Electric Vehicles: Driving Reduced Demand for Offshore Oil, Part 3 of 3 – “Findings and Conclusions”

This is Part 3 of our blog series, “Electric Vehicles: Driving Reduced Demand for Offshore Oil,” which shows that given the advancements in vehicle electrification, expanding offshore drilling for oil and natural gas into protected areas, as  is intrinsically risky and unnecessary. Today’s section of the series explains analysis demonstrating that much, if not all, of the oil that could be produced by opening all of our nation’s protected offshore areas as proposed by the Trump Administration may be be offset by the rise of electric vehicles in the U.S. Part 1, which covers the risks of offshore oil drilling, is available here. Part 2, which covers the benefits of electric vehicles, is available here. This series commemorates both Earth Day and the 8th anniversary of the Deepwater Horizon Tragedy. To learn more, please see the recording of the webinar that summed this series up here.

Given the advancements in vehicle electrification, expanding offshore drilling for oil and natural gas is intrinsically risky and unnecessary.

The United States Department of Interior estimates that the United States’ offshore areas contain approximately 90 billion barrels of oil that are technically recoverable. However, only a total of 71 billion barrels of oil are undiscovered and economically recoverable at $100 per barrel ($/bbl). Today’s oil prices are near $60-$70/bbl. Of that 71 billion barrels of oil, some 57 billion barrels (or 80%) are already accessible from the Alaska Outer Continental Shelf (OCS) Region, Western Gulf of Mexico, and Central Gulf of Mexico Planning Areas. New, protected offshore areas–namely the Atlantic, Straits of Florida, and Pacific OCS Regions and the Eastern Gulf of Mexico Planning Area–would only supply an additional approximately 14.4 billion barrels of economically retrievable oil reserves at $100/barrel. To put that in perspective, given the current oil consumption rates in the United States, the protected ocean areas contain about two years’ worth of oil supply. Broadening the scope to include onshore oil as well, opening the currently-protected offshore areas to new oil drilling would increase access to only 5% of our nation’s oil resources.

Total United States Recoverable Federal Offshore Oil Reserves ($100/bbl), Source: Dept. of Interior, 2016

Total United States Recoverable Federal Offshore Oil Reserves ($100/bbl), Source: Dept. of Interior, 2016

Does the U.S. Need More Oil? 

The amount of time necessary to permit, evaluate resources, and connect infrastructure in the offshore oil and gas industries may take 15 years or more. If the economically viable oil resources from the currently protected offshore areas become available in 2030, and last for 20 years, the areas would produce 720 million barrels per year, or roughly 2 million barrels per day.

The Energy Information Administration is already projecting that total oil demand in the United States is anticipated to decline. The largest decline in oil consumption is anticipated to take place in the light duty vehicle sector (LDV), with oil consumption declining from 8.31 million barrels per day equivalent (MMb/d oil eq) in 2017, to just 6.33 MMb/d oil eq by 2030, and 5.89 MMb/d oil eq by 2050 – a 30% decline in oil demand. Given that expanding oil drilling into previously protected ocean areas will not occur overnight, new oil supplies would likely arrive at the same time when oil demand begins to decline. As such, oil demand is already expected to decline in the LDV sector by about the same amount as would be potentially available by opening up the protected offshore areas by 2030.

How many electric vehicles are needed to offset oil demand equivalent to resources available in protected offshore areas?

Annual fuel consumption sensitivities by Light Duty Vehicle (LDV)

Annual fuel consumption sensitivities by Light Duty Vehicle (LDV)

Based on previous estimates provided by the Department of the Interior, opening protected areas (virtually the entire East and West coasts and the Eastern Gulf of Mexico) to new offshore oil drilling could provide approximately 14.4 billion barrels of new oil supply at $100/bbl. This analysis assumes the new oil supply is immediately available beginning in 2030 and is fully extracted by 2050. A barrel of oil may produce up to 21 gallons of gasoline. To evaluate a range of vehicle fuel demand, as potential replacements by electric vehicles (EVs), light duty vehicle (LDV) fuel economy ratings of 20 miles per gallon (MPG), 25 MPG or 30 MPG, were evaluated for a fuel efficiency sensitivity analysis. Essentially, higher efficiency vehicles mean less gasoline used per vehicle, and thus, more EVs would be needed for replacement. Vehicle annual mileage ranges of 10,000 miles per year, 12,000 miles per year, and 15,000 miles per year, were evaluated for additional sensitivity analysis. Vehicles with more miles per year use more fuel, meaning that on a per-vehicle basis, fewer EVs would be necessary to replace high-use vehicles.

To replace the total gasoline supply associated with the newly opened areas offshore, the United States needs to replace about 32 million internal combustion engine vehicles with EV’s, with a range of 20-45 million EVs, by 2030.

Electric Light Duty Vehicles Required to Replace New Offshore Oil Resources; *Low estimate based on high mileage (15,000/yr) with low fuel economy (20mpg). Mid estimate with 12,000 miles/yr, at 25 mpg. High estimate with 10,000 miles/yr, at 30 mpg.

Electric Light Duty Vehicles Required to Replace New Offshore Oil Resources; *Low estimate based on high mileage (15,000/yr) with low fuel economy (20mpg). Mid estimate with 12,000 miles/yr, at 25 mpg. High estimate with 10,000 miles/yr, at 30 mpg.

 

Can the U.S. reach 35 million EVs by 2030?

While it is possible that EV adoption occurs at a rate beyond what is necessary to supplant new offshore oil resource demand, policy tools will be important to rapidly expand EV deployment in order for the U.S. to reach 35 million EVs by 2030. A number of forecasts for EV deployment provide a wide range of estimates. For example, the EIA Annual Energy Outlook 2017 estimates that nearly 15 million plug-in vehicles will be on the road by 2030; however, EIA has historically been overly conservative about the pace of new technology adoption. According to Bloomberg New Energy Finance:

“While EV sales to 2025 will remain relatively low, we expect an inflection point in adoption between 2025 and 2030, as EVs become economical on an unsubsidized total cost of ownership basis across mass-market vehicle classes….Electric vehicles become price competitive on an unsubsidized basis beginning in 2025. Some segments will take longer, but by 2029 most will have reached parity with comparable internal combustion engine (ICE) vehicles.”

By 2030, BNEF projects nearly one-third of all new car sales will be electric vehicles. By 2040, BNEF estimates some 540 million EVs will be on the road globally. Meanwhile, the American Automobile Association, or AAA, recently reported that 30 million Americans are likely to purchase an electric vehicle as their next vehicle.

Energy Information Administration Annual Energy Outlook Plug-In Vehicle Projections

 

Can the U.S. generate enough electricity to support EV growth?

Electricity requirements for electrified light duty vehicles varies based on energy efficiency and distance driven. Based on the previous estimates, new electricity demand from 20 million EVs could reach 101 billion kilowatt hours (kWh, 101,000 GWh) annually; 32 million EVs could require 126 billion kWh; and 45 million EVs could require up to 151 billion kWh. To put these values in perspective, 35 million EVs represent about 12.6 million average homes in equivalent electricity demand. Last year, the United States generated about 4,000 billion kWh from all electricity generation facilities.

Most electric vehicle charging currently takes place overnight. Nighttime charging can utilize lower priced electricity at a time when overall utility demand is lower. Initially, new power demand from electric vehicles is not anticipated to require significant new construction of power generation facilities. According to Colin McKerracher from BNEF, “The grid can handle the increase in electric vehicles, but there are some difficult points that have to be addressed.” However, if 35 million EVs were powered by new renewable energy resources, some 35 million EVs would necessitate 36 gigawatts of new wind energy capacity, or 72 gigawatts of new solar energy capacity. The wind energy industry installed 7 gigawatts of new capacity in 2017, and the solar industry installed 10 GW, indicating the new EV demand could be served by new wind energy or solar energy resources relatively easily by 2030. In short, new electricity supply from renewable energy resources can provide ample room for EV growth.

Electric Vehicle Electricity Demand for 20 million, 32 million and 45 million LDVs

Electric Vehicle Electricity Demand for 20 million, 32 million and 45 million LDVs: *Low estimate based on 15,000 miles/yr for 20 million LDVs. Mid estimate based on 12,000 miles/yr for 31 million LDVs. High estimate based on 10,000 miles/yr for 45 million LDVs. Assumes 3 miles per kilowatt hour (3mpkWh). **Uses a 40% capacity factor for wind, and 20% capacity factor for solar.

 

Conclusions and Recommendations
The Southeast coast offers a high quality of life to residents and visitors alike, due in large part to the scenic beauty and recreational value of our beaches and marshes. The proposed expansion of offshore oil drilling puts our local economies at unnecessary risk. Meanwhile, electric vehicle manufacturing is expanding, including in the Southeast. In order to offset the amount of oil potential in protected offshore areas, some 35 million electric vehicles will need to be on the road, beginning in 2030. Electric vehicles can stem the tide of increased offshore oil drilling, especially if public policy focuses on developing an electrified vehicle fleet. Given the advancements in vehicle electrification, expanding offshore drilling for oil and natural gas into protected areas is intrinsically risky and unnecessary.

Policy development in support of electric vehicles will be vitally important to ensure significant EV market penetration. Listed below include a few policy recommendations to encourage EV growth.

  • Local and state ordinances should be passed that promote “EV Ready” development, EV fleet procurement, and other goals and initiatives
  • Local and state permitting for EV charging infrastructure should be standardized and simplified
  • Utilities should establish EV incentive programs and develop special electric rates for EVs, such as time of use rates with low or no demand charges
  • Local, state and federal agencies, and utilities, should establish funding mechanisms to support EV charging infrastructure development, including direct installation
  • The federal tax credit cap for EV manufacturers should be raised or eliminated, and the EV tax credit should be permanently extended
  • The federal tax credit for EV charge stations should be permanently extended
  • Utilities should begin evaluating opportunities to enable vehicle-to-grid (V2G) capabilities

Methodology Examples
Straits of Florida Low Vehicle Estimate
Estimated oil at $100/bbl: 10,000,000 barrels
10,000,000 barrels of oil / 20 years * 21 gallons of gasoline * 20 miles per gallon/15,000 miles annually = 14,000 vehicles annually for 20 years

Electric Vehicle Electricity Estimate, Low Vehicle Estimate
Total vehicles: 20.1 million
20,174,000 electric vehicles * 15,000 miles per year / 3 miles per kilowatt hour = 100,870,000,000 kilowatt hours / 1,000 kWh per MWh / 1,000 MWh per GWh / 8760 hours per year / 40% capacity factor (wind) = 29 gigawatts of wind energy capacity


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