May Report: Will the ICE & the Oil Industry Really Collapse by 2030? Rethinking RethinkX

A new report from the think tank RethinkX has projected that “[w]e are on the cusp of the fastest, deepest, most consequential disruption of transportation in history. By 2030, within 10 years of regulatory approval of Autonomous Vehicles (AVs), 95 percent of U.S. passenger miles traveled will be served by on-demand autonomous electric vehicles owned by fleets, not individuals, in a new business model we call ‘transport-as-a-service’ (TaaS).” The projected speed of Taas adoption is shown in the figure below.

RethinkX says the TaaS disruption will have “enormous implications across the transportation and oil industries, decimating entire portions of their value chains, causing oil demand and prices to plummet, and destroying trillions of dollars in investor value — but also creating trillions of dollars in new business opportunities, consumer surplus and GDP growth.”

Key Study Findings

Key findings in the study include the following:

  • Using TaaS, the average American family will save more than $5,600 per year in transportation costs, equivalent to a wage raise of 10%. This will keep an additional $1 trillion per year in Americans’ pockets by 2030, potentially generating the largest infusion of consumer spending in history.
  • In this intensely competitive environment, businesses will offer services at a price trending toward cost.  As a result, their fleets will quickly transition from human-driven, internal combustion engine vehicles (ICE) to autonomous electric vehicles (A-EV) because of key cost factors, including 10 times higher vehicle-utilization rates, 500,000-mile vehicle lifetimes (potentially improving to 1 million miles by 2030), and far lower maintenance, energy, finance and insurance costs. ICE and A-EV fleet composition in the U.S. is shown in the graphic below.

  • TaaS will offer a vastly lower-cost transport alternatives — four to ten times cheaper per mile than buying a new car and two to four times cheaper than operating an existing vehicle in 2021. Cost saving will also be the key factor in driving consumers to adopt TaaS.
  • Adoption will start in cities and radiate outward to rural areas. Non-adopters will be largely restricted to the most rural areas, where cost and wait times are likely to be higher.
  • High vehicle utilization (each car will be used at least 10 times more than individually owned cars) will mean that far fewer cars will be needed in the U.S. vehicle fleet, and therefore there will be no supply constraint to the speed and extent of TaaS adoption that is forecast.
  • Savings on transportation costs will result in a permanent boost in annual disposable income for U.S. households, totaling $1 trillion by 2030. Consumer spending is by far the largest driver of the economy, comprising about 71% of total GDP and driving business and job growth throughout the economy. Productivity gains as a result of reclaimed driving hours will boost GDP by over $1 trillion.
  • As fewer cars travel more miles, the number of passenger vehicles on American roads will drop from 247 million to 44 million, opening up vast tracts of land for other, more productive uses. Nearly 100 million existing vehicles will be abandoned as they become economically unviable.
  • Demand for new vehicles will plummet: 70% fewer passenger cars and trucks will be manufactured each year. RethinkX says this could result in total disruption of the car value chain, with car dealers, maintenance and insurance companies suffering almost complete destruction. Car manufacturers will have options to adapt, either as low-margin, high-volume assemblers of A-EVs, or by becoming TaaS providers. Both strategies will be characterized by high levels of competition, with new entrants from other industries. The value in the sector will be mainly in the vehicle operating systems, computing platforms and the TaaS platforms. The figure below shows the revenue distribution along the car value chain.

  • The transportation value chain will deliver 6 trillion passenger miles in 2030 (an increase of 50% over 2021) at a quarter of the cost ($393 billion versus $1,481 billion).
  • The TaaS disruption will bring dramatic reductions or elimination of air pollution and GHGs from the transport sector, and improved public health.  The TaaS transport system will reduce energy demand by 80% and tailpipe emissions by over 90%, RethinkX says, and they say that assuming a concurrent disruption of the electricity infrastructure by solar and wind, we may see a largely carbon-free road transportation system by 2030.

The Impact to the Oil Industry

According to the report, oil demand will peak at 100 million barrels per day by 2020, dropping to 70 million barrels per day by 2030, shown in the figure below. That represents a drop of 30 million barrels in real terms and 40 million barrels below the Energy Information Administration’s current “business as usual” case and a 30% decrease in just 10 years.  It’s this part of the report that gives me pause, and I discuss why below. RethinkX says this dynamic will have a catastrophic effect on the oil industry through price collapse (an equilibrium cost of $25.4 per barrel), disproportionately impacting different companies, countries, oil fields and infrastructure depending on their exposure to high-cost oil.

The impact of the collapse of oil prices throughout the oil industry value chain will be felt as soon as 2021, according  to the report. In the U.S., an estimated 65% of shale oil and tight oil — which under a “business as usual” scenario could make up over 70% of the U.S. supply in 2030 — would no longer be commercially viable. Approximately 70% of the potential 2030 production of Bakken shale oil would be stranded under a 70 million barrels per day demand assumption. Infrastructure such as the Keystone XL and North Dakota Access pipelines would be stranded as well. Other areas facing volume collapse include offshore sites in the United Kingdom, Norway and Nigeria; Venezuelan heavy-crude fields; and the Canadian tar sands.

Why This May Not Be Realistic

What’s the problem with this analysis?  It ignores some key factors. First, from a geographic standpoint the growth in transportation energy demand n the coming years will not come from the U.S. (or the West, for that matter), it will come from Asia, Africa and to a much lesser extent Latin America. And there are parts of these regions that will simply be difficult to electrify, at least within the RethinkX study timeframe.  Infrastructure costs are one issue that come to mind. If EV infrastructure is a technical and financial challenge in the West, imagine what it will be for these regions.

With respect to geography, BP has forecasted a 30% growth in oil consumption with a mix of fuels that becomes progressively lower in carbon while GDP doubles by 2035, shown in the figure below.  BP says the demand growth will come from emerging economies in Asia, lead by China and India, and followed by Africa. The gradual decarbonization of the fuel mix is set to continue, BP notes, with renewables, nuclear and hydroelectric power accounting for 50% of the growth in energy supplies. Even so, oil, gas and coal remain the dominant sources of energy, accounting for more than 75% of energy supplies in 2035 (down from 85% in 2015). This is quite a different prediction that RethinkX’s but perhaps more realistic.  Renewable energy is the fastest growing source of energy (7.1% p.a.), with its share in primary energy increasing to 10% by 2035, up from 3% in 2015.

Exxon is in agreement and has said that all of this demand growth will come from non-OECD nations, particularly the expanding economies in the Asia Pacific region, shown in the figure below.

Second, the first “dent” in oil demand from the passenger car fleet will come from ever tightening fuel economy standards, not EVs, though you can argue that that tightening will open the door to EVs as the cost of compliance for ICE becomes higher than for EVs.  According to ExxonMobil, personal mobility demands continue to increase, but more efficient vehicles lead to a peak and eventual decline in light-duty vehicle (LDV) energy demand, similar to projections from IEA. Light-duty vehicle energy demand decreases throughout much of the OECD, including North America and Europe, as efficiency gains outweigh the increases in the number of vehicles and miles traveled.

As shown in the figure below, ExxonMobil expects oil to meet about 95% of transportation energy needs due to widespread availability, economic advantages and high energy density. As I’ve noted before, it’s clear the company does not see a tipping point toward EVs such that oil demand and the market irretrievably crashes the way some advocates and consultancies (e.g. BNEF) have projected. The figure does show that ExxonMobil sees growth in the EV market, but that growth will not supplant the internal combustion engine vehicle (ICEV).

The fuel economy of the light-duty fleet will continue to improve through 2040, with substantial gains beyond current policy targets, according to ExxonMobil. Average fuel economy of new cars worldwide will rise from about 30 mpg in 2015 to close to 50 mpg in 2040, as the following figure shows.

Improving new-car fuel economy will enable energy demand to peak in the 2020s, even as total miles traveled increases significantly to 2040. Out to 2040, energy demand decreases in the OECD more than it increases in the non-OECD, driving down global LDV energy demand. Although energy demand peaks, personal mobility continues to increase globally as total miles traveled by all cars, SUVs and pickups rises to almost 14 trillion in 2040. About two-thirds of energy savings reflect more efficient ICEVs, with the balance resulting from adoption of hybrid or electric vehicles.

Third, and most importantly, this analysis completely ignores a fundamental fact: oil demand is going to come from the heavy-duty, marine, aviation and petrochemical sectors in the years to come. Right now, and according to BP, the transport sector consumes 60% of the world’s liquid fuel and accounts for two-thirds of growth in overall demand through 2035. But 60% of that demand increase is going to come from heavy-duty trucks, ships, trains and aviation (6 Mb/d). This analysis is aligned with one of the more authoritative analyses of future oil demand from the IEA.

As I noted in a recent post, IEA expects energy demand to increase 30% through 2040. However, the pledges countries have made under the Paris Agreement fall short of meeting its ambitious goals (in some cases for 2°C but most definitely for 1.5°C) and “the era of fossil fuels is far from over.”  The challenge, IEA points out, is growing oil demand for because of the lack of easy alternatives to oil in road freight, aviation and petrochemicals (figure below).

On the other hand, look at the decrease in oil demand for power generation, buildings and passenger cars. IEA attributes this to the increase in renewables for electricity (primarily solar and wind), efficiency gains in buildings as well as in passenger cars along with the blending of biofuels and the proliferation of electric vehicles in the global fleet. The largest efficiency gains will be experienced in the U.S. and China, the latter of which will also experience the largest gain in oil imports and gain in electric and natural gas vehicles.

Recall another recent post which discussed findings from an International Transport Forum (ITF) and OECD study, which, among other findings, noted that if no additional measures are taken, CO2 emissions from global freight alone could increase by 160%, as international freight volumes grow threefold in their baseline scenario. CO2 emissions by freight mode in 2015, 2030 and 2050 are shown in the figure below.

In terms of sector, and in line with the foregoing IEA analysis, power generation and industry (e.g. petrochemicals) will experience the largest demand growth through 2035, shown in the figure below.


Despite a claim otherwise, RethinkX is not the first to claim that A-EVs could cause a major, irreversible  disruption in oil demand. Fitch Ratings and Bloomberg New Energy Finance (BNEF) have made similar predictions. In fact, BNEF predicted the “oil demand tipping point” would be as early as 2023. Then, BNEF pointed out that a global glut of 2 million barrels a day is what triggered the 2014 oil price collapse. Their analysis concluded that if EVs continued their recent growth rate, EVs could displace that much oil demand as early as 2023.

It remains to be seen whether there will be an oil crash as a result EVs, but a more likely scenario is that the industry will simply adapt, retooling refineries where needed to produce other oil products that are more in demand than, say, gasoline. And, this is already happening. Meantime, there is no doubt that countries particularly in Europe, China and U.S. states will continue to set policies to help develop the autonomous and EV markets. Other countries will eventually follow. However, the regions with the largest transport fuel demand growth will do so slowly, just like they have done with other transport initiatives such phasing out lead, reducing sulfur to ultralow levels (which is still ongoing), introducing biofuels blending, and implementing tougher emission and fuel economy standards. Looking at that history and experience may be a guide to what we can expect with EV (and A-EV) adoption.