The rapidly-falling cost of battery storage could “tip the oil market from growth to contraction earlier than anticipated” and trigger an “investor death spiral” in the trillion-dollar range, Fitch Ratings warned in a report issued earlier this week.
Battery prices fell 35% last year, and a study last February by Bloomberg New Energy Finance found that electric cars could become more affordable than conventional vehicles by 2022. As a result, “while hybrid and battery-only cars are making slow progress in denting sales of gasoline and diesel-driven vehicles, their growth trajectory may be grossly underestimated,” Bloomberg News writes this week, citing the more recent Fitch report.
The rapid shift could have a massive impact on financial markets, since “a quarter of outstanding global corporate debt, or as much as $3.4 trillion, is linked to utility- and auto-industry bonds that rely on fossil fuel activities,” the news agency notes. EVs are expected to displace 13 million barrels of oil demand by 2040, and “the narrative of oil’s decline is well rehearsed,” Fitch reported. “If it starts to play out there is a risk that capital will act” long before the transition to carbon-free electricity is complete.
The ratings agency advised utilities to reduce their investment risk by diversifying into clean energy technologies. “Diversification will help guard against the risk that the markets turn against the oil economy,” the report stated.
Even so, the World Energy Council is still predicting that global oil demand won’t peak until 2030, Bloomberg reports. BP Chief Economist Spencer Dale told a BNEF conference in London that rising demand will outweigh the market impact of EVs over the next two decades. “They’ll have a huge impact in terms of air quality, but it’s not a game changer over 20 years even with aggressive electric vehicle penetration,’’ he said last week. (h/t to the Institute for Energy Economics and Financial Affairs for pointing us to this story)