Big oil is reaping record profits while squeezing consumers with record high gas prices, but the party may soon be over — for good.
More efficient gas cars and a boom in electric vehicle (EV) sales have caused the demand for gas to dip, the beginning of a long-term downward spiral that could put the squeeze on big oil.
Fifteen oil and gas companies operating in the United States still raked in massive profits during the third quarter this year, despite lower oil prices and a decline in gas demand, according to the the Natural Resources Defense Council (NRDC).
Meanwhile, EV sales are expected to top 1 million for the first time since their widespread introduction in 2019. Sales set a record, 259,000 cars, in the second quarter this year.
“Not only is that more than 48 percent higher than last year, it tops the number of EVs sold in all of 2019. Plug-in hybrid electric vehicles (PHEVs), which can run on gas or battery powered electricity, aren’t counted in that mix, according to Cox Automotive, which tracks the industry.
California, which typically leads the nation in trends, reported EV sales rising from 2% to 22% of all cars this year. Second-quarter EV sales rose 70% over last year’s quarter.
California is also the first state to require the sale of only new zero-emission — battery electric, plug-in hybrid electric and fuel cell — vehicles by 2035.
The rest of the county is about three years behind matching California’s numbers. New EV sales could hit a quarter of all new car sales by 2026, according to industry experts.
A number of factors — price cuts, wider variety of vehicles, government incentives and investments in new technology — are fueling the trend.
“It’s just this perfect storm of all these things coming together,” Stephanie Valdez-Streaty, the director of industry insights at Cox Automotive, told CNN.
Republicans in Congress, however, are attempting to derail electric cars at the behest of big oil.
Rep. Scott Perry of Pennsylvania has gone so far as to introduce a bill to defund “electric vehicles, electric vehicle charging, or photovoltaic technology.” Perry also wants to curb the use of critical minerals for manufacturing EV batteries.
The bill has little chance of passage, but not surprisingly, 71% of GOP voters say they would never purchase an EV, compared to 38% of independents and 17% of Democrats, according to a Gallop poll.
Oil companies seem intent on making hay while the sun shines. The price per barrel of oil has skyrocketed from a low of $68 in March to just over $90 in today’s (Sept. 20) market.
Saudi Arabia, one of the world’s largest producers. is influencing energy prices worldwide. It announced new production cuts in August to force the price of oil to around $100 a barrel.
The unilateral 1-million-barrel cut in daily production will continue through the end of September and could be extended further and deeper in the coming weeks, the kingdom said.
The cuts come on top of efforts by OPEC+, which has been limiting supply since late 2022 to support the market.
U.S. Oil refiners have already reduced their production capacity by more than 1 million barrels a day, or about 5% of the U.S. total.
The price of crude oil is the single biggest contributor to the retail price of gasoline, according to The Energy Information Administration (EIA).
Not surprisingly, gasoline prices at the pump have risen more than 20% this year, after a jump and slight decline coming out of the pandemic.
Consumers are reacting.
More than half (58%) of consumers said that high gas prices would motivate them to buy an EV, with “very high” gas prices pushing that number to 73%, according to a new survey from Oliver Wyman.
High prices are already having an affect at the pump. U.S. Gasoline demand is posting a modest decrease for 2023.
The EIA predicts a drop of about 1% to 8.74 million barrels a day.
The decline is expected to become more pronounced over time. Consumption will slump by about 15% between 2022 and 2027, a total decline of around 1.4 million barrels a day, according to Energy Aspects, an oil forecasting consultant.
“It’s the ongoing replacement of old cars with more fuel efficient ones that contributes to the steady erosion in the amount of gasoline used per mile,” Linda Giesecke, an analyst at consultancy ESAI, told Fortune.
President Obama pushed for higher mileage cars in 2009, which resulted in a record 25.42 miles per gallon on average in 2021. It’s expected to hit 26.36 miles per gallon in 2022, according to the federal Environmental Protection Agency.
President Biden is pushing even more aggressive goals. He wants a 49-mile-per-gallon fuel economy standard by 2026. The administration’s Inflation Reduction Act also dedicates $374 billion for climate-related spending, including EV incentives.
The day of reckoning for oil companies is still a long way off. It will take decades for the sale of EVs and rising fuel standards to make a significant dent in gasoline demand, which makes up 66.6% of all refined oil products.
Until that day comes, big oil is forging ahead with new domestic projects and still holds sway over both Democrats and Republicans in Washington.
Biden was criticized by hard-right Republicans for recently closing the Arctic National Wildlife Preserve to further drilling, but big oil had already walked away from those leases in 2022 because of the prohibitive cost to drill there.
Instead, oil industry lobbyists are pressuring the Biden Administration to expand oil drilling in and around coastal waters in Alaska and the Gulf of Mexico.
More than 700 million acres could be affected between this year and 2028 as part of the five-year, National Outer Continental Shelf Oil and Gas Leasing Program.
The first batch of 11 leases has been proposed. The federal Interior Department is expected to put them up for auction no later than 2024, according to an August industry letter to Biden signed by 14 oil lobbying groups. Yearly lease sales are expected to follow after that.
Technology is the wild card that could tip the balance.
If the latest breakthroughs in solid state batteries go into production, they would dramatically increase range, reduce charging time and lower costs for electric cars. That will answer one of the biggest concerns about EVs… range anxiety.
Then, the market is primed and ready to go.