“The economics of oil for gasoline and diesel vehicles… are now in relentless and irreversible decline,” says its Wells, Wires and Wheels report.
In its 40-page study, the bank calculates the Energy Return on Capital Invested (EROCI) from $100bn outlays on oil and renewables, where the energy is being used specifically to power cars and other light-duty vehicles (LDVs).
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“Our analysis indicates that for the same capital outlay today, new wind and solar-energy projects in tandem with battery electric vehicles (EVs) will produce six to seven times more useful energy at the wheels than will oil at $60/bbl [per barrel] for gasoline-powered LDVs, and three to four times more than will oil at $60/bbl for LDVs running on diesel,” says the report. Accordingly, we calculate that the long-term break-even oil price for gasoline to remain competitive as a source of mobility is $9-$10/bbl, and for diesel $17-19/bbl.”
The price of a barrel of oil on the benchmark WTI index was at time of going to press was $52.47, down from a year-to-date high of $66.30 in April.
“We think the economics of renewables are impossible for oil to compete with when looked at over the [25-year operating life of wind or solar project],” says the report, which was written by Mark Lewis, the global head of sustainability research at BNP Paribas Asset Management.
“We calculate that to get the same amount of mobility from gasoline as from new renewables in tandem with EVs over the next 25 years would cost 6.2 to 7 times more. Indeed, even if we add in the cost of building new network infrastructure to cope with all the new wind and/or solar capacity implied by replacing gasoline with renewables and EVs, the economics of renewables still crush those of oil.”
It calculates the total expenditure on gasoline in the mobility sector over the next 25 years at $25trn, whereas the comparable expenditure on renewables and grid infrastructure for mobility is only $4.6-5.2trn.
“We conclude that the economics of oil for gasoline and diesel vehicles versus wind- and solar-powered EVs are now in relentless and irreversible decline, with far-reaching implications for both policymakers and the oil majors.”
The calculations include details such as the costs of refining crude oil, transporting oil to the pump, taxes and engine efficiency, and for renewables, the capital and operating costs, load factors, loan interest rates, infrastructure costs, battery round-trip efficiency and EV motor efficiency.
The report concludes that the highest amount of “useful energy” for an EV over a 25-year period from a $100bn capital investment would be from offshore wind projects (1,881TWh), despite the higher capital expenditure and higher loan rates, largely due to their higher load factors, followed by onshore wind (1,673TWh) and then solar (1,667TWh).
For that same investment, petrol cars would end up with 270TWh of useful energy, while diesel cars would see 524TWh.
“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,” the report concludes.