Oil companies are ignoring the huge threat from electric vehicles

Reuters

Recently, I gave a presentation on the future of energy to an audience of about 250 oil and gas professionals. Halfway through, I asked the carbon crowd to, “Raise your hand if you have driven an electric vehicle.”

It took me less than five seconds to squint and visually sift out the elevated hands.

Five adventuresome people, or about 2 percent of the audience acknowledged that they had taken a ride on a lithium horse.

“Isn’t that a bit disconcerting?” I asked. “By now all of you in the room should be aware that new-age electric vehicles represent the first meaningful threat to your monopoly in powering the transportation market.”

I went on to ask, “Don’t you think you should at least go to a Tesla, Nissan or BMW dealership and test drive the looming adversary?”

Silence.

I wasn’t surprised by the results of my straw poll. Hear-nothing, see-nothing attitudes are common within entrenched industries that have long forgotten how to fight for market share.

Over 150 years ago, early oil companies sold “rock oil” for kerosene lanterns, duking it out in the market to light homes and factories. The incumbent competitors were coal-gas, whale oil and candle companies. It was a full-on market share battle between lighting systems. And by the 20th century, all of them were losing out to Edison’s incandescent bulb (powered by coal-fired electricity).

By the numbers, lighting lanterns was a small market compared to what was emerging: Turning gears and wheels with internal combustion engines. That mega-market kick started in 1908 with Ford’s Model T; since then it’s been an invincible business for the oil industry.

In trying to explain the low results of my audience poll, I wondered about the long-term effects of five or six generations of petroleum workers cycling into, and retiring from a century-long, monopolistic transportation paradigm. Had that evolution softened the industry’s competitive edge?

Whatever the reasons, it’s hard to excuse such competitive apathy, but my dissertation wasn’t finished.

The funny thing is that I went on to tell the audience that I ask the same type of question to people in the business of renewable energy and electric vehicles. For example, to executives sporting green stripes I ask, “When was the last time you visited a modern oilfield, taking stock of the new automated drilling and completion technologies?”

Predictably, I’ve only met one person in the business of clean-tech who has bothered to get serious intel on the competition they are trying to displace. It seems this group must have a gene that makes them think that their business is going to be a proverbial “slam dunk,” that they will be able to decarbonize the world with no commercial resistance. It’s a dangerous mindset, given that consumption numbers show that rapid demise of fossil fuels is not much more than academic conjecture at this point.

ReutersThe bounce in the footsteps of the purveyors of new energy is justifiable. Today’s solar panels, for example, generate electrons at about half of the cost of five years ago. Gains in battery technologies – energy density, power density and cost reduction – are even more impressive. Growth rates have been exponential, without much resistance to-date.

Yet, as a color commentator of change, I also know that over the course of the same five years the breakeven cost of an oil well in places like Texas has been cut in half and it’s “rig productivity” has increased by nearly ten-fold. And it’s not just about more horsepower and better drill bits. Big data, optimization, Internet-of-things and machine learning are rejuvenating a hitherto fossilized industry. Business school profs call this competitive response, “raising the barriers to entry.” Experts are consistent in their views: there is much more innovation to come from upstream oil fields all the way to downstream engines.

I think by now we all know the Henry Ford story and how the “horseless carriage” was relegated to museums. But let’s be intellectually honest: The old nag in the stable had about as much chance to compete against a Model T as a slide rule could against a digital calculator. Or a paper map against a GPS chip; or a phone booth against an iPhone. In all these cases, the new product steamrolled over a weak incumbent.

The oil industry and its downstream peers are largely in broad denial about existential competitive threats. But it’s a mistake to believe that the commercial utility of today’s petroleum systems are as competitively weak as a slide rule or a tired-out horse pulling wooden wheels. Business leaders championing new energy systems need to remove their own dark blinders of denial; trillions of dollars of petroleum infrastructure and the peripheral interests of combustion-based mobility are not going to relinquish their markets without fighting back with their own innovation. In fact, they have just begun.

This is one of the most dramatic moments I’ve experienced in my 35-year career studying all energy systems. The technological change is breath-taking; the investment potential is staggering; and on top of it all, the business psychology is intriguing.

“Get to know your competition,” I suggested to my audience. “This is going to be one of the most exciting business duels in history; two giant energy systems will be competing for the hearts and wheels of the people.”

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