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The energy transition – resetting investors’ expectations for equity value

Global views and trends

BNP Paribas Asset Management
 

Opportunities and risk for investors in the energy transition are driven by increased energy demand,  a changing energy mix and the need for energy-efficient solutions to address climate change.

With 36% of demand for crude oil today coming from light-duty vehicles and other vehicle categories susceptible to electrification, and a further 5% from power generation, the oil industry has never before in its history faced the kind of threat that renewable electricity in tandem with electric vehicles poses to its business model: this is a competing energy source that:

  1. has a short-run marginal cost of zero
  2. is much cleaner environmentally
  3. is much easier to transport
  4. could readily replace up to 40% of global oil demand if it had the necessary scale.

As this infographic illustrates, if we were building out the global energy system from scratch today, the economics alone would dictate that at a minimum, the road-transportation infrastructure would be built up around electric vehicles powered by wind and solar-generated electricity.

In our view [1], the economics of oil for petrol and diesel vehicles versus wind and solar-powered electric vehicles are now in relentless and irreversible decline, with far-reaching implications for policymakers, the oil majors and investors.

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[1]  Click here to read our research paper on the topic: Wells, Wires, and Wheels – EROCI and the Tough Road Ahead for Oil


This article appeared in The Intelligence Report – 18 September 2019

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