The world is running out of oil.
At least that was the idea behind the “peak oil” hypothesis
that dominated economic thinking for decades.
But it turns out that with fracking,
deep-water drilling, and oil sands, there’s a lot more oil in the world than we once thought.
The old “peak oil” theory ain’t happening.
But what if instead of running out of oil we just stopped buying the stuff?
Most oilmen scoff at the idea. There are one billion gas guzzling cars on the road worldwide today,
and only one tenth of one percent of them have a plug. OPEC contends that even
in the year 2040, EVs will make up just one percent.
But don’t be so sure. Consider the "S Curve.”
S Curves are used to describe the spread of new technologies over time, like early refrigerators
and color TVs. Growth starts off slowly at first, and then when the product really starts
to connect with everyday people: We have liftoff. Eventually the market gets saturated and growth
tapers off, forming the top of the “S”.
Predicting the S Curve for electric cars is extremely difficult, because we’re making
assumptions about demand for a type of vehicle that doesn’t even exist yet: fast, affordable,
and spacious cars that have an electric range of at least 2-to-300 miles.
But here’s what we know: In the next few years Tesla, Nissan and Chevy plan to start
selling long-range electric cars in the $30,000 range. And other carmakers and tech companies
are investing billions on dozens of new models due out in the next four years. By 2020, some
of these will be faster, safer, cheaper, and more convenient than their gasoline counterparts.
That sure seems like the point when the S curve goes vertical.
To start an oil crash, you don’t need to replace all of the cars on the road today.
You just need to reduce demand enough to cause a glut of unwanted oil. Consider the oil crash that
started in 2014. That was caused by too much supply, when producers started pumping out an extra
2 million barrels a day.
So when electric vehicles are able to displace that much on the demand side, it should also
cause a crash. When might that happen?
Tesla is building factories to go from about 50,000 sales last year to 500,000 in 2020.
Let’s assume for a minute that Tesla can meet its own forecasts. And let’s assume
that other carmakers maintain their current combined market share for plugins.
If each electric vehicle displaces about 15 barrels a year, here’s the
impact on oil from all the EVs worldwide. At this rate we hit our benchmark of 2 million
barrels of oil a day displaced as early as 2023. That’s an oil crisis. And the thing
is, it’s just the beginning. It’s not at all unreasonable to assume that by 2040
nearly half of the world’s new cars will have a plug.
Sure you're skeptical. The price of electric cars still needs to come down, there aren’t
yet enough fast charging stations for convenient long-distance road trips. Many new drivers
in developing countries like China and India will still choose gasoline and diesel.
But imagine a future when the rumbling streets of New York and New Delhi... suddenly fall
silent with electric engines. What if global demand for oil starts to fall—at first by
a trickle, but then in a rush. Trillions invested in oil will be lost, while trillions in new
energy will be won. The power of nations will be shuffled. That’s the promise of the
new peak oil, and it may be coming sooner than you think.