Wells, Wires, and Wheels – EROCI and the Tough Road Ahead for Oil

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New research, led by Mark Lewis, our Global Head of our Sustainability Research, shows that oil needs a long-term breakeven price of USD 10 – 20/barrel to remain competitive in mobility.

    • The economics of renewables are impossible for oil to compete with when looked at over the cycle
    • Renewable electricity has a short-run marginal cost of zero, is cleaner environmentally, could readily replace up to 40% of global oil demand
    • The oil industry should remember the fate of utilities

In a white paper, published this week, Mark introduces the concept of the Energy Return on Capital Invested (EROCI), focusing on the energy return on a USD 100 bn outlay on oil and renewables where the energy is being used to power cars and other light-duty vehicles (LDVs).

For a given capital outlay on oil and renewables, how much useful energy at the wheel do we get?

Our analysis indicates that for the same capital outlay today, new wind and solar-energy projects in tandem with battery electric vehicles will produce 6x – 7x more useful energy at the wheels than will oil at USD 60/barrel for gasoline powered light-duty vehicles, and 3x – 4x more than will oil at USD 60/barrel for light-duty vehicles running on diesel.

Accordingly, the research calculates that the long-term break-even oil price for gasoline to remain competitive as a source of mobility is USD 9 – 10/barrel, and for diesel USD 17 – 19/barrel.

Oil has a massive flow-rate advantage, but this is time limited

The oil industry is so massive that the amounts available for purchase on the spot market can provide very large and effectively instantaneous flows of energy. By contrast, new wind and solar projects deliver their energy over a 25-year operating life. Nonetheless, we think the economics of renewables are impossible for oil to compete with when looked at over the cycle. MORE