Petrol, Diesel, or Electricity?

           Carbon and Climate

I recently made a comment following an OPEC Meeting when a colleague sent a message through – “Tesla, elephant in the room!” There is, of course, the view that the electric car revolution will knock out the oil industry, and this is the scenario that all producers fear. Sounds good, but I don’t think so.

We have already been made aware in the UK of the mistake of our Government some fifteen years or so ago when we were advised to switch to diesel engines. Many of us still have diesel-powered cars, and they drive perfectly, although of course the emissions which were once believed to be favourable to the environment are now reviled for being responsible for them. Furthermore, we shall be penalised for having the vehicles, in terms of the duty we pay, where we drive, and where we park them. It will take time for them to be phased out, while in the meantime, all manufacturers are moving towards giving up the manufacture of engines that are solely powered by petrol or diesel. The movement across Europe is gathering pace, and it will be interesting to see what follows in the US, Middle East, and Asia.

Back in July, Fatih Birol, Executive Director of the International Energy Agency, delivered the Energy Institute’s Melchett Award Lecture. In this, he outlined the challenges facing the energy markets in terms of the Environment for now and into the future. Over the years, we have had talk of “peak oil”, the point at which production of oil starts to decline, but instead, we are now facing the new “peak oil,” the point at which demand starts to decline.

Looking ahead to 2040 and for all such views, it is only a view based on information available today and, therefore, the outcome will certainly change many times before we actually get there. When we look at domestic markets, demand for oil for passenger cars will decline by probably only half a million barrels per day. However, this will be offset by the increase in maritime usage of 1.2mbpd, so, on this alone, I don’t feel the industry should be unduly concerned. Nevertheless, legislation is becoming more demanding on fossil fuel usage and usage itself coming under greater threat from increased efficiency.

So, as demand for oil usage falls in terms of power generation, buildings, and passenger cars by around four and a half million barrels per day by 2040, it will rise by almost eight million barrels per day with increased demand from maritime, freight, and aviation. One can, of course, argue that any drop in any sector is bad news, but overall the balance is still in the favour of the producer. There is a net gain of three and a half million barrels per day.

Electric vehicles are catching on, in spite of the cost. They first arrived in 2010, and by 2016, there were around 2m on the road around the world. However, the rate of growth between 2015 and 2016 slipped from 70% in 2015 to 40% in 2016. Technology is moving ahead rapidly and prices falling accordingly, and without further incentives, perhaps growth will fall further. Similarly, the new technology will soon be outpaced by something better at a lower price, and no one wants to be caught out with something that’s relatively new but quickly obsolete.

I was recently talking to someone who has switched to a Tesla car. It has replaced a Land Rover, and what amazed me was the fact that an equivalent vehicle, fully laden with luggage and people, can silently move from 0 to 60mph in less than 2.5 seconds. When I asked about the price variance, he admitted that it was probably three times greater! Insofar as range is concerned, a full charge will take him around 300 miles, and for re-charging, this is provided free by Tesla at various stations around the country. He can call into a service station, hook up, get a coffee, and then be on his way with 120-150 miles on the charge.

We all remember the stress on the National Grid around critical football matches. When halftime comes on, many switch on the kettle while others just open another can. This is predictable, but what is not predictable is when the game goes into extra time and then, after this, a penalty shoot-out is called for. Then demand can reach a seriously critical level at a time of day when it is not perhaps practical to call on industry to cut back. This will be the threat to the Grid, when the electric car owners get home and hook up for the night. As yet, I am not aware that this can be predicted primarily because sales figures will remain uncertain without governmental support and because technology will continue to evolve and change the rate of charging required.

I have mentioned already the maritime sector, and for that, too, there is a growing domestic element mainly based in the South of England where most leisure boats are kept. The larger leisure boats are powered by diesel, while smaller ones run on petrol or on two-stroke, which is a mix of petrol and oil. For those that have a smaller tender or dingy, the choice has been limited to two-stroke, petrol, and oil-mixed, or four stroke, which is petrol only.

Now, there is the third choice, the electric outboard. This is a brilliant compromise on both storage and usage. Once charged up, the unit is simply fitted to the boat, turned on, and the switch is flipped. The vessel whizzes off silently without any effort, fuss, noise, or smoke! The price variance is offset by the benefits, and this is being quickly recognised by many sailors around the European coastlines. The technology works and quickly proves itself, and at some point, the vehicle sector will catch on, too, leaving more oil to the maritime, freight, and aviation sectors, which will need to make their own way forward.

John Hall

John joined Alfa Energy in 2013 as Chairman, where his specific interest is the development of the company’s profile in the areas in which it primarily operates - across the EU and the US. He is Fellow of the Energy Institute, a Member of the Parliamentary Group for Energy Studies, an Associate Member of the Chartered Institute of Purchasing and Supply, and a Member of the Market Research Society. He began his long career in the industry when he set up John Hall Associates in 1973, a company which merged with Energy Quote in 2009 and currently trades as Energy Quote JHA.