Last week I wrote in this column about the improving outlook for the xEV market, notwithstanding disappoint sales numbers over the past few years. I pointed primarily to the continued willingness of governments around the world to provide subsidies and impose mandates that favor xEV’s. I also noted that steady improvements in battery technology have resulted, and will continue to result, in lower costs and greater range for xEV’s, making them more attractive to consumers.
This week I would highlight another factor that is likely to be a major factor in driving the success of the xEV market: the prospect of rising oil prices. Predicting long term oil prices is, of course, a hazardous business at best and has been nothing less than a fool’s game over the past few years. As recently as 2008, top experts publicly speculated about the effects of “peak oil”, with some predicting major price increases that would create major consumer demand for xEV’s. History, of course, proved them wrong.
But earlier this week I came across an excellent blog by Jilles van den Beukel, a former geologist, geochemist and project manager at Shell. Dr. van den Beukel argues that oil prices will be heading higher through 2020. The key factor driving oil prices higher is the declining production rates of mature conventional fields caused by underinvestment in those fields. So far, says Dr. van den Beukel, this decline has been masked by new oil field developments. But the current severe investment cuts in oil exploration and production, caused by the low oil prices of the past several years, will gradually reduce the flow of “new oil” to a mere trickle by the early 2020’s. In the meantime, petroleum demand will still be growing, led by expanding demand in China and, increasingly, in India.
If Dr. van den Beukel is correct, the effect of rising oil prices on consumer interest in xEV platforms is likely to be profound. The impact of oil and gasoline prices on the xEV market, while not definitive, is substantial. Rising oil prices will only reinforce consumer demand for xEV’s already primed by government incentives and improving battery technology.