Big Oil Is About to Lose Control of the Auto Industry

A pollution-free revolution is coming

Photographer: JoSon/Getty Images

While the U.S. pats itself on the back for the riches flowing from fracking wells, an upheaval in clean energy is quietly loosening the oil industry's grip on the automotive industry.

Presentations by analysts at Bloomberg New Energy Finance (BNEF) this week pick away at the idea that supply alone is behind the plunge in crude prices to $50 a barrel. The presentation also shows that low-pollution cars are gaining ground, weakening the link between oil and driving.

The result: Future transport is likely to look a lot different than what the major oil companies are fueling now. Instead of biofuels such as ethanol and green diesel making the internal-combustion engine fit into a world with greenhouse gas limits, wholesale new solutions are coming fast. “Where we are is in an age of plenty,” said Michael Liebreich, BNEF's founder. “We have cheap oil, cheap gas, cheap renewables. You do have an abundance of supply in a way you haven't had for decades. We also are in an age of competition.”

Oil Demand Has Flatlined for a Decade

Source: EIA

As the presentations indicate, oil consumption has flatlined for a decade as supplies from all those fracking wells surged. Through the economic boom, the financial crisis, and the recovery now underway, demand peaked in 2004 and has fallen ever since.

Dramatic Improvements in Miles per Gallon Cut Gasoline Demand

Part of what explains dwindling gasoline demand is as dull as it is important: efficiency. “This is a global phenomenon,” Liebreich said. And it's one of the hidden reasons why the London-based research group doesn't expect a quick rebound for crude.

Electric Vehicle Sales Quintupled in Four Years

Source: Bloomberg

Electric vehicles are starting to take off, with global sales of 288,500 units last year, according to BNEF research. While that's just 0.5 percent of all car sales, it's more than five times the number in 2011, and manufacturers are preparing for more. Because ...

Electric Car Battery Costs Are Falling as Fast as Solar Panel Costs

Source: BNEF, Maycock, Battery University, MIT

Costs are plunging in the electric car business as quickly as they did in the solar industry in the last decade. The price of lithium-ion batteries that power most electric cars has fallen 60 percent from 2010 and will keep declining at the same pace, BNEF estimates. That will bring the price of no-pollution cars within striking distance of ones that require gasoline within a decade.

Fuel-Cell Cars Are Moving Out of the Lab and Onto the Street

Source: BNEF

Fuel-cell cars also are moving from the laboratory to the showroom, starting in Japan with models from Toyota Motor Corp. and Honda Motor Co. By 2018, Japan will be the biggest market for fuel-cell vehicles, with 4,200 cars on the road, almost double the figure for the U.S., according to BNEF researcher Claire Curry.

The Biofuel Investment Plunge Is Cutting off Big Oil's Favorite Clean Solution

Source: BNEF

The future is not uniformly bright for clean energy. Investment in biofuels has plunged 90 percent since peaking at $29.8 billion in 2007. Gasoline substitutes made from corn and sugar in the form of ethanol represent about 10 percent of the U.S. fuel supply, but efforts to make an alternative from crops that can't be eaten have stalled. And lower oil costs eat away at the economic rationale for cleaner fuels.

(Corrects the percentage of improvement in fuel efficiency of the U.S. auto fleet in the second slide.)

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