How Will We Fuel All Those EVs? The Coming Energy And Transportation Disruption

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Includes: D, DDAIF, F, GM, NSANY, OIL, SCO, TSLA, UNG, USO, VLKAY
by: Siddharth Dalal

Summary

I look at the growth of EVs and refining of oil.

I look at other auto stocks compared to Tesla.

I look at oil and natural gas price constraints to compete with renewables.

Often times people question where we will get all the power to fuel EVs. Sometimes people question the efficiencies of EVs vs. gas cars. One article went all the way discussing the inefficiencies of power production while completely ignoring refining and the author called me dishonest for mentioning the inefficiencies of oil production and transport.

Let's take a look at energy and fuel used in refining oil. In 2014, US refineries used this:

U.S. LPG's Consumed at Refineries (Thousand Barrels) 2305
U.S. Distillate Consumed at Refineries (Thousand Barrels) 309
U.S. Residual Fuel Oil Consumed at Refineries (Thousand Barrels) 413
U.S. Still Gas Consumed at Refineries (Thousand Barrels) 229918
U.S. Petroleum Coke Consumed at Refineries (Thousand Barrels) 85527
U.S. Marketable Petroleum Coke Consumed at Refineries (Thousand Barrels) 636
U.S. Catalyst Petroleum Coke Consumed at Refineries (Thousand Barrels) 84891
U.S. Other Products Consumed at Refineries (Thousand Barrels) 1153
U.S. Natural Gas Consumed at Refineries (Million Cubic Feet) 893203
U.S. Coal Consumed at Refineries (Thousand Short Tons) 16
U.S. Purchased Electricity Consumed at Refineries (Million Kilowatthours) 47224
U.S. Purchased Steam Consumed at Refineries (Million Pounds) 130505
Click to enlarge

Source: EIA

Using a very conservative 3 miles/kWh, just the electricity used at refineries - 47,224 million kWh would be enough to propel EVs 142 billion miles.

According to EIA 1,000 cu ft of natural gas produces 99 kWh. So if the natural gas used at refineries was used to produce power, we would have 88.5 billion kWh, which represent another 265 billion miles.

In a year, US drivers drive 3.1 trillion miles. So just the purchased electricity and natural gas are enough to cover 13% of driving needs. If all the fuels used at refineries were used to propel EVs, it would be a lot more.

In fact, if petroleum is used to produce power, we get 13.6 kWh per gallon. The average US fleet economy is 25mpg. But a pessimistic EV average is 3 miles/kWh. So a gallon of petroleum can move the average gas vehicle 25 miles but it can move the largest EV 40 miles. If you compare the best gas vehicle - the Prius, a gallon can move it 50 miles which is roughly about as far as a gallon worth of electricity can propel the BMW i3.

So as we transition to EVs, the drop in refining oil can power at least 13% of the driving and the worst case is the oil being used to produce power to drive the EV with much better emissions controls at one central location as opposed to distributed uncontrolled emissions. But with the growth of renewables (See my 4 part series on renewable energy growth), EVs are only becoming cleaner by the day.

EVs still represent a minuscule percent of total vehicle sales:

Sources: InsideEVs, EVObsession

However, the segment is growing fast. The growth could look like this:

Or it could look like this:

... depending on how fast global manufacturers choose to launch compelling EVs. Reading Tesla (NASDAQ:TSLA) bear articles, it would seem that the second scenario is imminent but I would say the reality would lie somewhere between the two scenarios.

Tesla, the biggest EV manufacturer by EV revenue, has seen its stock collapse in the last few months. As a high profile, highly volatile stock that it is, it is easy to forget that Ford (NYSE:F) and GM (NYSE:GM) have suffered a similar fate over the last year. And Volkswagen (OTCPK:VLKAY) has cratered thanks to "dieselgate."

TSLA Chart

And as we speak other manufacturers such as Daimler (OTCPK:DDAIF) are being dragged into emissions scandals. Cities all over the world are starting to implement restrictions on cars because of emissions including London, Paris, New Delhi, Beijing, Rome and more. It is only a matter of time before these restrictions get more frequent and more widespread. EVs are of course not subject to any of these restrictions. So anyone purchasing a car for the long term needs to weigh the ability to drive their car in major cities before purchasing a gas car.

As EV volume grows, EVs are likely to become purchase price competitive, not just TCO competitive with gas cars. At this point we are likely to see a paradigm shift toward EVs just as we are seeing the shift to renewables now with most new energy being renewables.

Currently the total price of purchasing renewable energy (solar/wind PPA) is competitive with just the production cost of electricity using natural gas for utilities. So it makes no sense to build a new gas plant. Also this is with record low natural gas prices. And renewable pricing is only dropping further. Any rise in natural gas prices only helps accelerate renewable energy. Any fall in natural gas prices will put producers in even more dire straits. So natural gas prices sit between a rock and a hard place.

The oil situation is a little more complicated. As the supply glut shows no signs of easing, energy companies, especially upstream MLPs with expensive production methods facing trouble. Longer term, to battle the rise in EVs, oil must stay reasonably low. Taking approximate local street pricing for the Nissan (OTCPK:NSANY) Leaf and Nissan Versa, here is how they compare:

12c/kWh 6c/kWh** $1.70/gallon $2/gallon $3/gallon
Nissan Leaf Nissan Leaf Nissan Versa Nissan Versa Nissan Versa
Monthly Lease for fully loaded 2015 Model $300* $300 $250* $250 $250
Monthly Fuel Cost $34 $17 $42.86 $57.14 $85.71
Annual Maintenance Cost $40 $40 $100.00 $100.00 $100.00
Total Cost over 3 years 12154 11537 10843 11357 12386
Click to enlarge

* Leaf lease based on my own Leaf, Versa lease assuming similar discounts as the Leaf. And the Versa is a terrible drive compared to the Leaf. For a TCO comparison:

Edmunds Leaf TCO: $33,054 ($25,554 after Federal rebate) over five years.
Edmunds Versa Hatchback TCO: $25,972 over five years.

** A lot of EV owners have the choice of TOU plans. For example Dominion offers a plan for EV charging where you can charge your EV for 6c/kWh. Before I had solar panels (my best solar investment to date), I was on this plan. My overall electricity rate dropped from 12c/kWh to 10c/kWh from being on that plan. In Texas, some utilities even offer free night-time charging. This totally changes the economics of electric cars.

The take away from this is that the operating cost of a gas car is extremely sensitive to gas prices. A slight rise from $1.70 to $2.00 causes a massive jump in operating costs. However, EV operating costs are comparatively relatively stable. EV owners also have the option of saving by going solar and convenience of home fueling.

As global battery and EV costs drop, there is likely to come a time where it will make financial sense to replace an old car and switch to an EV, especially in countries with expensive fuel like in Europe. Fuel prices are still in the $5/gallon range in many countries even in this low oil price environment. And fuel prices are definitely going to not stay here for the life of a new car purchase. At some point distributed renewables, cheaper to operate EVs and the inconvenience of being unable to drive fossil fuel cars in many locations is only going to accelerate our shift to electric vehicles.

In conclusion, the price of natural gas is constrained to be low thanks to the growth of renewables, the price of gasoline is constrained to be low from the price of electricity and this will eventually lead to global deployment of electric vehicles, and the transition is likely to happen faster than OPEC imagines. My expectation for 2016 is low oil prices, low natural gas prices and more renewable deployments in addition to record global plug-in sales. To position for this, I'm using the market drop to add more to my Tesla and solar energy holdings.

Disclosure: I am/we are long TSLA.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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