Competitive warfare The impact of electric cars on the oil & refinery industry and their countermeasures

The potential of electric vehicles (EV)

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The potential of electric vehicles (EV)

The major share of vehicles travelling our planet is fuelled by either gasoline or diesel fuel. The tendency: Rising. Whereas growth in demand for fuel in OECD countries is rather modest, non-OECD countries will soon demand a far larger portion of global energy than a couple of years ago. Emerging markets like Brazil, Russia, India and China, also referred to as the BRIC-countries, have booming economies and consumers craving for mobility.

Simultaneously, in Europe and also in North-America carmakers are facing regulations that force them to reduce gasoline consumption and increase mileage-per-gallon of new vehicles. Regarding fuel prices and the environmental situation we find our selves in right now, fuel efficiency is probably not too bad a thing. However, fuel efficiency is not the only eye on the dice.

For many years, electric and hybrid vehicles raised smiles, and development costs. That was about it - until the issue of environmentally friendly transportation became important to governments and consequently to car makers (which had to adjust to new environmental regulations). An invention of the early ages of motorization, the electric car, now finds itself in focus of a wide discussion about sustainable transportation.

According to the Boston Consulting Group (2009), the causal correlation between CO2 emissions and global warming is now widely accepted by a solid majority of the scientific community. The significant damage caused by global warming and the intense public awareness of this topic make the challenge of reducing CO2 emissions the major force currently driving development of alternative concepts for automotive propulsion.

Several steps of development have had to be taken before a fully-suitable EV could be introduced to the market. The first step was the “mild hybrid”, in which case a small electric engine supports an internal combustion engine (ICE) and its batteries are recharged by regenerating braking energy. Whereas costs are relatively high the CO2 savings are modest. Next on the range was the “full hybrid”, which offers a larger battery and electric engine compared to its “mild” comrade, thus increasing CO2 savings, yet at an even higher price. Expectations are that costs will decline sharply, once sales volumes go up. An upgrade of the “full hybrid” is the “plug-in hybrid”, a vehicle which is equipped with an even larger battery and that can be charged from the grid. The “range extender” is a feature that offers increased range by integrating an efficient ICE that recharges the battery inside the vehicle. Finally the last step is the electric vehicle. It is charged from the grid and operates on battery only (BCG, 2009). At time, this is the problem exactly. Today’s batteries offer an insufficient range and charging infrastructure on-the-road is deficient. What’s more is that batteries, especially Lithium ion batteries, are very expensive. The electronic vehicle (EV) therefore needs stronger support in development and in terms of providing infrastructure in order to make shifting consumer habits feasible. The potential of EVs is also supported by the following graph published by A.T. Kearney. It shows an estimate of total costs of ownership (TCO) for different vehicle types by A.T. Kearney (2009), however, put electronic vehicles in a competitive range compared to gasoline fuelled vehicles.

Electric vehicles are also seen as a means to reduce dependency on oil imports for political grounds. According to EPRI (2002), plug-in hybrid electronic vehicles (PHEVs) promise to reduce dependence on foreign oil, reduce emissions, and help utilize generation capacity of the country that is idle during off-peak hours. PHEVs offer the potential to reduce both gasoline consumption and associated emissions. PHEVs that could travel up to 60 miles on a battery charge on electric energy stored in their batteries without recharge (PHEV60s) could reduce CO2 emissions by 50% and petroleum consumption by more than 75% (EPRI 2002; Hadley, Tsvetkova, 2008). Kintner-Meyer, Schneider, and Pratt (2007) argue that the U.S. electric power infrastructure is a strategic national asset that is underutilized most of the time. With the proper changes in the operational paradigm, it could generate and deliver the necessary energy to fuel the majority of the U.S. light duty vehicle fleet.

Figure 3: Total Costs of Ownership for different vehicle types

Source: A.T. Kearney, Fuel-thrifty, Clean, Electric, 2009

Even though TCO for electric vehicles (EVs) are the highest, apart from fuel cells, they still are within a very similar cost range compared to others. In addition this graph shows clearly that the main cost burden for EVs is depreciation, which might result from the rather short 4-year period used in this calculation. Regarding the fuel costs EVs are clearly in the top position, a fact which must not be overlooked.

Summing it up, one can see that the potential for EVs is sufficiently large, considering the discussed opportunities in the US for example. Furthermore EVs also have the chance of challenging common vehicles on the cost side, provided they are given sufficient support in the beginning to achieve a certain sales volume that will let prices drop. Therefore, EVs may be seen as a powerful competitor for common, gasoline and diesel fuelled vehicles and thus the oil and gas industry.

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