The Fuse

CERAWeek Panel Sees Oil as Biggest Loser in Electric, Autonomous Future

by Leslie Hayward | March 07, 2017

CERAWeek by IHS Markit is generally regarded as North America’s premier energy conference, where top representatives from OPEC, the oil majors, independent producers, analysts, and other influential figures gather to discuss the state of the industry. This year’s conference takes a strikingly more upbeat tone from 2016, when oil prices hung in the $30s and company bankruptcies mounted. “What a difference a year makes,” said Daniel Yergin, the conference leader.

A panel of transportation experts laid out a very different vision for the future of mobility, expressing confidence that—at least in urban centers—a shift towards efficient, autonomous, electric vehicles is a matter of when, not if.

The industry is also encouraged by the return of stronger-than-anticipated demand growth, with high profile industry representatives ranging from the Executive Director of the IEA to the Saudi Energy Minister to the CEO of one of the biggest U.S. shale independents making the case that concerns about peak demand should be all but completely dismissed—good news for an industry that depends on sustained demand global demand growth for its product.

But in a side panel removed from the conference’s primary keynotes, transportation experts laid out a very different vision for the future of mobility, expressing confidence that—at least in urban centers—a shift towards efficient, autonomous, electric vehicles is a matter of when, not if.

“It won’t come to fruition overnight, but we can bring it back to a realistic evolution of technology,” Jeremy Carlson Principal Analyst & Manager for IHS Markit said, responding to a question of whether electric and autonomous mobility will create a major disruption, or if it’s just hype. “This is an engineering and R&D effort that automakers have been going through for decades. It’s not about whether there will be a disruption, more when that disruption occurs and pace of change and how that unites with the industries around it.”

Panel moderator Tom de Vleesschauwer of IHS commented, “There’s a new mobility horizon that is going to take a little longer than we read in the press, but it seems that electrification and automation in different steps will be part of long term shifts that will fundamentally impact demand.”

Clear links between electric and autonomous

Autonomous vehicles are generally expected to increase travel demand, which means that the negative implications for the oil industry will come from a shift to electric vehicles, driven by expedited adoption through autonomous vehicles. EVs still represent only 1 percent of the U.S. automotive fleet, although recent sales trends have been strong even as gasoline prices have remained low.

“Nothing would require an AV to be electric,” said Carlson. “There’s no requirement for specific powertrain, but electrification allows these vehicles to operate more efficiency. The reason AV and EV technology often converges is due to other factors. AV driving will be in urban areas with high population density, we can map them there, we have communications already widely available, and that lends itself to a business model perspective and fleet deployment. Those companies will care about breakeven points for energy operationally, and EVs tend to be more efficient, especially on high mileage basis. This can link back to geography, policy, technology—those drivers will help these technologies converge.”

Carlson raised the concept of CASE vehicles: Connected, autonomous, shared, and electric. He said to look for engineers to design cars that “look good and work well.” Future vehicles will not necessarily be designed like today’s cars. “Vehicles need to be purpose built. We can imagine small, 1-2 person pods,” he said.

Mateo Jaramillo, former Vice President of Tesla Energy Products, agreed, but made note of the timeline.  “On AVs, energy substitution, and the grid, the general direction is electrification,” he said. “When you think about the threat to oil, it does take a while to replace the fleet. It’s a 20-year time frame to replace at current numbers, and it’s important to keep in mind there will be a big mix of AVs and conventional vehicles still out there.”

“When you think about the threat to oil, it does take a while to replace the fleet. It’s a 20-year time frame to replace at current numbers, and it’s important to keep in mind there will be a big mix of AVs and conventional vehicles still out there.”

Jaramillo also said that since autonomous vehicles are expected to be deployed through centrally managed fleets, the lower total cost of ownership (TCO) of EVs would come into play. “Businesses are better at taking advantage of cost to operate than individuals. Expect municipalities and utilities to take advantage of that lower TCO. It’s not yet clear who will step into it, but there are a lot of conversations about that.” He emphasized that cars will need to be designed for optimal use. “Once you see a cohort of cars in ridesharing, there’s no reason electric mobility won’t happen, but we need purpose-built vehicles,” he said.

Jaramillo also pointed out the energy implications for the grid. “California has 20 million registered vehicles, 1 million EVs or 5 percent of the market is not so crazy in 5-10 years. But if all those drivers had 10kw chargers and they all charge at the same time, that’s a 10 gigawat demand, or 20 percent of the total system,” he said. “It’s important from outset to contemplate what are the rate structures they should be participating under, how do you incentivize them to benefit the system overall, how are we more efficient as a society allocating those resources.”

The panel also spoke about the potential demand increases, since AVs will create mobility access among those who are currently unable to drive, and will support the convenience of driving. Carlson said, “When you lower cost of entry, it opens up a huge new marketplace. There’s a billion people in the world without a license, a huge untapped market that can’t afford to buy their own car. When you have new mobility services, it will opens up new uses and trips.”

Cities as the proving grounds

The panel wasn’t shy on speculating about the potential of this technology in cities and urban centers. “It can happen at local level with stroke of pen,” said Jaramillo, “and you can have entire area mandated to be electric and autonomous, and those will be the first forums in which the technologies are driven.”

“This is a global challenge with local solutions,” said Carlson. When it comes to shared fleets of vehicles, “automotive and energy markets are geographically specific. Given the local challenges with price sensitivity and demand, you’re seeing this being taken out of countries and continents and into neighborhoods and cities.”

“Given the local challenges with price sensitivity and demand, you’re seeing this being taken out of countries and continents and into neighborhoods and cities.”

The panel also saw huge potential for shared autonomous vehicles to reshape the urban landscape. Bill Morelli of IHS noted, “If you start thinking about urban mobility concepts, that changes the entire paradigm for urban transit. If car-as-services starts taking off, do you need all that space for parking and infrastructure, or can you use it for other purposes? It starts to challenge assumptions because cars have been so integral for so long, but we can rethink the urban environment and what it looks like. I think it will extend beyond the city environment.” He added that if garages were no longer necessary and turned into living spaces, the energy industry could be impacted by the increase in demand to heat or cool those converted spaces.

Bill Morelli of IHS commented that the shift to AVs and EVs will require infrastructure development that will expedite the transition to fully integrated smart cities.

Ready or not, the mobility renaissance is coming

The panel was bullish about the state of the EV market, noting that 20 new electric vehicle models will become available between now and 2020. Auto manufacturers are in active conversations with ridesharing and fleet managers to assess new deployment opportunities. Carlson noted, “So many automakers are developing new EVs and just by giving consumers more choice, more people will be interested in alternatives to traditional fuel.”

“So many automakers are developing new EVs and just by giving consumers more choice, more people will be interested in alternatives to traditional fuel.”

When asked to predict tends for the next 10-15 years, Jaramillo said he sees a “heavily electrified” mobility system, which will include “meaningful portions of new vehicles electric, and greater participation of these vehicles in ridesharing,” a shift that will largely be consumer-driven.

Carlson, speaking about the 10-15 year trend, added, “We’re already seeing a lot of new technology, high-functioning autonomous vehicles, and I see automated electric vehicles becoming available to consumers during that window. This deployment will likely occur in smaller areas and maybe in only a few cities to start, but they will begin to really explore, and in doing so accelerate the pace of innovation, which will drive everything from new investment in infrastructure to big changes in energy and consumption and demand.”

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