What next for the big oil companies?
Volvo is the most recent company to announce that it will switch its production to electric vehicles only in the near future. The Swedish car manufacturer has been particularly aggressive in their approach, setting out a timeline for this to happen by 2030 and including hybrid models.
Volvo’s announcement comes close on the heels of a similar briefing by American giant General Motors, who earlier in the year announced it would be doing the same, in their case, it is to be implemented by 2035.
Volvo’s chief technology officer is quoted as saying, “There is no long-term future for cars with an internal combustion engine.”
This begs the question – “Is there a long-term future for the large oil conglomerates?”
Is there a future in oil?
A quick answer to this is no, there is no long-term future in oil. Already faced with rapidly declining fossil fuel stocks, the accelerating depletion of a captured market is just another nail in the coffin of a core industry that has been the driving force of the last century and a half.
A better question to ask would be, “How long do they have?”
This is not a simple question to answer. Some analysts have forecasted that there will be a massive slump in demand by as early as 2025. The oil companies themselves are forecasting that demand for fossil fuels will continue to rise until at least the 2040s. The truth is likely to lie somewhere between the two extremes.
For the foreseeable future, there will be some sort of market for oil. Gasoline for transport purposes is a sizable chunk of the market at 26%, but this still leaves a large and, in many cases, continuing demand. Take air travel, for example, which accounts for 7.8% of all oil production, and having electric planes that are capable of transporting passengers is unlikely to happen anytime soon.
So, there will be an oil demand, at some level, for some time to come. But it is going to be a shrinking pie and the big oil companies are going to have to fight to maintain their share of a declining market.
Is oil still a safe investment?
For some time now the big oil companies have been diversifying into green, sustainable, energy projects. The feeling is that they are doing too little, and possibly too late. However, the pace of these investments is gaining some momentum and. as announcements like Volvo’s and General Motors become more frequent, then the pace of these investments will accelerate. These are big, cash-rich, companies that have the resources to invest heavily in renewables. This, in turn, will ultimately drive renewable energy technology forward and in doing so can only add to the erosion of their traditional markets.
Ultimately, while investing in oil companies has significant risks associated with it, including current market volatility, it remains an appealing investment for both day-traders and long-term investors. How long this remains the case is open to debate. In the short term, as the world begins to move towards a new normality and the pandemic eases, demand is going to increase, and the price of crude oil will reflect this.
As for the decades to come, well that is a different story altogether.