THE GAME IS ON - OPEC thinks BEVs is a pipe dream

[jerry33]

A reduction in oil should reduce the cost of air travel. It seems this could be an advantage for EVs. Why worry about driving long distance when it's affordable to fly?

Because flying and then renting a car is so inconvenient. There is also the question of how safe the rental car is.

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The question I wonder about is if, as BEV gains market share, do they put downward pressure on oil prices? This would make the financial case for each next EV less and less compelling.

Or, if demand gets too low does price actually rise as the market could only support a small number of refineries and discourage exploration and investment.

I feel both scenarios are feasible and give very different results in terms of BEVs.

Generally, once people have owned an EV, they won't go back to a gas car regardless of gas prices. The EV driving experience is so much better. Would you go back to a tube TV even if tubes were free? Gas cars are basically the tube TVs of the highway.

 

[austinEV]

The Saudis are obviosuly undercutting other producers by selling at close to, or at, a loss and by flooding the market. The main reasons for this is:

Wow great post. I can just get my news analysis from TMC too now. Can we get a recipe section going?

 

[Johan]

Wow great post. I can just get my news analysis from TMC too now. Can we get a recipe section going?

Take it with a grain of salt. I forgot to start the post with "IMO". But it's probably a more honest opinion than you'll find elsewhere, especially on Fox or the WSJ

 

[jhm]

The question I wonder about is if, as BEV gains market share, do they put downward pressure on oil prices? This would make the financial case for each next EV less and less compelling.

Or, if demand gets too low does price actually rise as the market could only support a small number of refineries and discourage exploration and investment.

I feel both scenarios are feasible and give very different results in terms of BEVs.

As the market share of EVs becomes significant (and I think this is several years off), it will put downward pressure on demand for oil and perhaps more importantly it will increase demand elasticity as households switch off putting extra miles on their EV or ICEV as gas prices fluctuate. Historically, demand has been quite inelastic which is what allows gas prices to go quite with any tightness of supply. Presently, growth in the car market exceeds the contribution of EVs, so the number of conventional cars continues to grow and the total parc of ICEVs continues to grow as well. Thus, demand for gas and diesel continues to expand year over year. I estimate tha in the early 2020s EVs will gain enough share that sale of new ICEVs will peak and begin to decline. About 10 years after peak new ICEVs, the parc (global fleet) of the vehicles will peak. This parc fleet is what is most critical to the oil industry. I expect this peak to happen sometime from 2030 to 2035. This is the peak that will collapse the oil market by 2040 demand in road vehicles will begin to fall by about 5% per year, which is probably faster than the industry can comfortably curtail production. But long before peak demand, demand will become increasingly elastic. Basically the electricity market is much more stable than the oil market. Fleet electrification will give businesses and households the ability to hedge oil volatility with electricity. So this could well put a cap oil prices before peak demand.

Now will this slow march to collapse in oil demand undermine the value of EVs? This is a question of timing. Is it possible for the price of oil to fall fast enough to outstrip the fall in the price of EVs. Roughly speaking the density of batteries should double every 10 years and the cost per kWh should fall by 50% in the same time. So the price of EV powertrains should fall by 7% or more until two points of parity with ICEVs are reached. The first point of parity is when the lifetime cost of powertrain and fuel are equal. After this point EVs become more affordable on a total cost of ownership basis. The second point of parity is when the cost of drivetrains regardless of energy costs are equal. After this point EVs have a lower sticker price, and free gasoline for life would not be enough to sell ICEVs. I believe we'll reach the first point of parity this decade and the second next decade. Game over.

 

[ggr]

The Saudis are obviosuly undercutting other producers by selling at close to, or at, a loss and by flooding the market. The main reasons for this is:

I can't find any figures to back me up, but I really think that the cost to the Saudis to produce their oil is way below what they are currently selling it for. Some years ago, I was researching the Alberta Tar Sands, and at the time I read an article that said oil from that source could be profitable only above US$70/barrel. My memory tells me that Saudi oil was profitable down to about $27/barrel. In other words, they're sacrificing some outrageous profit by selling it cheaper, but still making merely absurd profits. Cost of production in most of the OPEC countries is relatively low.

 

[Johan]

I can't find any figures to back me up, but I really think that the cost to the Saudis to produce their oil is way below what they are currently selling it for. Some years ago, I was researching the Alberta Tar Sands, and at the time I read an article that said oil from that source could be profitable only above US$70/barrel. My memory tells me that Saudi oil was profitable down to about $27/barrel. In other words, they're sacrificing some outrageous profit by selling it cheaper, but still making merely absurd profits. Cost of production in most of the OPEC countries is relatively low.

Yes, it's probably more of a "relative loss". This article from a Turkish reporter: Saudi Arabia to pressure Russia, Iran with price of oil Anadolu Agency clamis they'll sell at least down to $50 per barrel (according to Rashid Abanmy, President of the Riyadh-based Saudi Arabia Oil Policies and Strategic Expectations Center). They're still probably not loosing money per se, but their oil is a limited resource and selling it cheaper now means forgoing a potential much greater profit. It's a sacrifice they've decided to make - they believe it's worth it for what they believe they'll gain from it. Saudi Arabia has very high spending and if they keep selling oil at $50-60 per barell their revenues will definately not cover their spending. Their pockets are deep, but not bottomless.

 

[Evbwcaer]

As the market share of EVs becomes significant (and I think this is several years off), it will put downward pressure on demand for oil and perhaps more importantly it will increase demand elasticity as households switch off putting extra miles on their EV or ICEV as gas prices fluctuate. Historically, demand has been quite inelastic which is what allows gas prices to go quite with any tightness of supply. Presently, growth in the car market exceeds the contribution of EVs, so the number of conventional cars continues to grow and the total parc of ICEVs continues to grow as well. Thus, demand for gas and diesel continues to expand year over year. I estimate tha in the early 2020s EVs will gain enough share that sale of new ICEVs will peak and begin to decline. About 10 years after peak new ICEVs, the parc (global fleet) of the vehicles will peak. This parc fleet is what is most critical to the oil industry. I expect this peak to happen sometime from 2030 to 2035. This is the peak that will collapse the oil market by 2040 demand in road vehicles will begin to fall by about 5% per year, which is probably faster than the industry can comfortably curtail production. But long before peak demand, demand will become increasingly elastic. Basically the electricity market is much more stable than the oil market. Fleet electrification will give businesses and households the ability to hedge oil volatility with electricity. So this could well put a cap oil prices before peak demand.

Now will this slow march to collapse in oil demand undermine the value of EVs? This is a question of timing. Is it possible for the price of oil to fall fast enough to outstrip the fall in the price of EVs. Roughly speaking the density of batteries should double every 10 years and the cost per kWh should fall by 50% in the same time. So the price of EV powertrains should fall by 7% or more until two points of parity with ICEVs are reached. The first point of parity is when the lifetime cost of powertrain and fuel are equal. After this point EVs become more affordable on a total cost of ownership basis. The second point of parity is when the cost of drivetrains regardless of energy costs are equal. After this point EVs have a lower sticker price, and free gasoline for life would not be enough to sell ICEVs. I believe we'll reach the first point of parity this decade and the second next decade. Game over.

Very informative, but I do wonder about the demand for gas and diesel being tied to the number of vehicles. Can't we basically assume that the fleet is getting more efficient, so much so that you could use less petro fuel, even with more cars?

Jhm, do you have any thoughts on what PHEVs could do? Take a Ford Fusion Energi, about 1/3 the price of a Tesla, and able to drive on electricity 90% (guess) as often. When you say, "The first point of parity is when the lifetime cost of powertrain and fuel are equal," are we there now with a Fusion Energi for example?

 

[AudubonB]

Things have changed a bit - but really not that much!!!! - since I last was able to perform in-depth cost analyses of various crude production sites. At that time, however, the single best Saudi resource - the Ghawar field - had a full production cost structure of between $2.50 and $2.70 per barrel. It remains by far the largest conventional oil field ever discovered, at perhaps 100 billion barrels (about half has been extracted since the early 1950s), and still produces perhaps 5mm barrels every day. There really is nothing like it anywhere else.

That gives us a base line from which to extrapolate. It tells us absolutely nothing at all regarding the Saudi government's spending needs, but I would want this thread's participants to know that, as far as hurt goes, we remain an incredibly long way before the Saudis would need to turn off the petcocks.

 

[jhm]

Very informative, but I do wonder about the demand for gas and diesel being tied to the number of vehicles. Can't we basically assume that the fleet is getting more efficient, so much so that you could use less petro fuel, even with more cars?

Jhm, do you have any thoughts on what PHEVs could do? Take a Ford Fusion Energi, about 1/3 the price of a Tesla, and able to drive on electricity 90% (guess) as often. When you say, "The first point of parity is when the lifetime cost of powertrain and fuel are equal," are we there now with a Fusion Energi for example?

You are correct. As the efficiency the ICEV fleet increases, that would hasten the time to peak demand of oil. It's pretty slow moving the average efficiency of the fleet. A new car will stay on the road for ten to twenty years. So the fuel efficiency of cars sold new this year will still impact the average in 2030. But I do think hybrids of all sorts are making a difference softening demand even now. Changing the fleet is a multidecade proposition.

PHEVs are really interesting because they are opening the door to allowing the electricity market compete with oil. This is a fundamental distinction with traditional hybrids, which derive all their energy from oil. It's really hard to know precisely when parity is reached because a lot of other factors go into what price consumers are willing to pay for. Energi may be there already for some buyers. I do question though why you would put a gas range extender in a car if it was actually cheaper to extend range by simply offering a larger battery. It seems that Ford does not believe extra batteries are a better value than ICE. So Ford does not see the parity yet. In any case, I do think we are quite close. If you condition on performance attributes, the Model S P85D may well be the most affordable car that can do 0 - 60 in 3.2 seconds. So in that narrow segment, parity has been reached. For more of us, I think Model 3 will achieve parity. It should be at least as attractive as any other comparable size sedan at the same price after you adjust for cost to power and maintain. The battery should be priced around $8k ( = 50 kWh · $160 / kWh ), while the fuel savings should be around $13.5k ( = 150k miles · ( $3/25 - $0.12/4 )). So the most expensive component of the drivetrain will actually save you more money in fuel, netting the ownwer about $5000. I suspect the rest of the drivetrain will be less than an ICE drivetrain. Perhaps someone can help me out with some facts on this. So from viewpoints of either consumer percieved value or the cost of components the Model 3 looks to be at parity or better.

 

[richkae]

You also need to remember that what we do is not as important as what happens in China and India.
China is the largest car market in the world, not the US.
China was on pace to pass the US in oil consumption by 2020, but in the last year that growth has dramatically slowed.
The slowdown in the Chinese economy and their reduced demand may have been a moment of opportunity for the price of oil to drop.
China is hurt by high priced oil being burned in inefficient cars, and has no oil interests to protect.
The oligarchy in China can possibly move the country to more efficient vehicles more easily than the US - where our oligarchy fights it.

 

[SBenson]

Saying it like it is: OPEC Policy Ensures U.S. Shale Crash, Russian Tycoon Says - Bloomberg

Musk clearly understands oil markets given that he expresses his views on oil prices now and then. So I'd assume he understands that Tesla's cars need to be "competitive" to ICEs even if gasoline prices reach near 0s… I'm sure there will be a repeat of this circus when EVs start getting mass produced.

 

[ggies07]

So if you weren't watching the Macy's Thanksgiving Day Parade yesterday, you missed ExxonMobil being one of the two major sponsors with their logo on the tv at the very beginning. Then they had this ridiculous commercial that played several times about how you shouldn't worry where your energy comes from to boil that egg you are making, they have that covered.

Nothing says Happy Holdiays like we will continue to destroy the earth while you celebrate the season.

I literally laughed out loud when i saw the logo. Couldn't believe it.

 

[Kandiru]

I can bet our children will be laughing when they take their own kids to a museum and view that graph.

By then they will be carrying pocket-sized cold fusion reactors everywhere.

 

[EarlyAdopter]

In other news, the Horse Feed Consortium thinks those gasoline powered vehicles are just a pipe dream.

They have graphs, too.

 

[macpacheco]

Wikipedia states Saudi Oil reserves are 267 billion barrels. They are producing in the 9 million barrel/day range. So if production continues the same they would have 81 years worth of reserves. Then I read another article that says Saudi Oil will end in 2030... Hard to find the truth.
Anyhow... Lets assume total EV + Plugin EV + FCV production is 100k / yr today, and that it will grow non stop at 50% per year for another 10 years. In 10 years production would reach 5.8 million vehicles / year, still less than 10% of total yearly vehicle production. Lets assume that 10 years after that 50% of miles driven (as EVs will by then be very cheap for those who drive the most) will migrate to electricity and clean hydrogen (most hydrogen produced today comes from natural gas, NOT clean), that still would mean 20 years to get there. I think my scenario is way too optimistic, perhaps a 30+ year job. Shale oil is a far greater threat to OPEC. And Shale gas is a far greater threat to coal production than Solar + Wind electricity.
Get real folks. Tesla isn't the threat. In fact I'm certain many Oil companies are investing on Tesla and other EV producers, they could get a much better return if they invested in sub US$ 50 TSLA than on a new oil field.

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Yes, it's probably more of a "relative loss". This article from a Turkish reporter: Saudi Arabia to pressure Russia, Iran with price of oil Anadolu Agency clamis they'll sell at least down to $50 per barrel (according to Rashid Abanmy, President of the Riyadh-based Saudi Arabia Oil Policies and Strategic Expectations Center). They're still probably not loosing money per se, but their oil is a limited resource and selling it cheaper now means forgoing a potential much greater profit. It's a sacrifice they've decided to make - they believe it's worth it for what they believe they'll gain from it. Saudi Arabia has very high spending and if they keep selling oil at $50-60 per barell their revenues will definately not cover their spending. Their pockets are deep, but not bottomless.

It used to be that break even price for Oil was based on production costs. But nowadays big Oil exporters subsidize their local economy with easy oil money, and that at least triples the break even point of oil. Long time ago (end of first golf war, when oil dropped down to US$ 30 / barrel) it was said that Saudi oil costed less than US$ 10 / barrel to produce, maybe US$ 30 / barrel today with inflation and paying for essential Saudi costs (defense, essential national infrastructure, but not direct economic subsidies to its people). That's a big part of why Venezuela/Russia and other countries need US$ 100 / barrel oil.

That's why I'm actually quite happy with this substantial drop in oil prices, it makes it really hard to sustain governments that do an almost communist government (Venezuela/Bolivia/Equador the clearest examples). Its quite healthy to use oil money to create jobs, fund investment on your economy, but direct massive subsidies are very dumb. Give a man free fish for a few days WHILE teaching him how to fish. Brazil is doing it in a smaller scale (as we're barely self sufficient with oil, we do it by just taxing our economy like europe, with overall social services at slightly better levels than Africa).

 

[Johan]

The Saudis are obviosuly undercutting other producers by selling at close to, or at, a loss and by flooding the market. The main reasons for this is:

1) to bancrupt Iran or at least put substantial pressure on Iran's already challenged economy. The holy grail with regards to Iran is to get them to drop their nuclear weapons program once and for all and/or to spur a revolution from within (my wife is from Iran and for many years unrest has been growing domestically, while wages have gone up only a little prices for groceries and gas have trippeled. Unemployment is very high. Young people are living decadent lives with little hopes for the future. Well educated people are not working or if they are working are many times not getting paid. People are close to what they can take. There's a fire burning within Iran, news of this is not getting out much but those of us who know ordinary people living their ordinary lives there know this).

2) to in a similar fashion put severe pressure on Russia, who in a similar way as Iran is extremely dependent on their selling of oil and gas to sustain their economy including heavy military spending in recent years. Importantly, Russia is a firm supporter of Al-Assad in Syria, who is much hated by the Saudis. Remeber the basics of the Sunni-Shia conflict? The Wahhadities of Saudi Arabia are strong Sunni muslims, the Iranians are Shia and Al-Assad is a spin-off of Shia (Alawiti). The Saudi's want Al-Assad gone, they want to be the controlling power of the muslim world and they want the Shias gone.

The Saudis and the US are deeply allied, as they have been all the way back since king Saud the old came to power in Rhyad in the 30's. The intrests of the US and the Saudis have become som intertwined over the years that whatever happens you can be sure that they have made a deal behind closed doors before it happens.

The ideological battle between the sunni Saudis and the Shia of Syria, Iran and partly also Iraq connects to the fact that a lot of the untapped oil and especially gas rescources remaining in the Middle East are controlled largly but the shia countires mentioned above. In 2011, before the start of the war in Syria, the goverments of Iran, Syria and Iraq signed a deal to build a historically grand pipeline funnelling natural gas from the Iranian controlled Pars gas field (the world's third largest known NG reserve after Russia and mainland Iran) through Iraq in to Syria. It would be natural to assume that if Syria had not been thrown in to civil war this pipeline would have been built and Syria would have extended it to the mediterranean ports of Lebanon to open up trade with the huge EU market. Saudia arabia would not have this happen.

To me it's super clear that the Saudis conspired with the US to spark the civil war in Syria in 2011. In the same way it's clear that the price drop in oil is part of the same ongoing conflict but with oil price as a weapon, instead of jihadi warriors, bombs and terror.

And don't even get me started on how some US hawks have an extended view on this as a way for the US to indirectly undermine Chinas inevitable (IMO) climb towards being the global economical superpower of the 21 st century.

Please read this post before it gets moved to the political quarantine thread (but can you really ever talk about oil without getting political?)

Sorry to bump and old thread, but look at what has happened in the last year and especially in the lasts weeks: Russia has engaged in the conflict, with direct military assistance to Assad. How much more obvious can it get???

- Russia and Assad have been allies since way back. The Iran-Iraq-Syria pipeline was always the big issue to the US and the Saudis. They (Israel, US, Saudi) were very successful in hindring its construction but at great humanitarian cost (the civil war of Syria has been extremely ugly and caused enormous suffering). I'm not saying who's right and wrong here, Assad is a bastard who has killed thousands and thousands of innocent civilians, Putin is a warish ex-KGB madman with hybris, but let's be honest the way the USA, the Brittish and NATO (partly) have been playing the game isn't exactly non-critiziable either. Lots of cynism there.

I can recommend dr. Nafeez Ahmed's articles on this, here's a good one in the Guardian that lays it out very nicely: Syria intervention plans fuelled by oil interests, not chemical weapon concerns | Nafeez Ahmed | Environment | The Guardian (this article is from August 2013 and is quite prescient in predicting the very situation we find ourselves in now).

Now back to your regular scheduled programming (that which really matters): Does the P85D output 691 hp for a meaningful amount of time, or not???

 

[Yggdrasill]

Now back to your regular scheduled programming (that which really matters): Does the P85D output 691 hp for a meaningful amount of time, or not???

Who cares? The important question is; do the Model X 2nd row seats fold?