Oil majors plug into electric vehicle technology

BP’s $20m investment last week in StoreDot, the Israeli developer of ultra-fast-charging batteries, was small change in comparison with the billions of dollars poured into oil and gas each year by the UK energy group.

But it added to a series of recent deals by BP and its rivals aimed at giving them a position in the electric vehicle (EV) technology, which many analysts believe will eventually push global oil demand into decline.

“They are trying to figure out what can replace the best cash cow in the world, which is a very hard problem,” said Olaf Sakkers, partner at Maniv Mobility, an Israeli venture capital group specialising in transportation technology.

As well as investing in StoreDot, BP agreed a partnership in May with NIO Capital, a Chinese private equity group, to invest in “advanced mobility” technology in China. This followed its January acquisition of a stake in FreeWire, a US company developing rapid-charging infrastructure for EVs.

Royal Dutch Shell last year bought NewMotion, a Dutch operator of one of Europe’s largest EV-charging networks, while Total is developing next-generation EV technology through its Saft battery business, acquired for $1.1bn in 2016.

These investments are part of a wider push into the electricity supply chain by European oil majors in anticipation of renewable power becoming a bigger share of the global energy mix at the expense of hydrocarbons. Shell and Total have investments spanning wind and solar farms to the consumer electricity market.

But these and other oil groups are also showing interest in the technology behind changing patterns of transportation, such as Uber-style ride-sharing and, in the longer-term, self-driving cars.

Shell, for example, is majority owner of a UK start-up called FarePilot, which operates an app to help taxi and ride-share drivers identify areas of high customer demand. The investment, and others by Shell’s venture capital arm, is designed to help the Anglo-Dutch group keep abreast of technologies with potential to disrupt the traditional model of private car ownership and roadside fuel retailing.

More than half of world oil demand comes from the transport of people and goods and just over a quarter from passenger cars alone. All the big European oil groups have acknowledged that this demand is likely to peak at some point in the next two decades, followed by slow decline thereafter.

In its annual energy outlook in February, BP said the number of EVs on the road globally was likely to reach 300m by 2040, up from 3m today. That would still only be 15 per cent of the global car fleet but EVs would account for 30 per cent of all passenger car transportation, measured by distance travelled, because so many of them would be shared vehicles and therefore used more intensively.

Spencer Dale, BP chief economist, said this trend would be amplified further when car-sharing converged with autonomous vehicles. “Once you don’t have to pay for a driver, the cost of shared mobility services will fall by 40-50 per cent,” he said. “We will get a big surge in shared mobility cars and most of those will be EVs.”

Saudi Aramco, the world’s largest oil producer, has argued that predictions of “peak demand” are overblown. The Saudi Arabian state-owned group sees oil consumption continuing to grow into the 2040s driven by emerging markets and heavy freight and air transportation, which are harder to electrify. US majors ExxonMobil and Chevron have similar views.

Yet, the actions of Saudi Arabia’s sovereign wealth fund signals recognition of the threats ahead. The Public Investment Fund of Saudi Arabia bought a 5 per cent stake in Uber, the world’s largest ride-sharing service, for $3.5bn in 2016, and it is a big investor in the SoftBank Vision Fund, which has ploughed billions of dollars into ride-hailing start-ups on almost every continent.

Despite its bullish view of oil demand, Saudi Aramco is preparing for disruption. Yasser Mufti, the group’s head of corporate planning, told the Financial Times last year that “the entire mobility value chain” was “up for grabs”. Saudi Aramco was assessing “where we can invest and where we can position ourselves in response to changing patterns of transportation”.

As shared vehicles are increasingly electrified and, eventually self-driving, some analysts see Big Oil at risk of being cut out of that value chain altogether.

“Charging is not going to be done in the city where the gas stations are today. It will be done outside the city,” said Tony Seba, a lecturer at Stanford and author of the book Clean Disruption of Energy and Transportation. “At two or three in the morning the cars will go out to the substation, where you have high voltage and charge tens of thousands of cars at a time.”

Mol Group, the Hungarian oil and gas supplier, has gone further than most in preparing for this new world. Last year it launched its own car-sharing service in Budapest with a fleet of 300 vehicles, a third of them electric. “We need to start building business models now to be ready in 10-15 years,” said Peter Ratatics, chief operating officer of MOL’s consumer services business.

Neil Beveridge, analyst at Bernstein, argued in a report this month that oil companies’ existing business models may prove more durable than expected. In the near-term, at least, Uber and its rivals are increasing demand for petrol, he said, by widening access to mobility and competing with public transport. “Ride-hailing apps are taking people off mass transit systems and into cars,” said Mr Beveridge.

But Andrew Smart, managing director of energy at Accenture, said oil companies should not count on a slow transition. “They cannot set their own clocks any more,” he said. “They will have to move at the same speed as technology develops around them and that could accelerate very quickly.”

Power behind tomorrow’s transport

Conventional wisdom says that batteries have already won the race to replace the internal combustion engine in the next generation of passenger vehicles. The only question is how fast they do it.

Not everyone agrees. Royal Dutch Shell is part of an alliance building 200 refuelling stations for hydrogen fuel cell (HFC) vehicles in Germany and is also planning dozens in California.

That is far less extensive than EV charging infrastructure under development around the world. But Maaren Wetselaar, head of Shell’s new energy business, said the longer range and faster refuelling offered by HFC vehicles still represented “strong advantages” over EVs.

Sceptics say too much expensive infrastructure would be required to produce and supply hydrogen. Tony Seba of Stanford University said there was “exactly zero chance of hydrogen becoming a mainstream fuel”.

While carmakers are putting far more investment into EVs, some, such as Toyota of Japan, are hedging bets. Tony Walker, managing director of Toyota in Europe, said there will be a division of labour between EVs for short journeys and hydrogen for long distances and heavy vehicles. “Viewing these technologies as competitors rather than complementary is a major misconception.”