Alberta: the world will always need our oil and gas! The world: Um, you sure about that?
Every year I interview 300 to 400 energy experts. Half of them are from outside Canada, primarily from the US and Europe but also Asia. This is by design. When it comes to the energy transition, Canadians tend to be very insular and provincial. And no province is more parochial in this regard than Alberta. Interviewing global experts from the International Energy Agency or BloombergNEF, for example, gives me an entirely different view of the transition.
This morning, BNEF’s Colin McKerracher, a Canadian boy who grew up on Salt Spring Island, was in my inbox talking about the latest Electric Vehicle Outlook. When I interviewed him about last year’s report, he said that the international automotive industry is switching so rapidly from internal combustion engines to EVs that forecasters can’t keep up, necessitating revisions throughout the year. As an aside, a recent Reuters story that supports McKerracher’s analysis says that global automakers will spend $1.2 trillion by 2030 to switch over to manufacturing EVs and related infrastructure.
“Our latest near-term EV sales outlook is brighter than what BNEF published last year, mostly due to policy changes in the US,” he writes today, “where a major investment push sparked by the Inflation Reduction Act will help more than triple the share of EVs in new sales, to 28% by 2026.”
The Americans are pikers when it comes to adopting EVs. Electric light passenger vehicles will account for 89 per cent of auto sales in the Nordics, 52 per cent in China, and 42 per cent in Europe “in the next few years.” Globally, EVs will take 30 per cent of new sales.
Another Bloomberg report from yesterday about rapidly ascending Chinese automaker BYD explodes a principal assumption of the Alberta oil bulls: that developing regions like India, Africa, and Latin America will stick with oil, growing demand there offsetting declining consumption in Asia, Europe, and North America.
“BYD continues to expand internationally at a blistering pace,” Bloomberg says and is now in 53 countries, including Brazil, Uruguay, and Thailand where it is rapidly becoming the most popular new car for consumers. One of the reasons for BYD’s popularity is that 15 years ago China’s policy-makers focused on affordability, unlike Tesla and European legacy automakers, who pursued premium SUVs and pricey electric cars. Consumers can buy a Guandong Mini for as little as $4,500USD or a BYD Seagull for $10,500.
Speaking of car buyers, a new study from Yale says that consumers are flocking to electric because they think EVs are better technology than gas-powered cars. They like the torquey acceleration of an electric drivetrain, for example, and Ford CEO Jim Farley says that the number one reason Americans buy the F-150 Lightning is the ability to power their home for up to three days if the power goes out.
The Yale study made another important argument: EV sales are now driven by superior technology, not policy. Once the new product is perceived by consumers as better, as is now the case, it’s all over for the incumbent. In this case, oil is the incumbent.
Meanwhile, back at the ranch, Albertans are treated to facile narratives from politicians like Premier Danielle Smith and oil company CEOs about how “the world will always need oil.” True, but even in a climate policy status scenario, oil demand from road transport falls to 20 million barrels per day by 2050. And last year BNEF thought that number would be 25 million barrels per day. Will it be 10 or 15 million barrels per day in a few years? I wouldn’t bet against that possibility.
Can Alberta oil compete in a much smaller market? The CEOs say it can. But they would, wouldn’t they? Any CEO who admits that the energy transition is a near-term existential threat to his company’s future will tank the stock price, dry up access to capital (who wants to finance today’s Blockbuster or Kodak?), and find himself or herself looking for a new job.
The self-interest of incumbents in a disrupted industry is always to minimize the implications of disruption on their company. The sad thing in Alberta is that too many Albertans are happy to sing along to that tune.
Wake up, Alberta! Your customers (global automakers) are flocking to the competition.