EVs and Climate Change Will Hurt Some Big Oil Companies

What a difference a decade makes. Ten years ago, I was writing about “peak oil.”

Back then, the concern was that demand would outstrip supply. But the American shale oil revolution took care of those worries.

Now it looks like the opposite is slowly happening.

And some “Big Oil” shareholders could be stuck with “big losses.”

It all has to do with the relentless march of technology. Remember the old adage “the Stone Age didn’t end because we ran out of stones.”

It describes, in broad terms, how technological advances can displace one technology (cars with internal combustion engines) or resource (gasoline and diesel) with another (EVs and renewable energy).

Most car dealers will laugh in your face if you tell them this is what’s coming. Five years ago, all of the top oil company CEOs would have scoffed at the idea as well.

They aren’t scoffing now.
The Times They Are A-Changin’

The biggest energy companies in the world are quietly prepping for change. What is it?

It’s the biggest energy consumption shift since the Industrial Revolution. The demand for oil has relentlessly moved higher ever since Edwin Drake pounded a pipe into the ground back in 1859.

But that’s all coming to a screeching halt. What’s happening?

Almost 200 countries embraced the Paris climate accord. Only the U.S., Nicaragua and Syria don’t think it’s a good idea. And only the U.S. doubts that climate change is real.

But fortunately, there are people out there with money, vision and the drive to initiate change. People like Elon Musk.

Someone had to go first when it comes to sustainable energy. And the climate change problem gets solved quite handily as well with EVs and renewable energy.

The amazing thing is that Big Oil economists are now telling their bosses that there’s a paradigm shift coming in oil consumption. And we’re starting to see the first signs that they are changing their business models.

It’s not just EVs. New technology is vastly increasing the fuel efficiency of vehicles with internal combustion engines (ICEs).

That’s gradually reducing the overall demand for oil. When new global carbon rules from the Paris accord go into effect, EVs will gain market share rapidly, and engineers will continue to improve vehicles with ICEs to dramatically increase fuel efficiency.

You see, the growth of Western economies used to be directly coupled to their energy consumption. But that’s not the case anymore.

Disruption in several technologies is changing how much energy we use and, more importantly, where it’s coming from. Take battery technology for example.

EVs were commonplace 120 years ago. However, the battery technology of the time left them range-bound.

Henry Ford’s newly designed Model T with its ICE spelled the end of those early EVs. Now we are seeing the reverse.

A decline in oil demand will send shockwaves through the industry. The big question isn’t if, but when.
Is Peak Oil Already Behind Us?

For investors and oil companies alike, getting the timing correct will sort out winners and losers. Declining oil demand is quickly becoming an industry flashpoint and a focus for energy economists.

As with anything in the future, some companies are in denial. Both Chevron Corp. (NYSE: CVX) and Exxon Mobil Corp. (NYSE: XOM) don’t think peak demand is in sight.

The International Energy Agency believes that will actually grow, although it also believes it will slow after 2040. However, some of Europe’s biggest producers think oil demand could peak by 2025 or 2030.

Both Statoil ASA (NYSE: STO) and Royal Dutch Shell (NYSE: RDS.A) are focusing on natural gas, solar and wind. BP (NYSE: BP) thinks a peak will happen in the mid-2040s.

The real answer is… no one knows. However, let’s quickly review Fessler’s Second Law of Technology, “When it comes to technology, changes happen much faster than anyone expects.”

So I think we could see peak oil demand in the 2025 to 2030 time frame. And based on Fessler’s Third Law of Technology, “New technology is almost always disruptive and transformative,” some Big Oil companies are going to be in a world of hurt.

I’ll be writing more on this topic in the months ahead.

Good investing,

Dave