Wednesday 21 February 2018

Electric carmakers delight as Opec announces cut-backs in oil production

When Opec announced it was scaling back production in an attempt to shore up oil prices, electric carmakers stood up and applauded, says Jessica Shankleman

The Tesla Model S is one of the bestselling high-end electric cars on the market
The Tesla Model S is one of the bestselling high-end electric cars on the market

Jessica Shankleman

Electric carmakers may breathe a sigh of relief from Opec's decision to curb oil output, which, if it holds, may help tilt the argument in favour of greener transport.

Electric car sales stalled in the US last year as gasoline prices fell 5.8pc on average and demand for the motor fuel rose for the first time in six years.

Rising oil prices, or even signs that the cost of gasoline won't fall further, would help underpin the economic case for alternatives such as biofuels and electric cars, according to the International Energy Agency.

"At the margin, a higher oil price increases competitiveness of electric cars," said Laszlo Varro, chief economist for the Paris-based energy watchdog for industrial nations. "Certainly in the US, there was a very interesting correlation that as gasoline prices declined, there was a measurable shift in the US car market."

Oil prices jumped 5pc after the Organisation of Petroleum Exporting Countries (Opec) agreed to cap supply on Wednesday, suggesting the two-year slide for crude prices may be over.

Opec's backing for the first output cut in eight years signalled a reversal in Saudi Arabia's policy to let market forces determine the price of crude. While oil doesn't compete directly with renewables or electric cars, the price of each barrel seeps into every segment of the energy industry and helps determine whether policy makers and consumers are complacent or anxious about having options other than fossil fuels.

Investment in clean energy reached a record $348.5bn in 2015 - even though oil prices fell, according to Bloomberg New Energy Finance (BNEF). Biofuels lost funding and in the United States, where the cost of driving fell, electric car sales dipped by 4.1pc.

Low oil prices can encourage people to drive more and buy gas-guzzling cars, reflected by the increase in gasoline demand in the US last year. Prices at the pump averaged $2.39 a gallon last year, down from $3.34, according to data by the American Automobile Association. The IEA estimates demand rose 5pc last year, reversing a six-year decline.

Electric car sales are likely to surge 44pc this year to a record 647,000 units, according to Bloomberg New Energy Finance. While that will displace a fraction of 1pc of global oil demand, their growth, along with biofuels such as ethanol, mean that consumers have more alternatives to gasoline than before and can switch to a greener alternative more easily, said Michael Liebreich, founder of the London-based research group. A quarter of the world's cars will be electric by 2040, according to BNEF.

"If you think the oil price is going to go up to $140 and sit there, then guess what? It's not possible - because the substitution now would pick up speed very rapidly because there are now scalable technologies that can do that," Liebreich said.

Outside the US, electric car sales are underpinned by generous subsidies from governments, especially in Europe. Those policies are more likely to become resilient as oil prices rise.

"There's a very weak relationship between electric cars and the oil price outside the US," said Varro.

Electric car manufacturers such as Renault, whose Zoe model is now the best selling EV in Europe, are more sensitive to those government policies than to prices, since it's the subsidies that drive sales. They're showcasing more models in anticipation that the technology gains support from consumers.

The oil price is "unpredictable, it's uncontrollable," said Carlos Ghosn, who runs both Renault and Nissan Motor - maker of the LEAF, the world's second-best selling EV model.

"What is predictable is that emissions constraints are going to become stricter and stricter," Ghosn said in an interview on Bloomberg TV. "That's why, when we look at the mid and long term, we're betting on electric cars."


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