Oil vs EV: the Power Balance is Shifting … and the First Victim Will be Canadian Oil

Two trends are converging: on the one hand, a global uptick in new capital investment projects for electric/hybrid vehicle production and, on the other hand, the slowdown in new oil projects in Canada, despite that country being ranked third among the world’s largest reserves1.

Nearly half of the global vehicle fleet will be electric/hybrid within 20 years

Forty percent of the announced investment value in the automotive sector worldwide is in electric/hybrid vehicles2, although the share of EV in the global automotive fleet is less than 3%3. This reconfiguration of production capacity will inevitably result in corresponding changes in the global vehicle fleet make-up. A simple estimation based on project timelines (up to 4 years) and automobile lifespan (10 to 15 years) suggests that the global fleet could shift to electric vehicles within 15 or 20 years, with a significant impact on global oil consumption, since 45% of the world’s oil production is allocated to motor vehicle consumption4.

Global oil divestment has already begun in Canada

Of the $400 billion hydrocarbon megaprojects announced in Canada in the past decade, only $100 billion seem to be moving smoothly towards completion5 without major concern. The remaining (about $300 billion) face increasing difficulties, be it environmental opposition (whether for extraction or pipeline-construction) or rising uncertainty about financial viability.

When Canadian production is compared to the United States, now the world’s largest petroleum and derived liquids producer6, the cancellation of new projects in Canada can easily be understood. Unlike shale oil development in the United States, Canadian production—largely based on unconventional extraction (oil sands, offshore)—generally requires massive upfront investments.

The end of internal combustion vehicles? Not so fast!

That said, it is far from certain that the upturn of electric cars will eliminate the need for internal combustion vehicles, if only because electric batteries are still far from able to compete with traditional engines in countries such as Canada, with its climatic conditions (accelerated loss of battery power in cold weather) and the distribution of its population over extreme distances. In this context, conventional engines are likely to occupy a significant share of the motor vehicle market, whether powered by gasoline or combined with biofuels.

Despite these headwinds, oil use is not yet obsolete, and investors will certainly take refuge in the reserves that are cheapest to develop and which are typically located in countries with more accommodating environmental regulations7. In these respects, Canada is no longer a major player in the race for oil development. Will Canada play a role in the new electric/hybrid vehicle industry? So far, the announced investments are minimal8 and do not suggest any offset to the erosion of the Canadian production capacity of conventional motor vehicles9.


[1] Source : International Energy Statistics. Crude Oil Proved Reserves.
[2] Including the manufacture of EV batteries. Source: Trendeo, Industrial Investments Worldwide 2019, page 24. 38.5% of the announced manufacturing project value in the automotive industry was related to electric/hybrid cars over the 2016-2019 period. This estimate excludes the value of research and development projects. Moreover, a Reuters analysis (April 2019) estimates that the largest car manufacturer investment programs related to electric/hybrid cars adds up to US $300 billion, including battery manufacturin.
[3] Source : The Electric Vehicle World Sales Database, 2018.
[4] Source : Organization of the Petroleum Exporting Countries, World Oil Outlook 2018.
[5] Source : E&B Data, Capex-Online.
[6] Source : International Energy Statistics. Total Petroleum and Other Liquids Production – 2018.
[7] See, specifically, the growing importance of environmental deregulation in international capital flows.
[8] Source : E&B Data, Capex-Online.
[9] Source : Canadian Vehicle Manufacturers Association. To this 20% cut in the automotive manufacturing sector since the ten-year peak in 2012 will be added the effect of the General Motors plant closure in Oshawa, as announced in 2018.


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