LONDON The falling cost of electric vehicle and solar technology will halt demand growth for oil and coal from 2020, according to research published on Thursday, posing a threat to fossil fuel companies unprepared for the transition.
The Grantham Institute at Imperial College London and independent think tank Carbon Tracker Initiative analyzed cost forecasts for electric vehicle (EV) and solar photovoltaic (PV) technology, government policies and the impact on road transport and power markets, which account for half of global fossil fuel consumption.
"Fossil fuels may lose 10 percent of market share to PV and EVs within a single decade. This may not sound much but it can be the beginning of the end once demand starts to decline," Carbon Tracker said in a statement.
A 10 percent loss of market share caused the collapse of the U.S. coal mining industry and Europe's five biggest utilities lost more than 100 billion euros ($108 billion) in value from 2008-2013 because they were unprepared for renewable energy growth, it added.
The report said that electric vehicles could make up a third of the world's road transport market by 2035 and that solar PV could supply 23 percent of global power generation by 2040, entirely phasing out coal and leaving natural gas with only a 1 percent market share.
Growth in the number of electric vehicles could lead to 2 million barrels per day (bpd) of oil demand being displaced by 2025, the report estimates.
That would be similar to the volume of oversupply that led to the 2014/15 collapse in oil prices. By 2040, 16 million bpd could be displaced, rising to 25 million bpd by 2050, it said.
The International Energy Agency has said that 2 million bpd of oil could be displaced by electric vehicles by 2040. Bloomberg New Energy Finance has forecast that such displacement could occur as early as 2028.
"Coal demand could peak in 2020 and fall to half of 2012 levels by 2050. Oil demand could be flat from 2020 to 2030 then fall steadily to 2050," Thursday's report said.
By contrast, the International Energy Agency said this week it does not expect oil demand to peak any time soon.
Last week BP said that it expects global oil demand to continue growing into the 2040s, citing increased plastics consumption, while U.S. peer ExxonMobil has said that it sees fossil fuels meeting almost 80 percent of global energy needs by 2040.
"Oil majors already do scenario analysis but, as Exxon previously indicated, they do not assign sufficient probability to a rapid (low-carbon) transition," said James Leaton, head of research at Carbon Tracker Initiative.
"There appears to be a desire to justify business-as-usual at some companies, which does not constitute sound risk management."
Several studies have warned investors that measures to curb carbon emissions growth will hit earnings at coal, oil and gas companies as the world shifts to cleaner energy.
Low oil prices over the past couple of years have also forced companies to reduce spending and shelve deals on oil and gas fields.
Royal Dutch Shell on Tuesday announced $4.7 billion in asset sales, including a large chunk of its North Sea portfolio, and Exxon posted its lowest quarterly profit since 1999 as it wrote down the book value of part of its North American gas and crude reserves
(Editing by David Goodman)