The oil and gas sector has been put on notice by global bank BNP Paribas, which has warned them in a new report that the “irresistible” economics of combining renewables with EVs is “the death toll for petrol”.
BNP Paribas’ new report, dubbed ‘Wells, wires and wheels’, introduces the concept of energy return on capital invested (EROCI) and examines the link between mobility, energy and capital outlays.
It focuses on how much energy would be returned from a specific capital investment, comparing oil’s contribution to petrol and diesel-fuelled vehicles with renewables - chiefly wind and solar - and battery EVs.
The bank’s analysis concludes that for the same capital outlay, wind, solar and battery EVs can deliver between 6.2 and 7-times more useful energy than oil if it’s priced at US$60 per barrel, roughly the same price as Brent Crude is today.
This, the study finds, comes despite a “massive flow-rate advantage” created by the oil sector’s existing infrastructure, with the economics of renewables becoming “impossible for oil to compete with” when asset life cycles are taken into account.
Even with the associated additional costs of new network infrastructure and reinforcements necessary to accommodate new renewables, BNP Paribas has said that clean energy still stood to “crush” the oil sector when it came to economics.
And in a report that is laden with stark warnings for the oil and gas sector, BNP Paribas has also warned that the industry has “never before in its history faced the kind of threat” posed by renewables and EVs in tandem, stating that its giants are “effectively in a race against time”.
Mark Lewis, global head of sustainability research at BNP Paribas, said: “The economics of oil for gasoline and diesel vehicles versus wind- and solar-powered EVs are now in relentless and irreversible decline, with far-reaching implications for both policymakers and the oil majors.”
“For the first time there is a competing energy source with a short-run marginal cost of zero, that is much cleaner environmentally and will be able to replace up to 40 per cent of global oil demand once it has the necessary scale.”
Its recommendation that oil majors accelerate capital investment in renewables and energy storage technologies is therefore of little surprise.
Most O&G majors have indeed been stepping up their efforts in the clean energy space. Shell and BP have both been active in establishing ever-growing new or alternative energy divisions, bolting on acquisitions in both the solar PV and electric vehicles industries, while Total has a long-standing interest in solar through its ownership of module manufacturer SunPower.