Recently the IMF published the report “Riding the Energy Transition: Oil Beyond 2040”, which analyzes the role of the electric car in the coming years and the impact it would have on the price of oil.

The surprising thing about this report is that it concludes that in the fast-adopting scenario, oil prices could converge to the level of coal prices, around $15 per barrel in the early 2040s. In the following lines we will examine the arguments for reaching these conclusions.

Why would oil be at $15?

Beyond the expected decline in global demand for oil, the transport revolution would also lead to a profound change in the configuration of the oil market.

Losing its role as the only source of fuel for road transport, oil would no longer be considered the “black gold” because, although oil could still be used, it would have to compete as a close substitute in an energy market already saturated with the mix of natural gas, coal, nuclear and renewable energy.

Losing its exclusivity for motor vehicles, oil could become the new coal, with large recoverable reserves and elastic demand.

In a scenario in which oil loses its role as the main fuel for transport, according to the report, the price of oil should fall substantially and converge to a level of around 15 dollars per barrel, while currently the price of crude is around 50 dollars.

Historical comparison between the implementation of the electric car and that of the motor vehicle

Interestingly, electric cars, in 1900, made up a third of the total stock of cars.

Silent, easy to handle and suitable for urban traffic, the demand for electricity even attracted the attention of Thomas Edison and Ferdinand Porsche, the latter who developed the first hybrid vehicle in 1901. Electric vehicles played a major role until 1910.

It was the rapid rise of a new industry leader who took electric cars out of the market with the affordable Ford T. The T model sold to consumers 40% of the price below the electric car by 1912, combined with a growing road network and the relative ease of expanding gas stations in rural areas compared to the electric grid.

New discoveries of oil wells led to a fall in the price of oil and the electric car could not compete. Essentially, the electric car had disappeared in 1935.

However, the electric car seems ready to return as the electric car improves its efficiency levels, especially in its batteries. There are different perspectives on the future scenario for the electric car:

  • OPEC predicted that only 6% of alternative fuel cars worldwide by 2040. Its OMO 2016 report significantly revised that figure to 22%.
  • Bloomberg New Energy Finance (BNEF) estimates that 7.4 million electric vehicles on the roads by 2020, ultimately representing 25% of all cars by 2040.
  • BNP Paribas estimates 25% displacement by 2030.

Energy transitions since the Industrial Revolution

Sheikh Zaqui Yamani, a former minister of Saudi Arabia, commented that “the stone age came to an end not for lack of stones and the oil age will end, but not for lack of oil.

In the years of the industrial revolution we have witnessed energy transitions. First, wood sank as the main component of the U.S. fuel base between 1850 and 1895. The proportion of firewood in the fuel base rose from 90 per cent to 30 per cent, while charcoal soared from 9 per cent to 65 per cent.

In turn, oil and gas replaced coal between approximately 1910 and 1955. Within four and a half decades, the share of coal fell from 77 per cent to 28 per cent, while the combined share of oil and gas increased from 9 per cent to 65 per cent.

And now, in the IMF report, it says that “After reviewing recent developments in transport and renewable energy, we conclude that oil as the main fuel for transport and an important source of energy in general could have a much shorter useful life than many suppose.

The last era of oil, in which oil would become the new coal. Few would deny that the energy transition is underway. Fracking’s technological progress has led to cost reductions of 50% or more in production.

Oil use per unit of world GDP has also declined by 40%, essentially linearly, since 1980. The International Energy Agency projects a decrease in the share of world energy from oil and coal, which will reach 26% and 25%, respectively, by 2040.

What are the current projections? The next energy transition could occur in the next 10 to 25 years, when electric cars replace motor vehicles as motor vehicles displaced horse-drawn carriages a century ago.

Electric cars are gaining more and more weight in the industry

for its clear advantages over the Diesel car, especially in terms of respect for the environment. Despite this, doubts persist among users, wondering if an electric car can be so powerful, or if there are enough charging stations to be able to drive without worrying about running out of energy.

If you are thinking of buying a car or changing the model you have for a more current one, you can count on the support of our car insurance and reconsider an electric model after checking the positive impact it can have.

Positive aspects of an electric car

  • It pollutes much less than diesel: the electric model runs on batteries, an engine and an electric regulator or electronic power block, which filters the energy that enters and exits the engine. This feature initially compromised battery life, but in recent years manufacturers have managed to minimize this problem. Running on an electric motor, it does not burn fuel and does not generate CO2 emissions.
  • It is silent: its contribution to noise pollution is much lower than traditional cars, limiting itself only to the sound that the tyres can make when touching the pavement. Users of electric cars say that it is hardly necessary to raise your voice inside, as the engine does not generate any kind of sound when it is running.
  • Maintenance is more economical: the best thing to do is to make an annual general overhaul to make any necessary adjustments, but beyond that does not require any other type of service. Being electric, the engine does not need coolants or complex repair gears; you also save the worry of the oil and the change that must be made from time to time so that it does not overheat.
  • Less consumption, more savings: it is proven that electric cars are 90% efficient compared to 30% of traditional cars. These figures mean that an electric model will consume less or ‘better’, as it will need less energy to make the same effort.
  • They are more powerful than you think: one of the main doubts about these models is precisely their power, but we can safely say that they can be just as powerful as any Diesel model. Tesla’s Model S is fast enough to beat a high-powered motorcycle like the Kawasaki Ninja Zx9r.