A report by Aurora Energy Research, a UK based company has projected that the adoption of electric cars could wipe out as much as $21 trillion in revenues for the oil, gas, and coal industry by 2040.
According to the report, electric vehicles and improved fuel efficiency could cause oil demand to peak in the mid-2020s – resulting in $19 trillion in lost revenue for oil companies in the period 2018 to 2040.
On the demand side, the report describes a world of widespread electrification – with 540 million electric vehicles on the road by 2040 – and the widespread use of digital technologies in the ‘internet of things’ increasing demand for power and the role of services in the global economy.
On the supply side, the report describes how new technologies allow oil and gas companies to extract resources more cheaply in the future.
Conversely, the phasing out of coal power generation in many countries for climate and air quality reasons causes a decline in the demand for coal, whilst more onerous mine repatriation requirements lead to higher costs of production.
The report said, “Revenues from oil consumption in particular decrease from $1.5 Trillion in 2016, to $1.1 Trillion in 2040 (in real terms), whilst gas revenues more than double to 2040 as both prices and supply volumes increase.
“Total fossil fuel revenues are 40 percent lower in 2040 than a business as usual scenario.
“Overall, cumulative fossil fuel revenues are $21 trillion lower over the period 2018-40 than in a Business as Usual Scenario, of which 90 percent of the decline is in oil and the remainder in coal,” it added.
The impact of such a scenario on fossil fuel producing companies and nations is enormous – challenging current business models and current investment plans.
Data from the Central Bank of Nigeria shows that oil revenues still remains the country’s dominant source of income.
Last week, Fitch Ratings affirmed Nigeria’s long-term foreign currency Issuer Default Rating (IDR) at ‘B+’ with a negative outlook.
While B+ is encouraging as the nation continues to recover, the negative outlook serves to highlight how Nigeria must break away from its reliance on oil.
With Fitch expressing concerns over “the sustainability of the economic growth momentum”, the nation must strive to derive growth from other sustainable sources other than rising oil prices.