of the oil industry. They have killed the electric car before…

Source: Bloomberg