3 Reasons Oil And Gas Should Keep An Eye On The Battery Transition
Originally published on Forbed.com on July 18, 2023
Surging batteries are a proxy for displacing gasoline in cars and trucks, and for displacing coal and natural gas in power plants.
Electricity generation uses the most energy in the U.S., followed by transportation, then industrial sectors. But climate goals and renewable energies may seriously change the future of oil and gas production. One of the keys to the adoption of renewable energies is batteries, and their deployment is changing rapidly.
Do batteries pose a threat to traditional energies such as oil and gas? Let’s just say the oil and gas industry would be wise to keep an eye on battery growth – for three reasons:
- Small batteries provide electricity in cars and trucks which will displace some gasoline.
- Home batteries store energy from rooftop solar which will displace some coal and natural gas fuel in power plants.
- Grid batteries provide electricity for the grid which will also displace some coal and natural gas in power plants.
The strong ramp-up of home and grid batteries in Australia may have lessons for the U.S. future.
EV growth and effect on oil production.
Figure 1 shows that oil usage in US transportation was 22 quads in 2020 (1 quad is 1015 Btu’s). President Biden’s goal is that new sales of EVs will be 50% of all sales by 2030. If new sales are roughly 10% of total car numbers, then 5% of total car numbers will be new EVs in 2030.
We can extrapolate EV growth by postulating 4.5% of total cars will be new EVs in 2029, 4.0% of total cars will be new EVs in 2028, etc, all the way down to 0% of total cars will be new EVs in 2020. Summing these up gives 27.5% of all cars will be EVs by 2030. This is only an estimate until a better analysis using yearly numbers is available. Let’s say 25% of all cars will be EVs by 2030 and these cars are not running on gasoline.
A 25% decline in gasoline cars would take oil usage in Figure 1 from 22 to 16.5 quads – a 5.5 quad drop. Since total petroleum usage is 32 quads in Figure 1, this 5.5-quad decline implies a 17% decline in the consumption of oil in the U.S. by 2030.
If supply follows demand, then a 17% decline in crude oil production would be expected by 2030 – almost a fifth of oil production declining by 2030. This would be a sizeable hit to oil production in the U.S.
There is a caveat: the demand in the U.S. may drop 17% but crude oil sales abroad to places like Southeast Asia may replace the demand and keep the supply up in the US.
Replacing power plants with solar and wind will affect gas production.
President Biden’s goal is for renewables to provide 80% of total electricity by 2030.
From Figure 1, the total U.S. electricity consumption is 35.5 quads. 80% of this is 28.4 quads. Current electricity from renewables and nuclear is 15.5 quads which is 44% of the total. To reach 80% renewables, 12.9 quads of coal or natural gas need to be displaced by renewables.
Let’s assume half of the coal power plants have been shut down by 2030, which is 4.25 quads, then the rest of the 12.9 quads would mean shutting down 8.65 quads of gas plants which amounts to 28% of 31 total quads of natural gas in Figure 1.
This ought to be a concern for the oil and gas industry, because if supply follows demand, production of natural gas in the U.S. would fall by 28% by 2030.
The fraction would be greater than 28% if less than half of the coal-fired power plants were turned off by 2030.
But the fraction would be less if surplus U.S. production were routed overseas via LNG tankers, which is already happening. EIA just reported a 43% increase, or 35 Bcfd, in U.S. gas demand between 2021 and 2022. Almost half of this increase originated from LNG in Texas and Louisiana where gas demand shot up 116%.
These numbers are approximate but do warrant that the oil and gas industry keep a watchful eye on year-by-year growth in EV batteries as well as home batteries that store rooftop solar energy and grid batteries that store energy from wind and solar farms.
EV batteries.
President Biden’s two goals depend on batteries which are recognized as a key to success.
EV batteries are small batteries to provide power for electric cars and trucks. The technology is advanced and is the foundation for the rapid, exponential growth of EVs across the world.
In the U.S. Tesla has led the way and even has their own 12,000 charging stations built along the highways. Called Tesla Superchargers, these fast and dependable battery chargers have been in the works for 10 years.
Shockingly, Ford has just announced it will join the Tesla network by installing adapters in 2024, and proper car connections in 2025. GM, Rivian, and Volvo have also joined in sharing with Tesla Superchargers. Without a doubt, this will accelerate the transition to EVs across the U.S.
Oil and gas need to keep an eye on EVs and their batteries – they are a proxy for displacing gasoline cars and declining oil production.
Gigafactories.
Elon Musk’s vision for Tesla EVs included gigafactories that make them. Tesla has six gigafactories: four in the U.S. in Fremont, California; Austin, Texas; Buffalo, New York; and Sparks, Nevada. Plus two overseas: one in Berlin, Germany, and one in Shanghai, China.
The Nevada gigafactory produces batteries as well as electric motors. Tesla announced an investment of $3.6 billion this year, which will also be used to produce the Tesla Semi, a fully electric semi-trailer that will cost $250,000 and is even now being delivered to customers.
In a remarkable vision, Musk said his goal is to make 20 million electric cars each year by 2030, and this would require building 10 or 12 more gigafactories.
Tesla has planned a gigafactory in Mexico, and they’re not cheap. At a cost of $10 billion, this would be the most expensive one yet.
Other automakers are following the steps of Tesla. A $9.2 billion loan has been made to Ford by the U.S. Department of Energy to build not one but three factories that make batteries. It’s the largest such handout since the financial crisis of 2008, according to Bloomberg Green.
Potential issues of EV batteries are the availability and cost of battery metals such as lithium, cobalt, and nickel. This is a valid issue that has been discussed separately.
In-home batteries.
In-home batteries serve two purposes. First, to store rooftop solar in the daytime so an EV can be charged overnight in the garage. Second, to offset electricity prices imposed by the grid.
One of three homes in Australia has rooftop solar. The uptake has been much greater than in the U.S. Just a couple of years ago there were as many rooftop solars in Australia as in the U.S. where the population is 14 times larger.
One in seven of these homes in Australia has a home battery. Home battery storage now totals about 2 GigaWatts (GW). One purchaser said the payback time was 10 years, a longish time so widespread adoption will be slower. But Australia appears to be out in front in this transition.
Australian data suggests home batteries, in association with rooftop solar panels, can reduce utility costs from the grid by a third or 33%, on average. Home batteries have doubled in the last year. In 2022, almost 50,000 home batteries were installed, a 55% increase from 2021.
One observer said that over 12 years he’d saved about AU$20,000 (US$15,000) by installing rooftop solar and a home battery. Now he has an EV to feed, he’s installed a separate but much the same system for the EV.
Grid batteries.
Grid-scale batteries are needed for an electricity grid that is sourced from solar and wind power. In the U.S. in 2022, grid-scale batteries, also called big batteries, added a capacity of 4 GW which was almost as much as in all previous years combined (4.7 GW).
These batteries are needed for storage to compensate for daily fluctuations of sunlight or wind power or for other emergency loss of power. Batteries are an essential part of the transition to renewables.
The obvious example of daily fluctuations is solar power. A battery that can store solar power during the day, and discharge it for 4 hours during early evening is a big asset in summer when homes pull on their cooling systems. California was able to draw on this system in the summer heat of 2022 and this may have avoided serious blackouts.
In the U.S., California, and Texas lead the charge. In 2022, California brought online 60% of big batteries while Texas had 33%. The reason is these are both strong sunshine states – number 1 and 2 in solar markets in the U.S.
Most of the grid batteries are of the Lithium-Ion type and are the same kind of batteries as used in EVs. The technology growth around EV batteries has spilled over and lowered the costs of grid batteries.
By 2026, the nation plans to install 22 GW of big-battery capacity, with 73% of this slated for California and Texas. The biggest U.S. battery in 2022 was 350 MW, but the record will likely be broken in 2023. The Inflation Reduction Act (IRA) will support this by easier access to an investment tax credit.
A follow-up article will be entitled The U.S. Is Watching Battery Deployment And Success Down Under.
Takeaways.
A 25% decline in gasoline cars by 2030 implies almost a fifth of crude oil production declining by 2030.
If renewables provide 80% of total electricity by 2030 then production of natural gas in the U.S. would fall by 28% by 2030.
Surging batteries are a proxy for displacing gasoline in cars and trucks, and for displacing coal and natural gas in power plants. The numbers warrant that the oil and gas industry keep a watchful eye on growth in EV batteries, home batteries for rooftop solar, and grid batteries that store energy from wind and solar farms.
News that may impact oil and gas: Ford said it will join the Tesla network of Superchargers in two steps in 2024 and 2025. Rivian and Volvo have also joined. This will accelerate the transition to EVs across the U.S.
Elon Musk said his goal is to make 20 million electric cars each year by 2030, and this would require building 10 or 12 more gigafactories.
A $9.2 billion loan has been made to Ford by the U.S. Department of Energy to build not one but three new battery factories.
Australian data suggests home batteries connected to rooftop solar can reduce utility costs from the grid by a third or 33%, on average.
In 2022, California brought online 60% of big-batteries while Texas had 33%. The biggest U.S. battery in 2022 was 350 MW, but the record will likely be broken in 2023.
