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Low Oil Prices To Deal Major Blow To Electric Car Industry

Of all the sectors within the renewable energy industry, it appears as if electric cars will be hit the hardest by the lower oil prices though wind and solar power companies are also likely to feel the pinch. Since the end of June 2014, Brent crude oil prices have fallen by 45% which should slow the shift from fossil fuels in nations such as Saudi Arabia which produce oil while also ensuring the cost of natural gas increases significantly in the United States.

According to Bloomberg New Energy Finance (BNEF) research, the effect of the price drop will vary depending on the region as it will actually help the renewable energy sector in some places while damaging low-energy carbon prospects in other regions. Electric cars will be the biggest losers since they are less competitive when faced with traditional vehicles that have reduced fuel expenditure.

Although the fall in oil prices won’t completely halt growth, it will have a negative impact as there will be a greater number of marginal buyers analysing relative economics and lower oil prices changes the equation. If gas cost $3.34 a gallon in the U.S., the electric car industry would grow by 9% from now until 2020. If gas cost $2.09 a gallon however, this growth falls to 6%. At present, the electric car market share is below 1%.

New Debate

BNEF said that pushing towards clean energy is one of the reasons for the fall in oil prices. In the United States, finished petroleum product demand is down more than 10% since 2007 even while economic growth has increased by almost 9%. The reduction in oil demand is down to a number of factors including better fuel economy in vehicles, an increase in electric car sales and a reduction in pollution.

According to the chairman of BNEF’s advisory board, Michael Liebreich, the real story should not be about how a drop in oil prices will impact the change to clean energy; it should be about how the change to clean energy is impacting oil prices. BNEF’s research also shows that cheap oil would cause the shift away from petrol and oil in poor nations to slow down. Cheaper oil would also bring into question Saudi Arabia’s plan to spend around £70 billion on solar power by 2032. This is part of the nation’s plan to reduce the 900,000 barrels of oil it uses a day to generate 50% of its electricity.

However, the drop in oil prices will not have such a big impact in other locations. For example, it may cause natural gas prices to actually rise in the United States because some of the oil wells that will suffer because of lower prices also produce gas. According to BNEF, if oil was $60 a barrel, gas prices would be $0.90 per million British thermal units higher than if oil was $100 a barrel.
Natural gas prices are normally linked to oil in Europe. As a result, reduced gas prices along with a rise of over 40% in carbon emission certificates ensures that burning coal to generate power is not a profitable venture.



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