Fossil fuel industry faces disruption, but not so fast

‘No more petrol or diesel cars, buses, or trucks will be sold anywhere in the world within eight years.”

Such a vision, if well-founded, would indeed scare the oil and traditional vehicle industries, with the prospect of a collapse in demand. Yet The Telegraph's breathless summary of a report by Tony Seba, a Stanford University economist, matches much other uncritical and hyperbolic commentary.

Mr Seba’s prediction postulates a near-simultaneous development in three dimensions: the complete replacement of fossil fuels by solar and wind power; long-range electric cars costing less than petrol or diesel-fuelled ones by 2020; and, by 2021, truly autonomous vehicles not requiring a human driver.

In his vision, personal car ownership would almost end, replaced by self-driving electric vehicles that appear on demand, transport 10 times cheaper than current cars, and store excess renewable energy in their batteries. Global oil demand would fall from 100 million barrels per day (bpd) in 2020 to just 70 million bpd by 2030, pushing down oil prices to US$25 per barrel.

“Disruption” is a popular current buzzword, applied indiscriminately to everything from genuine transformations, such as the replacement of film by digital cameras, through to mere incremental improvements. IBM’s apocryphal 1943 comment that, “there is a world market for maybe five computers” is one example of a great disruption overlooked. On the other hand, 1950s predictions of flying cars and interstellar exploration have not and may never come to pass.

The conventional energy industry is right to be wary of Mr Seba’s vision. Its vast size, profitability and environmental unpopularity put it in the crosshairs of many entrepreneurs. The past decade has seen two genuine energy “disruptions”: the dramatic drop in the cost of solar power; and the emergence of shale oil and gas, which has driven down oil prices by more than half.

Yet truly rapid disruptions in the energy business are rare, because of the vast installed base of long-life assets and the high financial and safety stakes of failure. A coal mine, gasfield, nuclear reactor or solar farm will operate for 30 years or more. A car lasts 10 times as long and costs a hundred times as much as a camera or smartphone.

The Model T was launched in 1908 but horse-drawn carts were a common sight on British roads into the 1950s. Based on the slow adoption of features such as airbags and cruise control, consultancy BCG forecasts autonomous vehicles reaching a quarter of new sales only after 20 years.

The Seba report assumes dramatic drops in the cost of electric vehicles. While battery prices are falling fast, it is less clear why the rest of the car will become cheaper, while autonomous features add significant extra costs.

And the degree of dislocation foreseen will introduce many bottlenecks. Tesla has repeatedly missed production targets for its electric cars. Materials often found in unstable or investor-unfriendly locations such as Bolivia and Congo, and monopolised by a few suppliers – lithium, cobalt, graphite, rare earth metals – will have to be mined in huge quantities.

Autonomous vehicles drive more efficiently but cheap and convenient transport could cause such a dramatic increase in travel as to overwhelm road networks. Regulation and law will have to catch up.

Oil companies and major producing countries should not dismiss the chance for upheaval in their markets. Forecasts by groups such as BP for just 6 per cent of vehicles to be electric by 2035 certainly look too conservative.

A much faster rise of electric vehicles would help to meet environmental goals and would dent oil demand growth. The hard work of restructuring petroleum companies and exporting countries for the new era has to accelerate. But the widespread use of autonomous vehicles – and Mr Seba’s convergent “disruption” – seem much further off.

Robin M Mills is the chief executive of Qamar Energy, and author of The Myth of the Oil Crisis.

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