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The worry is that oil companies are making investments now for 10, 20 or 30 years into the future and not taking into account the realities of making a return.

The worry is that oil companies are making investments now for 10, 20 or 30 years into the future and not taking into account the realities of making a return. There are all sorts of long term capital costs for setting up oil fields, refineries, pipelines and so on, and then marginal costs for each barrel thereafter. Under a scenario of total road transport electrification, demand would be drastically reduced, meaning the capital costs would have to be substantially written off. Investors would lose their shirts, which would cause a lot of financial problems, not least that pension funds still seem to be thinking these are safe stocks, that the oil industry is in the same position as it was 50 years ago. It would also be catastrophic for the environment, because you’d have a glut of supply which producers would then be trying to sell below the actual cost of production, but anywhere above the marginal cost. It’s vital these investments are properly priced, and that any investor who can’t take the hit doesn’t get involved.

runeks 7y ago
> Under a scenario of total road transport electrification [...] I think 30-year oil investments are relatively safe if this is their threat. I can’t see this happening in less than 30 years.
- ptah 7y ago
  only if current levels of subsidies last
- dsfyu404ed 7y ago
  Yeah. For starters you need some serious grid improvements just about everywhere. That's not a 10yr or 20yr effort because the replacement cycle on most of that equipment is far more than ten or twenty years.
  - Brakenshire 7y ago
    The grid is built to handle peak demand, and electric vehicles will mostly be charged off-peak and in particular overnight when there is substantial surplus capacity on the grid, so the need to increase grid capacity will not be as significant as you might think.
    - tialaramex 7y ago
      People tend to assume that 100MWh less energy from oil means 100MWh more electricity for the same transport need, but ICE is horribly inefficient so that's not how it works. Most of the energy in that oil is just wasted, an efficient conversion would be too heavy and expensive for a motor vehicle, and oil is so energy rich you get plenty of performance without bothering.
    - toomuchtodo 7y ago
      An old NREL report from about 5-10 years ago is floating around somewhere that shows that ~77% of light vehicles (ie cars) in the US can be transitioned to electric without any additional grid generation capacity.
- Brakenshire 7y ago
  I’d say personally total electrification won’t happen for a long time, if ever, but there will be major markets, notably China and the EU, which are substantially electrified over a 30 year timescale. You also have to bear in mind that electrification is most attractive for vehicles which travel the most distance, and consume the most fuel. Even 20% electrification of the fleet will have a massively outsized impact on oil consumption if it represents all taxis, buses, long distance commuters, road freight, etc. See Bloomberg’s previous research about displacement of fuel from buses: https://www.bloomberg.com/news/articles/2019-03-19/forget-tesla-it-s-china-s-e-buses-that-are-denting-oil-demand https://www.bloomberg.com/news/articles/2019-03-19/forget-te...
  - dsfyu404ed 7y ago
    Taxis and buses will be electrified quickly because it makes a lot of sense As long as OTR trucking's primary regulatory irritants are weight and working hours it will resist electrification (unless electric somehow magically becomes so dirt cheap to run that it makes up for the limitations).
    - donkeyd 7y ago
      > irritants are weight and working hours Working hours could actually be beneficial in Europe. Drivers require regular breaks over here. If batteries and chargers can sync with the required break cycle, then there's no reason not to go electric. However, I do think that charging infrastructure will be the main issue, seeing as often tens of trucks will be at the same stop, they'll need a lot of power to get all of them charged within their breaks. Because existing rest stops don't seem located near power lines, that might be a challenge.
- olau 7y ago
  Are you sure? The total road transport electrification scenario means falling demand for a long time, probably with a relatively steep part somewhere. I would certainly not want to bet on something requiring a thirty-year horizon to be profitable in that kind of market.
ptah 7y ago
investors would not lose their shirt. typically taxpayer picks up bills like these. already taxpayers are subsidising the current competitiveness of oil
navigatesol 7y ago
>The worry is that oil companies are making investments now for 10, 20 or 30 years into the future and not taking into account the realities of making a return. Do you really believe that hundred-year-old companies aren't planning their future? Sure, some companies will fail (they always do), but others adapt. Every oil company is well aware of the effects and politics of climate change, and most have massive renewable investment in the works. What gives you the slightest idea that you see something that "they" don't?
- Brakenshire 7y ago
  You could say that about any incumbent industry player faced with a disruptive challenger, it’s surprising to see this sentiment on Hacker News of all places. My comment was about the investments, not the companies. Some oil companies have significant investments in electricity grids, electric vehicle charging, renewable generation etc, and some do not. Even if they do, it’s not obvious they are best placed to be competitive in those industries or sustain the same profits, although hopefully they can do well. BP made a big investment in solar which it gave up on, now they are investing in charging infrastructure, hopefully that will turn out better.
sseveran 7y ago
Maybe this will come to pass but the market currently does not believe so, at least in the 10 year time frame. A 2030 Oil Futures Contract is priced right around $54 this morning. If we end up in a world where oil is no longer needed, yes some people will lose a bunch of money. But capital is also going to be freed up to invest in new things. I don't think that anyone thinks the oil industry is the same as 50 years ago. I also don't think there is anyone (on the professional side at least) who does not know that oil companies, specifically the majors, trade with the price of oil. If these are actually unsafe stocks then there is a huge amount of money to be made by betting against them in a variety of ways. I actually don't think it will be as catastrophic as you think since in an such an environment a lot of oil companies in the US would go out of business, or be substantially reorganized. The prices of certain things would increase and maybe alternatives would arise. If in 30 years we are going to need substantially less oil than we do today, in 10 years we should be starting to see that reflected in the price. So if you really believe that you should be selling long dated futures contracts, or shorting major oil company stocks, or shorting companies specializing in oil transportation, or probably a variety of other things.
- deleted 7y ago
  [deleted]

runeks 7y ago

> Under a scenario of total road transport electrification [...] I think 30-year oil investments are relatively safe if this is their threat. I can’t see this happening in less than 30 years.

ptah 7y ago
only if current levels of subsidies last
dsfyu404ed 7y ago
Yeah. For starters you need some serious grid improvements just about everywhere. That's not a 10yr or 20yr effort because the replacement cycle on most of that equipment is far more than ten or twenty years.
- Brakenshire 7y ago
  The grid is built to handle peak demand, and electric vehicles will mostly be charged off-peak and in particular overnight when there is substantial surplus capacity on the grid, so the need to increase grid capacity will not be as significant as you might think.
  - tialaramex 7y ago
    People tend to assume that 100MWh less energy from oil means 100MWh more electricity for the same transport need, but ICE is horribly inefficient so that's not how it works. Most of the energy in that oil is just wasted, an efficient conversion would be too heavy and expensive for a motor vehicle, and oil is so energy rich you get plenty of performance without bothering.
  - toomuchtodo 7y ago
    An old NREL report from about 5-10 years ago is floating around somewhere that shows that ~77% of light vehicles (ie cars) in the US can be transitioned to electric without any additional grid generation capacity.
Brakenshire 7y ago
I’d say personally total electrification won’t happen for a long time, if ever, but there will be major markets, notably China and the EU, which are substantially electrified over a 30 year timescale. You also have to bear in mind that electrification is most attractive for vehicles which travel the most distance, and consume the most fuel. Even 20% electrification of the fleet will have a massively outsized impact on oil consumption if it represents all taxis, buses, long distance commuters, road freight, etc. See Bloomberg’s previous research about displacement of fuel from buses: https://www.bloomberg.com/news/articles/2019-03-19/forget-tesla-it-s-china-s-e-buses-that-are-denting-oil-demand https://www.bloomberg.com/news/articles/2019-03-19/forget-te...
- dsfyu404ed 7y ago
  Taxis and buses will be electrified quickly because it makes a lot of sense As long as OTR trucking's primary regulatory irritants are weight and working hours it will resist electrification (unless electric somehow magically becomes so dirt cheap to run that it makes up for the limitations).
  - donkeyd 7y ago
    > irritants are weight and working hours Working hours could actually be beneficial in Europe. Drivers require regular breaks over here. If batteries and chargers can sync with the required break cycle, then there's no reason not to go electric. However, I do think that charging infrastructure will be the main issue, seeing as often tens of trucks will be at the same stop, they'll need a lot of power to get all of them charged within their breaks. Because existing rest stops don't seem located near power lines, that might be a challenge.
olau 7y ago
Are you sure? The total road transport electrification scenario means falling demand for a long time, probably with a relatively steep part somewhere. I would certainly not want to bet on something requiring a thirty-year horizon to be profitable in that kind of market.

ptah 7y ago

investors would not lose their shirt. typically taxpayer picks up bills like these. already taxpayers are subsidising the current competitiveness of oil

navigatesol 7y ago

>The worry is that oil companies are making investments now for 10, 20 or 30 years into the future and not taking into account the realities of making a return. Do you really believe that hundred-year-old companies aren't planning their future? Sure, some companies will fail (they always do), but others adapt. Every oil company is well aware of the effects and politics of climate change, and most have massive renewable investment in the works. What gives you the slightest idea that you see something that "they" don't?

Brakenshire 7y ago
You could say that about any incumbent industry player faced with a disruptive challenger, it’s surprising to see this sentiment on Hacker News of all places. My comment was about the investments, not the companies. Some oil companies have significant investments in electricity grids, electric vehicle charging, renewable generation etc, and some do not. Even if they do, it’s not obvious they are best placed to be competitive in those industries or sustain the same profits, although hopefully they can do well. BP made a big investment in solar which it gave up on, now they are investing in charging infrastructure, hopefully that will turn out better.

sseveran 7y ago

Maybe this will come to pass but the market currently does not believe so, at least in the 10 year time frame. A 2030 Oil Futures Contract is priced right around $54 this morning. If we end up in a world where oil is no longer needed, yes some people will lose a bunch of money. But capital is also going to be freed up to invest in new things. I don't think that anyone thinks the oil industry is the same as 50 years ago. I also don't think there is anyone (on the professional side at least) who does not know that oil companies, specifically the majors, trade with the price of oil. If these are actually unsafe stocks then there is a huge amount of money to be made by betting against them in a variety of ways. I actually don't think it will be as catastrophic as you think since in an such an environment a lot of oil companies in the US would go out of business, or be substantially reorganized. The prices of certain things would increase and maybe alternatives would arise. If in 30 years we are going to need substantially less oil than we do today, in 10 years we should be starting to see that reflected in the price. So if you really believe that you should be selling long dated futures contracts, or shorting major oil company stocks, or shorting companies specializing in oil transportation, or probably a variety of other things.

deleted 7y ago
[deleted]