“We think the Economics of Renewables Are Impossible for Oil to Compete With.”

by | August 23, 2019


This is what BNP Paribas, the eighth largest bank in the world, is now telling investors.

It comes from a recent analysis they did to answer the following question:

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

In other words, do you get more bang for your buck (miles driven) by investing in new oil wells or renewables?

Their findings are remarkable.

“Our analysis indicates that for the same capital outlay todaynew 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.

Helpful for the chart below: EROCI = ‘energy returned on capital invested’. TWh = TeraWatt hours which is a unit of energy being used on the Y-axis.

Think of it like this: Each bar shows the relative distance cars would be able to travel given a $100 billion invested in the respective energy-sources. It’s like the ‘miles per gallon’ of various energy sources.

BNP Paribas EROCI report

So investing in solar and wind energy projects gives us 6 to 7 times more energy at the wheel (miles driven) compared to the same investment in oil right now. As of this week, oil is just under $60/barrel. It would have to be produced at $10/barrel to be a smart investment.

That is incredible.

More from BNP Paribas:

“The oil industry has never before in its history faced the kind of threat that renewable electricity in tandem with electric vehicles poses to its business model: a competing energy source that:

    1. Has a short-run marginal cost of zero,
    2. Is much cleaner environmentally,
    3. Is much easier to transport, and
    4. Could readily replace up to 40% of global oil demand if it had the necessary scale.

We conclude that the economics of oil for gasoline and diesel vehicles versus wind and solar-powered EVs are now in relentless and irreversible decline, with far-reaching implications for both policymakers and the oil majors.”

Final insights from “The Energy Gang” podcast on this research:

  • If oil loses its 40% of its profits to electric vehicles, the plastic and chemicals side of their business will become much more expensive – great for more sustainable alternatives.
  • The auto industry is spending 70% of their new capital expenditures on electric vehicles – they are preparing for the future. The oil and gas industry, on the other hand, spends just 1.3% on renewable energy. They are making bad investments even though the economics are now clear.
  • “At some point, investors will recognize that the oil companies are doing what’s familiar to them instead of what’s actually good for shareholders. And when that occurs, they will lose a tremendous amount of market capitalization.” – Jigar Shah
  • “The point [they’re making] is that the Green New Deal is cheaper than business as usual. If all the oil companies decided to take their $100 billion and invested it in this future, instead of trying to look for more oil, that in fact you would be able to transition to this decarbonized world at 1/6th to 1/7th the cost.” – Jigar Shah

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