The long-term breakeven oil price needs to be as low as $9 or $10 a barrel so that gasoline cars can remain competitive as a means of transportation in the future, BNP Paribas Asset Management said in new research this month.
The research report—authored by Mark Lewis, Global Head of Sustainability Research at BNP Paribas Asset Management—introduces the concept of Energy Return on Capital Invested (EROCI) to measure how much a given capital outlay on oil and renewables translates into useful or propulsive energy at the wheels: “in other words, for a given capital outlay, how much mobility can you buy?”
According to BNP Paribas Asset Management’s analysis, at present, for the same capital investment, wind and solar energy will already produce significantly more useful energy for EVs than oil at $60 a barrel will for cars and other light-duty vehicles (LDVs).
“For gasoline LDVs, we calculate the oil price required to yield as much net energy as would new renewables projects in tandem with EVs at $9-$10/bbl, and for diesel at $17-$19/bbl,” the report says.
“In short, whether in the form of gasoline or diesel, oil’s days as a fuel for LDVs are clearly numbered because our EROCI analysis shows that the economics of new wind and solar projects combined with EVs are set to become irresistible,” BNP Paribas said.
The implications for oil majors are that “the challenge is on a scale that they have never faced before, and business-as-usual is simply not an option,” according to the report, which implies that current investments in oil projects with breakevens of $20 a barrel or higher could put as much as 40 percent of future annual output at risk of being stranded.
Despite the stark warning to the oil industry, BNP Paribas Asset Management’s report says that the “oil industry today enjoys a massive scale advantage over wind and solar of several orders of magnitude – oil supplied 33% of global energy in 2018 compared with only 3% from wind and solar. Moreover, EVs are currently more expensive than ICE and diesel vehicles on a sticker-price basis, and likely to remain so until 2023-25.”
Although the oil industry’s scale advantage is enormous today, it is time-limited as oil companies have to invest in new projects “just to stand still,” the report notes.
“For now, though, oil enjoys a significant energy-flow advantage over renewables. The question is, how big is this advantage, and how long will it last?” BNP Paribas Asset Management’s research report says.