The end of the age of oil is closer than you might think. The Hyperloop and electric cars have the potential to destroy most of black gold’s value within two decades.
Two of the world’s largest economic powers; Germany and India, have plans to make all new cars electric by the year 2030, Investopedia reported. The Indian government is even considering a plan to give such vehicles away without a down payment.
The Germans are a bit more conservative; Angela Merkel’s government and automakers will pay each purchaser of an electric auto a $4,510.4 (€4,000) rebate, Bloomberg reported. If it works as advertised the plan would put six million electric vehicles on the Autobahn by 2030.
At least one smaller nation; Norway, has even more ambitious plans. Fortune reported that four political parties signed an agreement; that would ban the sale of gasoline and diesel power cars in the Scandinavian country, beginning in 2025. Not surprisingly, Elon Musk enthusiastically endorsed the move in a Tweet he wrote:
“What an amazingly awesome country. You guys rock!!”
Even Saudi Arabia has bold plans to reduce its oil consumption and limit is dependence on the liquid. The new King Salman and his son; Prince Mohammad bin Salman, have hired hundreds of consultants to plan new industries such as shipbuilding, Reuters reported. Part of the plan will include adopting new transportation technologies that do not depend on oil.
That sounds like Saudi Arabia is planning to follow Norway’s example and adopt electric cars. Each gallon of gas or diesel fuel not burned in a vehicle, gives oil-producers like Norway and Saudi Arabia; more crude to sell for cash.
The Auto Industry is moving beyond Oil
Some companies are already moving to cash in on this situation. Volkswagen (OTC: VLKAF) has launched its Together Strategy; a plan to manufacture two to three million electric vehicles by 2025. The strategy calls for 30 new electric models and an $11 billion battery factory to compete with Tesla’s gigafactory. Ford (NYSE: F) is planning to invest $4.5 billion in electric vehicles.
The demand for electric vehicles is certainly there if automakers can provide them. The public or at least a portion of it is on the EV-bandwagon, Tesla’s numbers indicate.
Tesla Motors (NASDAQ: TSLA) has already received 350,000 preorders for its Model 3 Sedan, Forbes reported. Elon Musk has plans to boost the company’s capacity to 500,000 vehicles by 2018, a 10-fold increase over 2015 when it built 50,000 cars. Musk has even bragged about producing 200,000 Model 3 sedans by next year.
Tesla is also building out and commercializing its network of superchargers; filling stations for electric cars. On May 31, Musk announced plans to sell electricity from the chargers which would mean he will be selling a cheaper and more versatile form of energy in direction competition to gasoline and diesel.
“So it will still be very cheap; and far cheaper than gasoline, to drive long-distance with the Model 3, but it will not be free long distance for life unless you purchase that package,” Musk told Tesla shareholders.
Even law enforcement is interested in electric vehicles, the Los Angeles Police Department, recently announced plans to buy BMW electrics, The LA Times reported. The LAPD is also trying to develop an electric patrol and pursuit car. One reason why police are interested in electrics is the improvement in performance, news reports indicate that Daimler (ETR: DAI) plans to unveil an electric Mercedes with a 310-mile range in October.
All this shows a very bleak future for oil producers because electricity is cheaper and cleaner than gasoline or diesel. If Musk’s claims are true; big oil’s days might be numbered.
Hyperloop and Big Oil’s Bleak Future
The electric car boom indicates a dark future for big oil that might get bleaker because of Hyperloop. The Hyperloop is the superfast transportation system, Musk proposed in 2013.
Hyperloop would move at speeds of up to 700 miles an hour and it would run on electricity. The system achieves those speeds by moving vehicles through a tube from which most of the air has been removed. This greatly reduces friction which allows for cheap fast transportation.
Shervin Pishevar’s startup Hyperloop One tested part of the technology in North Las Vegas. The company plans to have a full scale Hyperloop test track up in running this year, and a commercial track hauling freight by 2020.
The danger Hyperloop poises to the oil business is an obvious one. It offers the possibility of a large scale transportation system that would operate over long distances without oil. That system would take the place of trucks, airplanes, locomotives and other vehicles which burn diesel fuel.
The current goal of Hyperloop One is develop the technology as a freight moving machine. Since freight hauling the major consumer of diesel fuel in today’s world, that’s a major threat to oil right there.
How Hyperloop Threatens Oil
The Russian Ministry of Transport wants to build a freight Hyperloop connecting Chinese industry and Russian Ports, RT reported. Transport Minister Maksim Sokolov said his government is investing in Hyperloop because it much cheaper than traditional rail.
If that is true, we could see large scale Hyperloop development in a few years, followed by a corresponding drop in demand for oil. Even shipping another major consumer of petroleum could be threatened. Hyperloop One Chief Technology Officer Brogan BamBrogan wants to build underwater Hyperloop lines in the oceans to compete with shipping.
The Dismal State of Oil
These threats are obviously theoretical but they come at a very bad time for oil with crude prices hovering between $45 and $51 a barrel. Prices are low because producers have to sell large volumes and jack up production just to cover expenses.
The situation is eating up the revenues of major oil producers; and threatening their future. Recent financial numbers paint a dismal picture of the oil industry, some typical examples include:
- Chevron (NYSE: CVX) – Revenues fell by $65.79 billion between March 2015 and March 2016. Dropping from $193.26 billion to $127.47 billion. During the same period net income fell from $17.3 billion to $1.295 billion; a drop of $16 billion. Chevron lost $3.292 billion in revenue during first quarter 2016, if that continues, it will be report a loss this quarter.
- Another US oil producer, Occidental Petroleum (NYSE: OXY) reported a loss of $-7.53 billion on March 31, 2016. As recently as March 2014, Occidental reported a $5.953 billion net income. Occidental’s TTM revenue fell from $20.05 billion in March 2015 to $11.88 billion in March 2016.
- Even more frightening is Apache Corporation (NYSE: APA); that oil and gas producer reported a net income of -$18.96 billion on March 31, 2016. Disturbingly that was an improvement over fourth quarter 2016 when the company reported a net income of -$23.12 billion. The source of that loss is obvious; Apache lost nearly half of its revenue in a year. Apache reported revenues of $11.04 billion in March 2015 that feel to $5.788 billion a year later.
These figures provided by ycharts indicate that much of the oil industry is already in a death spiral without Hyperloop or electric cars. Add the widespread adoption of electric cars to the mix and we might see the complete collapse of most oil companies.
Only a few industry giants; like Exxon-Mobile (NYSE: XOM) and the new publically-traded Saudi Aramco will survive. These companies will be able to buy up everything that’s left at pennies on the dollar, and be in a position to flood the market with cheap oil and reap vast profits for at least a few years.
The oil industry will survive the coming of Hyperloop and electric cars; but it will look nothing like the one we have known. Instead it will be smaller and only a few companies in it will make money. Smart investors will stay out of oil for the foreseeable future, unless they are looking for something to short.