Lux Report Says Big Oil’s Dominance May Be Coming To An End

The days of Big Oil’s market domination in transportation fuel may be nearing its end.

According to a Lux Research report, the trillion-dollar oil industry – which gets 80 percent of its revenues from transportation fuels – needs to diversify to counter serious threats from alternative fuels and battery technologies. Another market force came from the Paris climate change agreement in December, Lux said.

“Oil’s dominant position in transportation fuels has proved impregnable for more than a century, but real threats abound now,” said Brent Giles, Lux research director and lead author of the report, Dealing with Threats to the Transportation Fuel Oil Industry.

The Lux report sees the Paris climate deal as a key tipping point. For the agreement, 195 nations committed to keep a global temperature rise this century to below 2 degrees Celsius.

“We’re looking at the regulatory trends in the space and they’ve been pretty lacking in the past,” Giles said. “But after Paris we started to think that maybe there was some real movement. We know the commitments the world made; we’re not really sure how that’s going to translate into action.”

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Lux Research analysts created three adoption scenarios — low, medium, and high — for gasoline and diesel substitutes through 2030. Even in the case of moderate adoption, biofuels would be a $220 billion industry worth a 13-percent share of transportation fuels in 2030. Lux forecasts that plug-in electrified vehicles will reach an inflection point between 2035 and 2040 where half of all cars sold will be PEVs.

The Lux report forecasts that 31 percent of global vehicles will be running on alternative fuels in 2030. With that market trend, the drop in demand will make typical oil production in the UK, Brazil, Canada, and parts of the U.S., less profitable, according to Lux.

Jet fuels, diesel, and gasoline are the types of transportation fuel that oil companies depend upon. The airline industry is making a move toward biofuels to take away its dependency on oil-derived jet fuel. The fact that a lot of new biofuels are drop-in is helping biofuels adoption, since it doesn’t require any new fueling infrastructure, Giles said.

Oil companies will have to explore options in new technologies and alternative fuels to say in business, the Lux report says.

Oil production costs can be lowered further over the next decade, thanks to advances like robotics, improved fracturing methods, lean engineering, and treatment solutions for flowback water. Giles says a number of startups can help oil companies cut costs. These include companies focused on robotics, increase automation, and remote monitoring like Robotic Drilling Systems, BluHaptics Technology, and Fluidion.

Oil companies will need to diversify their product offerings, the report says. Natural gas and bio-derived natural gas offer opportunities. Biofuels are another area, as exemplified by advances made by Neste and Valero Energy.

“Neste, an oil refiner, has grown its renewables business from $370 million in 2010 to $2.7 billion in 2015 and is the global leader in renewable diesel,” Giles said. “And Valero Energy has diversified its biofuels business and moved beyond traditional ethanol. The company generated $3.4 billion in 2015.”

Transportation will be a key part of meeting the Paris climate agreement. The transportation sector is the biggest contributor to US carbon dioxide emissions, outpacing even the power sector.

Environmental Leader