I live a short drive away from the birthplace of the shale oil revolution. It was 2006 that we started to get an inkling that something big might be happening.
I’m referring to the Bakken boom…
My business has always been finance, so I wasn’t directly involved. However, the people around me very much were.
I watched twenty-five year olds blow through hefty six-figure salaries as fast as the money came in. Then I watched them scramble to keep their houses when oil prices crashed in 2014.
For years now I’ve been surrounded by oil industry families wherever I go.
My gym, the grocery store, at my kid’s school. Everywhere I go, interacting regularly with oil patch workers is part of my daily life.
Nice people for the most part, if a little rough around the edges. It has been hard to watch them go through the bust that followed the really good times that were driven by $100 oil.
What I’ve learned through my interactions is that these oil industry folks share some very passionate opinions. Not surprisingly those opinions are directly aligned with what is in the best interests of their industry.
If you are wondering what I mean, let’s just say that the strong majority of them drive giant gas guzzling trucks or SUVs, don’t own a copy of Al Gore’s Inconvenient Truth, and probably don’t live in a neighborhood with solar panel rooftops.
And it’s my familiarity with the loyalty these people have to their industry that made the remarks from the mouth of Royal Dutch Shell’s CEO even more surprising.
In fact, I’d say that his words were like a splash of cold water in my face that provided me with a much needed wake-up call as an investor…
His exact words were… “The next car I buy will be electric.”1
Our Wake Up Moment – The Inflection Point For Electric Cars Is At Hand
I’m pretty sure that when I look back on today ten years from now, those words from Shell’s CEO Ben Van Beurden will be a critical point in time that I remember.
That will be the moment when I realized that the electric car revolution is truly underway.
The talking points about electric cars for an oil man are supposed to be about all the reasons they aren’t even close to being ready for mainstream acceptance:
- The lack of range
- The prohibitive up front cost
- The lack of charging station infrastructure
- Inability of an owner to self-service
- The fact that they still require lots of energy to charge them, likely including coal
Shell’s CEO said none of those things. What he said told me that the age of the electric car is underway.
That means that the growth curve for electric car use is about to go parabolic. Seriously, I mean parabolic.
I want you to fully appreciate how crazy the numbers here really are.
The chart below from International Energy Agency data shows the impressive growth that the electric car has had since 2010. We have gone from virtually zero electric cars on the road to just over 2 million in 2016.
Those two million electric cars in operation today are a rounding error on a rounding error of where the number will eventually go.
For some perspective, consider that the IEA estimates that the world will need to have 600 million electric vehicles in use within 20 years if we want to try and meet the global warming targets set forth by the Paris Agreement on Climate Change.
With currently 2 million electric cars on the road, that puts us at less than one-half of one percent of that 600 million target total.2
The 2 million cars on the road are a drop in the bucket — a grain of sand on the beach. In twenty years, all of the bars on that chart above are going to be so small relative to the number of electric cars in operation that you will need a microscope to see them…
But We’ll Still Need A LOT of Oil and Gas
I can’t wait to see what kind of opportunities I can find in the coming months to get in front of the massive wave of electric cars that will be hitting the road.
That isn’t to say though that prospects are all doom and gloom for the oil and gas business.
We are still going to need a lot of oil, and finding enough of it will be a challenge.
To prove this point, I’d like to show you some numbers.
Today, virtually every one of the 1.2 billion vehicles on the road are powered by a combustion engine.3
And that’s not a static number — it is growing.
Car ownership rates in heavily populated countries like China, India and Brazil are extremely low. On a per capita basis, the number of cars per 100 people in these countries is a fraction of where we are at in North America.
If we look forward to 2035, it is generally expected that there will be 2 billion vehicles on the road. Even if we assume that we hit the IEA target of 600 million electric vehicles by then it will mean that there are still 1.4 billion combustion engine in operation.
That is a larger number than where we are at today.
Which means that oil demand isn’t just going to fall off a cliff. In fact, it will likely be increasing even while electric car usage skyrockets.
So while Shell’s CEO is scooting around town in his new electric car, he can rest assured that his bank account will still be filling up with bonuses he’ll continue earning by producing oil.
Here’s to looking through the windshield,
1 Shell CEO Says His Next Car Will Be Electric, Bloomberg, Jess Shankleman
2 Electric Car Sales Are Surging, IEA Reports, Bloomberg, Jess Shankleman
3 1.2 Billion Vehicles On World’s Roads Now, 2 Billion By 2035: Report, John Voelcker, Green Car Reports