WELLS, WIRES,
AND WHEELS…
For professional investors - August 2019

EROCI AND THE TOUGH
ROAD AHEAD FOR OIL
The asset manager
for a changing
world

WELLS, WIRES, AND WHEELS… - EROCI AND THE TOUGH ROAD AHEAD FOR OIL

A B OUT THE A UTHORMARK LEWIS is Global Head of Sustainability Research at
BNP Paribas Asset Management, having joined in January 2019.

MR. MARK LEWISGLOBAL HEAD OFSUSTAINABILITY RESEARCHBNP PARIBAS ASSET MANAGEMENT

Previously, he was Managing Director and Head of Research at
the Carbon Tracker Initiative (April-December 2018), Managing
Director and Head of European Utilities Research at Barclays(2015-18), Chief Energy Economist at Kepler Cheuvreux (201415), and Managing Director and Global Head of Energy Research
at Deutsche Bank (2005-13). He has also been a member of
the Financial Stability Board’s Task Force on Climate-related
Financial Disclosures since May 2016.
Mark is a UK and French Citizen and holds a BA (First-Class
Hons) in Modern Languages and Economics from Sheffield
University, an MPhil from Cambridge University, and an MAfrom London University.

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WELLS, WIRES, AND WHEELS… - EROCI AND THE TOUGH ROAD AHEAD FOR OILI NTRODUCTI ON
Oil needs long-term break-evens of $10-$20/bbl to remain competitive in mobility. In this report we
introduce the concept of the Energy Return on Capital Invested (EROCI), focusing on the energy returnon a $100bn outlay on oil and renewables where the energy is being used specifically to power carsand other light-duty vehicles (LDVs). For a given capital outlay on oil and renewables, how much usefulenergy at the wheels do we get? Our analysis indicates that for the same capital outlay today, newwind and solar-energy projects in tandem with battery electric vehicles (EVs)* will produce 6x-7x more
useful energy at the wheels than will oil at $60/bbl for gasoline-powered LDVs, and 3x-4x more thanwill oil at $60/bbl for LDVs running on diesel. Accordingly, we calculate that the long-term break-even
oil price for gasoline to remain competitive as a source of mobility is $9-$10/bbl, and for diesel $17-19/
bbl.
Oil has a massive flow-rate advantage, but this is time limited. The oil industry is so massive that theamounts that can be purchased on the spot market can provide very large and effectively instantaneousflows of energy. By contrast, new wind and solar projects deliver their energy over a 25-year operating
life. Nonetheless, we think the economics of renewables are impossible for oil to compete with whenlooked at over the cycle. We calculate that to get the same amount of mobility from gasoline as fromnew renewables in tandem with EVs over the next 25 years would cost 6.2x-7x more. Indeed, even if
we add in the cost of building new network infrastructure to cope with all the new wind and/or solar
capacity implied by replacing gasoline with renewables and EVs, the economics of renewables stillcrush those of oil. Extrapolating total expenditure on gasoline in 2018 for the next 25 years would see$25trn spent on mobility, whereas we estimate the cost of new renewables projects complete with theenhanced network infrastructure required to match the 2018 level of mobility provided by gasoline
every year for the next 25 years at only $4.6-$5.2trn.
Economic and environmental benefits set to make renewables in tandem with EVs irresistible. The
clear conclusion of our analysis is that if we were building out the global energy system from scratch
today, economics alone would dictate that at a minimum the road-transportation infrastructure would
be built up around EVs powered by wind- and solar-generated electricity. And that is before we factor in
the other advantages of renewables and EVs over oil as a road-transportation fuel, namely the climatechange and clean-air benefits, the public-health benefits that flow from this, the fact that electricity
is much easier to transport than oil, and the fact that the price of electricity generated from wind andsolar is low and stable over the long term whereas the price of oil is notoriously volatile.
The death toll for petrol. With 36% of demand for crude oil today accounted for by LDVs and othervehicle categories susceptible to electrification, and a further 5% by power generation, the oil industry
has never before in its history faced the kind of threat that renewable electricity in tandem with EVs
poses to its business model: a competing energy source that (i) has a short-run marginal cost (SRMC) of
zero, (ii) is much cleaner environmentally, (iii) is much easier to transport, and (iv) could readily replace
up to 40% of global oil demand if it had the necessary scale. We conclude that the economics of oil for
gasoline and diesel vehicles versus wind- and solar-powered EVs are now in relentless and irreversible
decline, with far-reaching implications for both policymakers and the oil majors.
A warning from the European utility sector. If all of this sounds far-fetched, then the speed with which
the competitive landscape of the European utility industry has been reshaped over the last decade by
the rollout of wind and solar power – and the billions of euros of fossil-fuel generation assets that thishas stranded – should be a flashing red light on the oil industry’s dashboard.

*

Throughout this report we refer to battery electric vehicles as EVs. In other words, we are talking about fully electric vehicles,
not plug-in hybrids.

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WELLS, WIRES, AND WHEELS… - EROCI AND THE TOUGH ROAD AHEAD FOR OIL

TA B L E O F C O N T E N T S

1E X E CU T I V E S U M MARY. .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 6

1.1EROCI IMPLIES LONG-TERM OIL BREAK-EVENS OF $10-$20/BBL TO REMAIN COMPETITIVE
IN MOBILITY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

1.2

REALITY CHECK: OIL HAS A MASSIVE INCUMBENCY ADVANTAGE. . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

1.3

NET EROCI OF OIL IN 2018: HOW MUCH MOBILITY DID GASOLINE PROVIDE AND AT WHATCOST? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

1.4

IMPLICATIONS FOR POLICYMAKERS AND OIL COMPANIES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

1.5

EROCI PUTS 40% OF LONG-TERM OIL DEMAND AT RISK >$20/BBL. . . . . . . . . . . . . . . . . . . . . . . . . . 16

2

ME T H O D O LO G Y AN D K EY MODEL L I N G
A S S U MP T I O N S. .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 20

2.1

METHODOLOGY: FROM GROSS POTENTIAL EROCI TO NET EROCI. . . . . . . . . . . . . . . . . . . . . . . . . . . 20

2.2

KEY ASSUMPTIONS FOR OIL AND FOR ICE AND DIESEL ENGINES. . . . . . . . . . . . . . . . . . . . . . . . . . . 20

2.3

KEY ASSUMPTIONS FOR NEW WIND AND SOLAR PROJECTS AND EVS. . . . . . . . . . . . . . . . . . . . . . . 23

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WELLS, WIRES, AND WHEELS… - EROCI AND THE TOUGH ROAD AHEAD FOR OIL

3

G R O S S E R O CI : OI L V REN EWA BL ES. .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 28

3.1

GROSS POTENTIAL EROCI VERSUS GROSS EROCI AT THE PUMP OR CHARGING POINT. . . . . . . . . . 28

3.2

GROSS POTENTIAL EROCI: HOW MUCH GROSS POTENTIAL ENERGY DOES $100BN BUY?. . . . . . . 28

3.3

GROSS EROCI AT THE PUMP OR CHARGING POINT - HOW MUCH DOES $100BN BUY?. . . . . . . . . 30

3.4

CONCLUSION ON GROSS EROCI: GASOLINE AND DIESEL NEED OIL AT $35-$50/BBL. . . . . . . . . . . . 33

4N E T E R O CI : O I L V REN EWA BL ES .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 34

4.1

GASOLINE: HOW MUCH NET ENERGY DOES $100BN AT $60/BBL OIL BUY?. . . . . . . . . . . . . . . . . . . 34

4.2

EROCI IMPLIES GASOLINE NEEDS OIL BREAK-EVENS OF $9-10/BBL OVER LONG TERM. . . . . . . . . 35

4.3

DIESEL: HOW MUCH NET ENERGY DOES $100BN AT $60/BBL OIL BUY?. . . . . . . . . . . . . . . . . . . . . 36

4.4

EROCI IMPLIES DIESEL NEEDS OIL BREAK-EVENS OF $17-$19/BBL OVER LONG TERM. . . . . . . . . . 37

4.5

CONCLUSION: GASOLINE AND DIESEL ECONOMICALLY UNSUSTAINABLE AS LDV FUELS. . . . . . . . . 38

D I SCL AI M E R . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  40

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WELLS, WIRES, AND WHEELS… - EROCI AND THE TOUGH ROAD AHEAD FOR OIL

1

E X E CUTI V E S UMMA RY- 1.1 -EROCI IMPLIES LONG-TERM OIL BREAK-EVENS OF $10-$20/BBL TO REMAIN COMPETITIVE IN MOBILITY
In this report we introduce the concept of the Energy Return on Capital Invested (EROCI). EROCI is ametric that allows for the comparison of the energy yielded from a given level of investment in different
energy sources and can be measured on both a gross and a net basis. In this report, we focus on the
EROCI for a $100bn outlay on oil and renewables where the energy is being used specifically to powercars, other light-duty vehicles (LDVs), and other light and mid-heavy vehicles.1
We define gross energy as the amount of primary energy available before it is converted into usefulenergy in final consumption. We define net energy as the amount of energy that does useful work after
taking in to account all energy-transportation and energy-conversion costs and losses.
What we are most interested in is how much a given capital outlay on oil and renewables translates
into useful or propulsive energy at the wheels: in other words, for a given capital outlay, how much
mobility can you buy?
More specifically, in our analysis throughout this report we define net energy to mean the useful energy
provided at the wheels to LDVs powered by gasoline and diesel on the one hand, and to EVs poweredby electricity from new onshore-wind, offshore-wind, and solar-photovoltaic (PV) projects on the other.
Accordingly, we use terawatt-hours (TWh) as the unit of energy to compare the EROCI of oil versus
renewables, using a conversion ratio of 1 million barrels of oil equivalent (mboe) = 1.7TWh. As such,our concept of net EROCI throughout this report is effectively a variation on the notion of vehicle miles
travelled (VMT), or vehicle kilometres travelled (VKT).
Given the sheer scale of the energy industry we have chosen to compare the EROCI of oil and renewables
for a $100bn outlay, but the essential point to bear in mind throughout this report is that we arecomparing the energy return on oil and renewables for the same capital outlay. In other words, whether
we are looking at $1, $100, or $100bn of capital invested, what matters is the differential in the net
energy yielded from oil on the one hand, and from wind and solar on the other, when the energy isconsumed to provide mobility.
1 . 1 . 1 OUR EROCI ANALYSIS SHOWS THAT RENEWABLES IN TANDEM WITH EVS PROVIDE UP TO 7X
MORE NET ENERGY FOR SAME OUTLAY
Our analysis leads to a very stark conclusion for the oil industry: for the same capital outlay today, windand solar energy will already produce much more useful energy for EVs than will oil purchased on the
spot market today at $60/bbl2 and then used for gasoline- and diesel-powered LDVs.3
Indeed, and as shown in Figure 1, our model says that for the same capital outlay today, wind andsolar energy would produce 6.2-7x more useful energy for EVs than would oil priced at $60/bbl for

1. Together these segments accounted for 36% of total oil demand in 2018, and if we add in power generation from oil – also
vulnerable to competition from renewables – we get to 40% of current global oil demand at long-term risk of disintermediationfrom renewables according to our EROCI analysis in this report.
2. With the exception of our analysis of gasoline consumption in 2018 in Section 1.3 below (for which we use a price of $68/bbl
derived from the average of WTI and Brent in 2018), throughout this report we take $60/bbl as our market reference price. Thisis because so far in 2019 the average of the Brent and WTI benchmarks has been very close to $60/bbl, and in the context ofoil used as a road-transportation fuel the US WTI benchmark is particularly important (cross-checking the data from the US
Government’s Energy Information Administration at https://www.eia.gov/totalenergy/data/monthly/pdf/mer.pdf with the global
breakdown shown in Figure 9 below, we estimate that the US accounts for ~40% of global gasoline demand and ~25% of global
diesel demand).
3. We explain all of our modelling assumptions in detail below (see Section 2, Methodology and Key Modelling Assumptions).

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WELLS, WIRES, AND WHEELS… - EROCI AND THE TOUGH ROAD AHEAD FOR OIL

LDVs running on a gasoline-powered internal-combustion engine (ICE), and 3.2x-3.6x more usefulenergy than oil at $60/bbl for LDVs running on diesel engines (Figure 2).4
With our analysis showing that wind and solar in tandem with EVs will yield significantly more usefulenergy for mobility than will oil for gasoline- and diesel-powered LDVs at $60/bbl, the real questionis this: at what price would oil need to trade over the long term in order to remain competitive in themarket for mobility?
The answer to this question will give a reference point for the break-even price levels oil companies
should have in mind when thinking about which new projects to invest in. And on our calculations, thenumbers are stark.
Figure 1: Net EROCI* from new renewables projects in tandem with EVs versus oil used for gasoline
vehicles for a $100bn outlay (TWh)

ENERGY ANDTECHNOLOGYSOURCESGROSSPOTENTIAL
ENERGY5GROSS
GROSS ENERGY
MULTIPLE OF IMPLIED OIL
NET EROCIPRICE FOR
ENERGYAT PUMP OR
EROCI OF OIL(MOBILITY)8PURCHASED6CHARGER7
AT $60/BBL SAME NET EROCI

Oil for gasoline LDVs

2,824TWh

1,497TWh

1,347TWh

270TWh1x$60/bblOnshore wind w/EVs

3,443TWh

2,583TWh

2,324TWh

1,673TWh

6.2x$9.7/bbl

Offshore wind w/EVs

3,871TWh

2,903TWh

2,613TWh

1,881TWh7x$8.6/bbl

Solar-PV w/EVs

3,249TWh

2,437 Wh2,315TWh

1,667TWh

6.2x$9.7/bbl

Source: BNP Paribas Asset Management *In this report, net EROCI is the amount of mobility bought for a given capital outlay.

Figure 2: Net EROCI* from new renewables projects in tandem with EVs versus oil used for diesel
vehicles for a $100bn outlay (TWh)

ENERGY ANDTECHNOLOGYSOURCESGROSSPOTENTIAL
ENERGY

MULTIPLE OF IMPLIED OILGROSS ENERGYGROSSNET EROCIPRICE FOR
EROCI OF OIL
AT PUMP OR
ENERGY(MOBILITY)
AT $60/BBL SAME NET EROCICHARGERPURCHASED

Oil for diesel vehicles

2,824TWh

1,497TWh

1,497TWh

524TWh1x$60/bblOnshore wind w/EVs

3,443TWh

2,583TWh

2,324TWh

1,673TWh

3.2x$16.7/bbl

Offshore wind w/EVs

3,871TWh

2,903TWh

2,613TWh

1,881TWh

3.6x$18.8/bbl

Solar-PV w/EVs

3,249TWh

2,437TWh

2,315TWh

1,667TWh

3.2x$18.9/bbl

Source: BNP Paribas Asset Management *In this report, net EROCI is the amount of mobility bought for a given capital outlay.

For gasoline LDVs, we calculate the oil price required to yield as much net energy as would newrenewables projects in tandem with EVs at $9-$10/bbl, and for diesel at $17-$19/bbl.

4. As explained in Section 2 below, for gasoline-ICE LDVs we assume a thermal efficiency of 20%, and for diesel-ICE engines weassume a thermal-efficiency rate of 35%.
5. We define gross potential energy as the amount of energy inherent in a given amount of expenditure on crude oil or new
renewables projects before accounting for the real-world costs of getting the energy to the end consumer (in this case, thenumbers are based on $100bn of expenditure). We explain this in more detail in section 2 below.
6. We define gross energy purchased as the amount of energy available from crude oil or new renewables projects after
accounting for the costs of refining and transporting the energy, and any taxes payable (in the case of oil), and the costs oftransporting the electricity (in the case of new renewables projects). Again, see Section 2 for more details.
7. We define gross energy at the pump as the amount of energy that reaches the end-consumer before it is used. As such it
accounts for any energy losses in refining (for oil) or over the transmission and distribution grids (in the case of electricity fromnew renewables projects). Again, see Section 2 for more details.
8. We define net EROCI as the amount of useful energy, i.e. energy that actually provides mobility. As such, it is the amount ofenergy left available after combustion losses (in the case of gasoline and diesel engines) or after charging and conversion
losses (in the case of renewable electricity used in EVs). Again, see Section 2 for more details.

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WELLS, WIRES, AND WHEELS… - EROCI AND THE TOUGH ROAD AHEAD FOR OIL

1.1.2 EROCI IMPLIES GASOLINE NEEDS OIL BREAK-EVENS OF $11-$12/BBL OVER LONG TERM
We calculate that for $100bn of total expenditure on new renewables projects assuming new-build
costs of $60/MWh for onshore wind, $70/MWh for offshore wind, and $65/MWh for solar-PV, thesetechnologies would generate 1,881TWh, 1,673TWh, and 1,667TWh respectively of useful energy for EVs
over 25 years.
This compares with only 270TWh of useful energy provided for gasoline-powered LDVs with $100bn of
crude oil purchased on the spot market today at $60/bbl.
Indeed, we calculate that for the same outlay on these different energy sources, oil would have to trade
at $9/bbl to yield as much useful energy for gasoline-fuelled LDVs as offshore wind would yield intandem with EVs, $10/bbl for as much useful energy as onshore wind in tandem with EVs, and $10/bbl
for as much as useful energy as solar-PV in tandem with EVs (Figure 3).
Figure 3: Net EROCI* from new renewables projects in tandem with EVs versus oil used for gasoline
vehicles for a $100bn outlay (TWh)
2000
1800

1881

1881
1673

1600

1673

1667

1667

1400
1200
1000
800
600
400
200
0

Offshorewind at$1.8bn/GW

Oil at$9/bblOnshoreOil at Solar PV atwind at$10/bbl $0.8bn/GW$1.2bn/GW

Oil at$10/bl

270

216

162

Oil at$60/bblOil at$75/bblOil at$100/bbl

Source: BNP Paribas Asset Management estimates. *In this report, net EROCI is the amount of mobility bought for a given capital outlay.

1.1.3 EROCI IMPLIES DIESEL NEEDS OIL BREAK-EVENS OF $17-$19/BBL OVER LONG TERM
For diesel-powered engines, the numbers are only marginally better than those for gasoline. We
calculate that for an outlay of $100bn, oil would have to trade at $17/bbl to yield as much useful energy
for diesel-fuelled LDVs as new offshore-wind projects would for EVs, $19/bbl for as much useful energy
as yielded by new onshore wind, and $19/bbl for as much as from new solar-PV projects (Figure 4).

8WELLS, WIRES, AND WHEELS… - EROCI AND THE TOUGH ROAD AHEAD FOR OIL

Figure 4: Net EROCI* from new renewables projects in tandem with EVs oil used for diesel vehicles fora $100bn outlay (TWh)
2000
1800
1600

1881

1881
1673

1673

1667

1667

1400
1200
1000
800
600

524

419

400

314

200
0
Offshore
Oil atOnshoreOil atSolar PV at Oil at
wind at$17/bblwind at$19/bbl $0.8bn/GW $19/bbl$1.8bn/GW$1.2bn/GW

Oil at$60/bblOil at$75/bblOil at$100/bbl

Source: BNP Paribas Asset Management estimates. *In this report, net EROCI is the amount of mobility bought for a given capital outlay.

These are stunning numbers, and they suggest that the economics of renewables in tandem with EVs
are set to become irresistible over the next decade.
Indeed, the clear conclusion of our analysis is that if the world were building out the global energy
system from scratch today, then the economics alone would dictate that at a minimum the roadtransportation infrastructure would be built up around EVs powered by wind- and solar-generated
electricity rather than around oil, refineries, and gasoline and diesel vehicles.
But there is a catch, and it is a big one: oil has a massive incumbency advantage.
- 1.2 REALITY CHECK: OIL HAS A MASSIVE INCUMBENCY ADVANTAGE
The oil industry today enjoys a massive scale advantage over wind and solar of several orders ofmagnitude – oil supplied 33% of global energy in 2018 compared with only 3% from wind and solar9
Moreover, EVs are currently more expensive than ICE and diesel vehicles on a sticker-price basis, andlikely to remain so until 2023-25.10
This scale advantage over wind and solar gives oil the further advantages of speed and convenience:
the oil industry is so massive that the amounts that can be purchased on the spot market can provide
very large and effectively instantaneous flows of energy. By contrast, new wind and solar projects will
only deliver their energy over a 25-year operating life. This underlines the point that the renewableenergy industry needs to scale up massively over the coming decades since on an absolute unadjusted
basis wind and solar cannot deliver anything close to the energy that the global oil industry can deliver
today as an instantaneous flow.
But then 100 years ago, before it had scaled up, the oil industry would not have been able to deliver thekind of instantaneous flow of energy it can deliver today either. The point here is that the oil industry
has built up a giant global supply chain over many decades while wind and solar are at the beginningof that same journey.

9. See the BP Statistical Review of World Energy 2019, which gives total consumption of wind and solar power as 420 million
tonnes of oil equivalent (mtoe) in 2018, out of total global primary energy consumption of 13,865mtoe. The BP Statistical
Review is available at: https://www.bp.com/en/global/corporate/news-and-insights/press-releases/bp-statistical-review-ofworld-energy-2019.html
10. We discuss projections for the cost trends for EVs in Section 1.4 below.

9WELLS, WIRES, AND WHEELS… - EROCI AND THE TOUGH ROAD AHEAD FOR OIL

Moreover, individual oil projects do not deliver their output as an instantaneous flow, but typicallyover many years, taking time to build up to a peak level of production, then plateauing for a few years,
and then entering into decline.11 This means that reinvestment in new projects is needed every year
to replace lost production, and this is where the price comparison with new wind and solar projects
comes in: what really matters going forward is how competitive new oil projects will be with new windand solar projects.
1.2.1 BUT INCUMBENCY’S ADVANTAGES ARE TIME-LIMITEDThe advantages of speed and convenience enjoyed by the oil industry today are time-limited. This isbecause decline rates in the oil industry mean that every year it has to invest in new projects just to
stand still. And the dilemma for the oil majors that arises out of this fact is that they have an average
reserves-to-production (R/P) ratio of only 10 years, meaning that every year they need to replace ~10%of their reserves.12
This means that every year they bring new projects onstream to replace the reserves that are consumed,
and every year they make final-investment decisions (FIDs) on future projects for production years
down the line. It is these FIDs that will require ever greater scrutiny going forward, especially thosewith a break-even of >$20/bbl.
This is because by the time such projects sanctioned today actually start producing a growing portionof their output will be subject to fierce competition from a cheaper, cleaner fuel source. Of course, there
remain big infrastructure challenges to be overcome – and paid for – if the potential of renewables intandem with EVs is to be fulfilled over the next two decades but as the net-energy yield over the fulllife-cycle of renewables versus oil will only continue to improve over the next decade the competitive
advantage is set to shift decisively in favour of EVs over oil-powered cars in the next five years. In ourview, this is much sooner than the oil industry thinks.
For now, though, oil enjoys a significant energy-flow advantage over renewables. The question is, how
big is this advantage, and how long will it last? One way of answering this question is to look at theenergy-flow rate from oil used for gasoline in 2018 for a $100bn outlay, and compare this with theannual flow rates that can be achieved from a $100bn investment in new wind and solar projects.
- 1.3 NET EROCI OF OIL IN 2018: HOW MUCH MOBILITY DID GASOLINE PROVIDE AND AT WHAT COST?
How much useful energy – i.e. mobility – was provided by gasoline to cars and other LDVs in 2018, andhow much did this mobility cost? The answer to this question will give us a reference point for how
long oil will be able to live off its sunk infrastructure as a source of competitive advantage over new
renewables projects.

11. The rise of US shale or light, tight oil (LTO) over the last decade is the exception to this pattern, as LTO projects typically deliver
over 50% of their output in the first three years of their production. The flipside to this, however, is that in order to maintainexisting levels of production LTO plays require constant re-investment in new drilling such that in aggregate the LTO industry is
still cash-flow negative. For more on the cash-flow shortfall of the LTO business model see the recent FT article of 19 May, “USoil: Occidental’s $56bn gamble on finding value in shale”, available at: https://www.ft.com/content/d3d63bba-7653-11e9-be7d6d846537acab
12. We derive this average R/P ratio from company reports cross-checked with sell-side equity analysts.

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WELLS, WIRES, AND WHEELS… - EROCI AND THE TOUGH ROAD AHEAD FOR OIL

1.3.1

WE ESTIMATE TOTAL USEFUL ENERGY FROM GASOLINE IN 2018 AT 2,660TWH FROM A TOTALOUTLAY OF $1.12 TRN

To derive numbers for the total amount of useful energy yielded by gasoline in 2018 and the outlay
required to purchase this useful energy, we need to know four things: (i) the average cost of oil in 2018;(ii) the amount of oil used for gasoline in cars and other LDVs; (iii) any energy losses in converting oil
into gasoline; and (iv) the average thermal efficiency of the global gasoline-fuelled vehicle fleet:(i)

For the average oil price in 2018 we add together the average 2018 prices of the two mostimportant global benchmarks – the Brent price of $71/bbl and the WTI price of $65/bbl – anddivide this number by two. This gives us an average 2018 oil price of $68/bbl.

(ii)

For the amount of oil used for gasoline in cars and other LDVs we take the 2018 numbers for oil
demand from the International Energy Agency13 (IEA), and Wood Mackenzie’s estimates for theshare of this demand accounted for by gasoline in cars and other LDVs.14(iii)

Throughout this study we take the energy-density numbers provided by the US Government
Energy Information Administration (EIA) for oil, gasoline, and diesel. On these numbers gasoline
contains 10% less energy per barrel than crude oil.15
The IEA numbers show total oil demand of 99.2 million barrels per day (mbd) in 2018, which
equates to 36.2 billion barrels of oil (bboe) over the whole year. Wood Mackenzie estimates theshare of gasoline for cars and other LDVs in this total at 24%, which gives us 8.688bboe of gasoline
demand for road-transportation purposes in 2018.

(iv)

We assume an average efficiency rate for the internal combustion engine (ICE) in the global
gasoline-fuelled vehicle fleet of 20%, although the true number is probably a little lower than this.

Putting all of this together, we calculate that in 2018
Total expenditure on barrels of crude oil = $2.462 trillion (i.e. 36.2bboe*$68)
Total amount of barrels of crude-oil demand for gasoline = 8.690bboe (i.e. 36.2bboe*24%)
Total expenditure on barrels of crude oil intended for gasoline = $591bn (i.e. 8.690bboe*$68)
Total amount of gross potential energy in crude oil intended for gasoline = 14,773TWh(i.e. 8.690bboe*1.7)
Total amount of gross potential energy in gasoline at the pump = 13,296TWh (i.e. 14,773TWh*90%)
Total amount of net energy – i.e. mobility – provided by gasoline = 2,660TWh (i.e. 13,296TWh*20%)
So, for $591bn of capital outlay just on the energy in the crude oil, consumers purchased total usefulenergy – i.e. mobility – of 2,660TWh. These numbers are summarized in Figure 5.
Figure 5: 2018 estimated total global expenditure on crude oil and on crude oil for gasoline, anduseful energy yielded from gasoline

MBD

MBY

PRICE

OUTLAYGROSS ENERGY USEFUL ENERGY

Total oil market

99.2

36,208$68/bbl

$2,462bn

61,554TWhn/a*

Oil for gasoline

23.8

8,690

$68/bbl$591bn13,296TWh

2,660TWh

Source: BNP Paribas Asset Management. *We do not attempt to calculate the useful energy from all of the crude oil consumed in2018 as for our purposes here we are only interested in the useful energy from 2018 gasoline consumption.

However, the expenditure on the energy itself is only half the story, because for every dollar spent at
the pump on gasoline, nearly half goes on refining, transporting, marketing, and taxing the energy itself.

13. See the IEA publication Oil 2019: Analysis and Outlook to 2024 (Table 1.2, p. 17), available at: https://webstore.iea.org/download/
getdownload/e5d579e3-b6cc-4e31-9590-36821f71f938?fileName=MRSoil2019.pdf.
14. See Section 1.5 below.
15. See Section 2.2 below.

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WELLS, WIRES, AND WHEELS… - EROCI AND THE TOUGH ROAD AHEAD FOR OIL

As a consequence, we have to gross up the $591bn spent on the energy itself to derive the total amountof expenditure required for the 2,660TWh of useful energy provided by gasoline in cars and other LDVs
in 2018. Taking again the EIA numbers used later in this report, we assume that only 53% of the total
expenditure on gasoline is for the energy itself, with the rest required to cover all the other costs ofgetting the gasoline to the end-consumer at the pump: refining, transporting, marketing, and taxes.16
The EIA estimates that 53% of the total cost of gasoline at the pump goes on the energy in the crude oil,
15% on refining, 15% on transporting and marketing, and 17% on taxes, so this is the schema we haveused to derive the total outlay (Figure 6).
Figure 6: Estimated total expenditure on oil used for gasoline in 2018, and useful energy yielded fromgasoline for every $100bn

Oil for gasoline

ENERGYREFINING

TRANSPORT/
MARKETING

TAXES

TOTAL

USEFULENERGYMOBILITY/$100BN$591bn$167bn$167bn$190bn$1,115bn

2,660TWh

240TWhSource: BNP Paribas Asset Management.

Putting all of this together, we calculate that in 2018:
Total expenditure on crude oil intended for gasoline for cars and other LDVs = $1.115trn (i.e.
$591bn/53%)
Total net energy provided by gasoline = 2,660TWh
Net EROCI of oil intended for gasoline = 2,660TWh/$1.115trn
Net EROCI = 2.4TWh per $1bn
In 2018, therefore, we estimate the net EROCI of oil used for gasoline for an outlay of $100bn = 240TWh
By contrast, our estimates for the net EROCI for a $100bn outlay on new onshore-wind, offshore-wind,and solar-PV projects – assuming the output of these projects is then used for providing mobility to EVs– are those already shown above in Figures 1 and 3, namely:
Onshore wind = 1,673TWh = 7x net EROCI of oil used for gasoline in 2018
Offshore wind = 1,881TWh = 7.8x net EROCI of oil used for gasoline in 2018
Solar-PV = 1,667TWh = 7x net EROCI of oil used for gasoline in 2018
That said, because the $100bn spent on new renewables projects will only deliver its energy over anassumed operating life of 25 years, we also need to compare the annual flow rate of useful energy fromour new renewables projects with the annual flow rate of useful energy from $100bn spent on oil on
the spot market for gasoline.
1.3.2$100BN ON SPOT OIL FOR GASOLINE YIELDS 3X-4X THE ANNUAL FLOW OF USEFUL ENERGYFROM NEW RENEWABLES PROJECTSThe sheer scale of the oil industry’s sunk infrastructure will provide it with a significant advantage overrenewables in terms of the flow of energy it can provide for the next 15-20 years: the 240TWh of net
energy provided for every $100bn spent on oil for gasoline in 2018 is 3.9x, 3.4x, and 4.7x the annual flowrate of net energy that $100bn spent on new onshore-wind, offshore-wind, and new solar-PV projects
respectively could deliver (Figure 7).

16. As explained in Section 2.2 below, these numbers are based on US costs, but with the US accounting for 40% of global gasoline
consumption we think this is a reasonable proxy for global costs (although the tax element is typically higher in other parts of
the world, especially Europe).

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WELLS, WIRES, AND WHEELS… - EROCI AND THE TOUGH ROAD AHEAD FOR OIL

Figure 7: Useful energy (mobility): annual flow from $100bn spent on oil market for gasoline vehicles
with oil at $68/bbl versus annual flow from $100bn spent on new renewables projects in tandemwith EVs (TWh)

ANNUAL NET ANNUAL FLOW: ANNUAL FLOW:TOTAL NET
ENERGY AND TECHNOLOGY TOTAL NEW
APACITY BUILT ENERGY FLOW ENERGY FLOW RENEWABLES AS OIL AS MULTIPLE
SOURCES FOR FUEL
FOR $100BN FOR $100BN FOR $100BN FRACTION OF OIL OF RENEWABLES
AND TRANSPORTOil for gasoline LDVs

n/a

240TWh240TWh1x

1x

Onshore wind w/EVs

47GW

1,673TWh

67TWh

0.28x

3.6x

Offshore wind w/EVs

27GW

1,881TWh

75TWh

0.31x

3.2x

Solar-PV w/EVs

75GW

1,667TWh

67TWh

0.28x

3.6x

Source: BNP Paribas Asset Management

This is because in order to derive the annual flow rate of useful energy from new renewables projects
we need to divide the total useful energy from a $100bn investment by 25 (our assumed operating life
for new wind and solar projects). When we do this, we get the numbers shown in Figure 7: comparedwith the 240TWh of useful energy provided by $100bn spent on oil used for gasoline in 2018, our
new onshore, offshore, and solar-PV projects would, for the same outlay, provide annual flows of only
67TWh, 75TWh, and 67TWh respectively.
From the difference in flow rates shown in Figure 7 it follows that in comparing the net EROCI of oil
versus wind and solar throughout this report we should not compare these energy sources on a likefor-like basis. Rather, we need to take in to account the advantage that oil enjoys over renewables as aresult of its existing scale and scope. Accordingly, our EROCI analysis for oil considers how much usefulenergy can be delivered from a $100bn outlay on the spot market today, whereas our EROCI analysis forwind and solar looks at how much energy can be delivered from $100bn spent on new projects.
Even allowing for this structural advantage enjoyed by oil in terms of flow rates, however, we think the
economics of renewables are already impossible for oil to compete with when looked at over the cycle.
1.3.3

INFRASTRUCTURE BUILD-OUT KEY TO ADOPTION OF RENEWABLES AND EVS BUT ECONOMICSNOW IRRESISTIBLE

Figure 8 shows how much the mobility provided by gasoline in 2018 would cost over the next 25 years
assuming a continuation of the current pattern of expenditure on gasoline on the one hand, and the costof providing the same amount of annual mobility via new renewables projects in tandem with EVs on
the other. In Figure 8 and Figure 9 we assume an oil price of $60/bbl, in keeping with the average global
price so far in 2019 obtained from the average of the WTI and Brent benchmarks.
Figure 8: Total outlay required to purchase useful-energy flow (mobility) of 2,660TWh per year over
25 years, oil for gasoline vehicles versus new renewables projects in tandem with EVs (TWh)

OUTLAY FOR
2018
ANNUALTOTAL NET
ENERGY
DEMAND FOR ANNUAL
NET
AND TECHNOLOGY ENERGYENERGY NET ENERGY NET ENERGY
SOURCES FOR FUEL FLOW FOR
FLOW OFFROMFLOW FOR$100BNAND TRANSPORT
2,660TWHGASOLINE$100BNTOTAL OUTLAY
OUTLAY OVERON OIL AS A
25 YEARS FOR
NET ANNUAL MULTIPLE OF NEW
RENEWABLES
ENERGY FLOWPROJECTS
OF 2,660TWH

Oil for gasoline for LDVs

270TWh270TWh2,660TWh$984bn$24.6trn

1x

Onshore wind w/EVs

1,675TWh

67TWh

2,660TWh$3.97trn$3.97trn

6.2xOffshore wind w/EVs

1,881TWh

75TWh

2,660TWh$3,55trn$3,55trn

7x

Solar-PV w/EVs

1,667 Wh67TWh

2,660TWh$3.97trn$3.97trn

6.2xSource: BNP Paribas Asset Management.

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WELLS, WIRES, AND WHEELS… - EROCI AND THE TOUGH ROAD AHEAD FOR OIL

As shown in Figure 8, we estimate the total cost of gasoline to provide 2,660TWh of mobility with oil
at $60/bbl at $984bn. Multiplying this by 25 gives us a total cost of $25trn over the next 25 years
to provide 2,660TWh of annual useful-energy flow. By contrast, based on the annual flows of usefulenergy yielded on our calculations by new renewables projects in tandem with EVs for a $100bn outlay(Figure 7 above), we calculate that to scale up to the necessary level in order to be able to provide
2,660TWh per year over the next 25 years, the following levels of investment would be necessary:17
For new onshore wind projects: $3,970trn
We calculate this number by taking the annual net-energy flow from new onshore-wind projects
from a $100bn outlay – 67TWh from 47GW of new capacity built for $100bn (per Figure 7) – anddividing this by 2,660TWh: 67/2,660 = 2.5%.
We then take the $100bn outlay and divide this by 2.5%: $100bn/2.5%= $3,970trn from 1,873GW ofimplied new capacity
For new offshore wind projects using the same methodology = $3,546trn for 940GW of implied newcapacity
For new solar-PV projects using the same methodology = $3,970trn for 2,985GW of implied newcapacity
In short, to get the same amount of mobility from gasoline as from new renewables in tandem with EVs
over the next 25 years, it would cost 6.2x-7x more. Indeed, even if we add in on top of this the cost ofbuilding new network infrastructure – i.e. enhancements to the transmission and distribution networks
to cope with the extra volumes of power generated from all the new wind and/or solar capacity impliedby replacing gasoline with renewables and EVs – the economics of renewables still crush those of oil.
Figure 9 assumes an extra 30% of expenditure on top of the cost of building and operating the newgeneration capacity required to produce 2,660TWh of useful energy every year for the next 25 years.
We take this 30% figure from the numbers in the New Energy Outlook 2019 (NEO 2019) published byBloomberg New Energy Finance (BNEF) earlier this month.18
On this basis, and making the completely unrealistic assumption that no maintenance capex would be
required for the upkeep of the global oil and gasoline infrastructure over the next 25 years, the total
outlay on oil for gasoline over 25 years would still be 5.4x-6x higher than would be the outlay for new
renewables projects. And that is before we even start to think about the cost of the externalities ofburning oil.

17. Again, all these numbers are premised on our assumptions on the economics of renewables in tandem with EVs, as set out indetail in n Section 2 below.
18. The full report is only available to BNEF subscribers, but the summary findings are available at: https://about.bnef.com/
new-energy-outlook/. The NEO 2019 projects a massive increase in renewable capacity out to 2050 (p. 88-89) that solar-PV
capacity at utility scale could increase by 5,000GW by 2050, and wind capacity (onshore and offshore combined) by 3,800GW.
However, the NEO 2019 also states (p. 175) that of the $10.3trn in capital expenditure on networks it projects out to 2050,
only 30% is for incremental capacity associated with the very large projected build-out of new renewables capacity, the rest
being for ‘replacement and refurbishment of grid infrastructure that reaches the end of its lifetime’. We would also note that
our assumptions regarding the cost of new build for wind and solar are more conservative than those of BNEF, as explained in
Section 2 below.

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WELLS, WIRES, AND WHEELS… - EROCI AND THE TOUGH ROAD AHEAD FOR OIL

Figure 9: Total outlay required to purchase useful-energy flow (mobility) of 2,660TWh per year over
25 years, oil for gasoline LDVs versus new renewables projects in tandem with EVs (TWh)

ENERGY ANDTECHNOLOGYSOURCES FOR FUEL
AND TRANSPORTOUTLAY OVER 25 NETWORK UPGRADES TOTAL OUTLAY OVER
25 YEARS FOR NET
REQUIRED FORYEARS FOR NET
ANNUAL ENERGYANNUAL ENERGY EXTRA RENEWABLESFLOW OF 2,660TWH
CAPACITY
FLOW OF 2,660TWH

TOTAL OUTLAY ON OIL
AS A MULTIPLE OF
NEW RENEWABLESPROJECTS

Oil for gasoline for LDVs

$24.6trnn/a$24.6trn

1x

Onshore wind w/EVs$3.97trn$1,19trn$5.16trn

4.8xOffshore wind w/EVs$3,55trn$1,06trn$4.61trn

5.3xSolar-PV w/EVs$3.97trn$1,19trn$5.16trn

4.8xSource: BNP Paribas Asset Management.

In short, the economics of renewables in tandem with EVs as a competitor to oil as a road-transportationfuel are becoming irresistible. The implications for both policy-makers and the oil majors are very farreaching.
- 1.4 IMPLICATIONS FOR POLICYMAKERS AND OIL COMPANIESWith the economics of road transportation already moving so dramatically in favour of renewables intandem with EVs, once the other advantages of renewables and EVs over oil as a road-transportationfuel are factored in the case for accelerating the roll-out of renewables capacity becomes unanswerable.
These other advantages are:
(i)
(ii)
(iii)
(iv)

the environmental benefits in terms of climate change and cleaner air
the public-health benefits that flow from thisthe fact that electricity is much easier to transport than oil
the much greater price stability of wind- and solar-generated electricity compared with the pricevolatility of oil

We think that the implications of all this for both policy-makers and the oil majors are clear andcompelling.
For policymakers, the economics of renewables are such now that there is a chance to accelerate theenergy transition and the environmental and health benefits that come with it by providing targeted
support to:EVs, via tax incentives (as has proven very successful in Norway, for example)
Charging infrastructure for EVs (the lack of charging infrastructure is a big obstacle to the faster
adoption of EVs)
Energy-storage technologies (as renewables increase their share of overall power generation,
storage capacity will be the key to enabling continuing increases in renewables capacity)
The point in all of this is that the annual expenditure on oil for gasoline – and for much of the mobility
provided by diesel as well, as explained in Section 1.5 below – is an opportunity cost to society as awhole. On our numbers shown in Figure 8 the size of that opportunity cost is $24trn over the next 25
years on gasoline alone even before we take account of the cost of environmental externalities and the
public-health costs.

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WELLS, WIRES, AND WHEELS… - EROCI AND THE TOUGH ROAD AHEAD FOR OIL

For the oil majors, the challenge is on a scale that they have never faced before, and business-as-usualis simply not an option. With gasoline and diesel demand for vehicle segments at risk of competition
from EVs accounting for 36% of global oil demand, and power generation for a further 5%, our analysis
implies that investing in new oil projects with break-even costs of $20/bbl or higher will put up to 40%
of future annual output from new projects sanctioned today at risk of stranding over the long term.
The risk of partial asset stranding on new projects sanctioned today arises from the long lead times
between the FID and initial production (five to ten years), and the fact that projects then produce their
oil over a number of years. It follows that the longer the projected production profile of a given new
project sanctioned today, and the higher its break-even cost, the greater the risk that it will face having
to sell an ever-increasing share of its annual output at prices below its full cost of production in thelatter years of its producing lifetime.
- 1.5 EROCI PUTS 40% OF LONG-TERM OIL DEMAND AT RISK >$20/BBL
With gasoline demand for cars and other LDVs accounting for 24% of global oil demand, and diesel forcars and other LDVs for 3% (Figure 10), this poses a very serious strategic challenge to the oil-and-gas
industry: 27% of global oil demand today is accounted for by uses that risk being rendered obsolete
once wind and solar reach sufficient global scale, and EVs reach sufficient global penetration (the darkgreen segments in Figure 10).
But in fact it is even worse than that for oil. With light and mid-heavy road transportation also
susceptible to electrification (9% of global oil demand), and with power generation from wind andsolar already much cheaper than from oil (another 5%), this is a tremor portending an earthquake forthe oil-and-gas industry: 40% of global oil demand today is accounted for by uses that will not makeany economic sense once wind and solar reach sufficient global scale and cost-competitive batteries
accelerate the penetration rate of EVs (Figure 11, the dark green segments).
Moreover, our analysis of the economics today does not capture the likely continuing and dramatic cost
reductions in wind and solar and EV batteries over the next decade, meaning that the same analysis ina few years’ time will likely bring the oil-price range required to be competitive with wind and solar as
a fuel for LDVs into single figures, all else being equal.
The energy-transition specialists BNEF and DNV GL (DNV) both expect EVs to reach a series of inflection
points from 2022 onwards.
In its Electric Vehicle Outlook 2019 published in May 2019,19 BNEF states (p. 15):

“As in our previous forecasts, we expect priceparity between EVs and internal combustion
vehicles by the mid-2020s in most segments,
though the first segment crosses by 2022
and there is a wide variation between
geographies and vehicle segments. Until thisis reached, policy support will be required inmost markets.” (Our emphasis)

19. The full version of the BNEF Electric Vehicle Outlook 2019 is only available to subscribers, but a summary version of the report
can be found at: https://about.bnef.com/electric-vehicle-outlook/#toc-viewreport.

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WELLS, WIRES, AND WHEELS… - EROCI AND THE TOUGH ROAD AHEAD FOR OIL

Figure 10: Breakdown of global oil demand, 2018

Cars and other LDVs gasoline

6%
11%

Cars and other LDVs diesel

24%

Light-and-mid-heavy road transportation
Other heavy road transportation

11%

Aviation & marine

3%

Petrochemicals

9%

13%
14%

Industry

9%

Residential/commercial/agricultural
Other

Source: Deutsche Bank, Wood MacKenzie.

Figure 11: Breakdown of global oil demand, 2018
Cars and other LDVs gasoline

6%
11%

Cars and other LDVs diesel

24%

Light-and-mid-heavy road transportation
Other heavy road transportation

5%
6%

Aviation & marine

3%

Petrochemicals

9%

13%
14%

IndustryPower

9%

Residential/commercial/agricultural
Other

Source: Deutsche Bank, Wood MacKenzie.

For its part, in its Energy Transition Outlook 2018 published in November 2018,20 DNV states (p. 113):“Supported by a multitude of sources, we expect EVs to reach cost parity
with conventional light vehicles (based on full lifecycle costs, including fueland maintenance) in 2024. Key questions at present concern the extent towhich charging infrastructure can keep up, whether range restrictions of
EVs influence buyer preferences as the average range improves, and what
local and national policies will be applied to increase uptake in the shortterm. These initial factors will, however, rapidly pale into insignificanceonce EVs break through the cost-parity level. The effect of cost reduction
will be felt evenly across the world but charging infrastructure will berolled out at varying speeds across world regions.” (Our emphasis)
20. The DNV study is available at: https://eto.dnvgl.com/2018/#Energy-Transition-Outlook-2018-.

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WELLS, WIRES, AND WHEELS… - EROCI AND THE TOUGH ROAD AHEAD FOR OIL

In short, on the most generous reading the oil industry will, for the first time ever, have to cope withthe concept of the price elasticity of demand for 40% of its production; on the most dramatic reading, it
is only a matter of time before the economics of renewables and EVs overwhelm oil and displace up to
40% of its current demand.
This means that both the majors and the national oil companies (NOCS) are effectively in a race againsttime.
For the majors in particular, with an average reserves-to-production (R/P) ratio of 10 years, the risk isthat the longer they continue investing to replace reserves on a barrel-for-barrel basis the greater therisk that they will end up with stranded assets for a portion of every dollar they invest in new projects.
Over the long term, up to 24% of future annual output from new projects sanctioned today with abreak-even cost above $10/bbl will face long-term partial stranding risk (24% of current demand per
barrel of oil sold globally is for gasoline), with a further 12% of future annual output from new projects
sanctioned today at risk of partial long-term stranding above a break-even cost of $20/bbl (12% of
current demand per barrel of oil sold globally is for diesel vehicles susceptible to competition from EVs).
There are two reasons for this:First, by the time those new projects start producing oil five to ten years from now the demand for
up to 36% of each future barrel of production will be under much greater threat from ever morecompetitive wind-powered and solar-powered electricity in tandem with – by that time – pricecompetitive EVs.
Of course, and as both BNEF and DNV emphasize, cost parity with ICE and diesel vehicles is not
the only driver of EV adoption, and other factors – most importantly, the lack of sufficient charging
infrastructure and the fact that the global vehicle fleet takes about 15 years to turn over – mean thatin practice EVs will not fully displace ICE and diesel LDVs and light-heavy and mid-heavy vehicles
for at least two decades.21
As a result, for new oil projects on which the FIDs are taken today and for which production starts
five to ten years down the line, we are not arguing that up to 40% of their output could be stranded
as soon as they start producing.
Rather, we are suggesting that by the late 2020s EV penetration rates will likely already havereached the point at which a fraction of each barrel produced by new projects sanctioned today
might only be competitive at a price below their full cost of production, and that this portion willrise over the lifetime of these projects as the penetration rate of EVs increases.
Second, the changing relative economics of oil versus renewables mean that the strategy of the
NOCs – i.e. the companies that hold the largest reserves of the word’s cheapest remaining oil –might also now start to change.
In other words, the oil majors could face a double competitive squeeze on their business model overthe next decade:1. on the demand side, up to 36% of the barrels they have traditionally produced will be at long-termrisk of disintermediation from EVs;
2. on the supply side, and in direct response to this very same demand risk, NOCs might decide to ramp
up production of cheap oil so as to remain competitive with the 36% of current demand that will be
increasingly vulnerable to competition from wind- and solar-powered EVs over the longer term.

21. DNV’s Energy Transition Outlook 2018 (p. 114) states that ‘with an average vehicle lifetime of 10 to 18 years, depending on theregion, it will take two or more decades to phase out combustion vehicles entirely’.

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WELLS, WIRES, AND WHEELS… - EROCI AND THE TOUGH ROAD AHEAD FOR OIL

It follows that the longer the projected production profile of a given new project sanctioned today,
and the higher its break-even cost, the greater the risk that it will face having to sell up to 36% of its
output at prices below its full cost of production in the latter years of its producing lifetime. For a given
new project sanctioned today that date could be 2035 or 2040 or later. The key point, though, is thatwhatever the risk a given new project sanctioned today faces of seeing up to 36% of its output stranded
in its latter years, the economics of oil as a fuel for ICE and diesel vehicles versus wind- and solarpowered EVs are now in relentless and irreversible decline.
In short, with 36% of demand for crude oil today accounted for by LDVs, and a further 5% from power
generation, the oil industry has never before in its history faced the kind of threat that renewableelectricity in tandem with EVs poses to its business model: a competing fuel source that (i) has ashort-run marginal cost (SRMC) of zero, (ii) is much cleaner environmentally, (iii) is much easier totransport, and (iv) could readily replace up to 40% of global oil demand if it had the necessary scale.
Or, to put it another way: if wind and solar already had the necessary scale and EVs were already costcompetitive with ICE and diesel vehicles, 40% of today’s oil supply would have to be produced at thelower end of the industry cost curve – $20/bbl or less – in order to be competitive. Yet Wood MacKenzie
estimates that collectively, the seven western oil majors – Exxon, Chevron, Shell, BP, Total, ENI, andEquinor – have very few opportunities for new projects at break-even levels of $20/bbl.
As shown in Figure 12, of the $500bn in discretionary capex – i.e. capex prior to FID – in Wood
MacKenzie’s database over 2018-35 for these companies, only $25bn (5%) is at break-evens of $30/
bbl or less. Indeed, even at 40/bbl or less the majors’ collective pre-FID opportunities amount to only
$100bn of capex, with $400bn above this level, and $250bn requiring break-evens of $50/bbl or more.

Breakeven Brent Price NPV15 (US$/bbl)

Figure 12: Collective pre-FID capex break-evens for seven oil majors,* 2018-35
Cost Curve Majors

100
90
80
70
60
50
40
30
20
10
0

0

50

100
150
200
250
300
350
400
450
Cumulative capex from discretionary projects in 2018-2035 (US$ billion)

500

Source: Deutsche Bank, Wood MacKenzie. *Exxon, Chevron, Royal Dutch Shell, BP, Total, ENI, Equinor.

In our view, this should be an extremely alarming prospect for the oil majors. Accordingly, we think theoil majors should be accelerating the deployment of capital into renewable-energy and energy-storage
technologies and/or reducing re-investment risk via higher dividend payouts to shareholders (especiallythe case for those with pre-FID projects at the upper end of the industry cost curve).
And if all of this sounds far-fetched, then the speed with which the competitive landscape of theEuropean utility industry has been reshaped over the last decade by the rollout of wind and solar
power – and the billions of euros of fossil-fuel generation assets that this has stranded – should be a
flashing red light on the oil majors’ dashboard.22
22. For more on what the oil-and-gas industry can learn from the experience of the European utility sector over the last decade,see the report by Carbon Tracker, Lessons from European Electricity for Global Oil & Gas, 20 December 2018, available at:https://www.carbontracker.org/reports/lessons-from-european-electricity-for-global-oil-gas/.

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2

METHODOLOG Y

AN D K E Y M ODEL L I N G A S S UMPTI ON S
Our approach to analyzing the EROCI of oil versus renewables on a full-cost basis goes through threestages and we make numerous assumptions at each stage of the analysis that are by their naturesomewhat stylized. Below we set out our three-stage methodology and the key assumptions we makein our analysis.
- 2.1 METHODOLOGY: FROM GROSS POTENTIAL EROCI TO NET EROCI
We build out our EROCI analysis in three stages.
First, we look at the gross potential energy that a $100bn outlay on oil on the one hand, and new windand solar projects on the other, would yield. By gross potential energy we mean how much energy$100bn would potentially yield if we did not have to worry about the cost of transporting it to the end
consumer or the energy losses that occur along the way, either in the form of refining it (in the case ofgasoline) or transporting it over high-voltage and low-voltage networks (in the case of renewables).
Gross potential energy is therefore the amount of energy inherent in so many barrels of oil, or in somuch power-generation capacity at a given assumed load factor.
Second, we then take in to account the costs and energy losses incurred in the conversion of crude oil
into gasoline and diesel and its transportation to the pump and compare this with the costs and energy
losses incurred in the transportation of wind- and solar-generated electricity to the charging point. On
this basis we derive the gross energy yield at the pump or charging point.
Third, we then account for the energy losses in the vehicle itself. For all of the fuels we are looking athere – gasoline, diesel, and electricity from new onshore-wind, offshore-wind, and solar-PV projects –there are energy losses between the pump or charging point on the one hand, and the wheels on theother, but the losses are much greater for gasoline and diesel engines than they are for the batteries
in EVs.
- 2.2 KEY ASSUMPTIONS FOR OIL AND FOR GASOLINE AND DIESEL ENGINES
How much useful energy our $100bn outlay on oil on the spot market will procure is a function of
three things:
1. The assumed price of oil.
2. The breakdown of the expenditure on purchasing the oil itself, refining it, and then transporting it to
the end consumer at the pump, while also taking account of the taxes incurred along the value chain.
3. The energy losses that occur along the way. For oil, the energy losses are of two main kinds: (i)energy losses at the refinery for gasoline (a barrel of gasoline contains ~10% less energy per barrel
than crude oil, while diesel has almost exactly the same energy content as crude oil per barrel);23(ii) energy losses in gasoline and diesel engines.

23. We have taken our numbers for the energy content per barrel for crude oil, gasoline, and diesel from the website of the US
Government’s Energy Information Administration at: https://www.eia.gov/energyexplained/index.php?page=about_energy_units.
The EIA gives the energy content of US produced crude oil as 5.719 million British thermal units (mBtu), and of imported crude
oil as 6.063mBtu, which gives an average of 5.891mBtu per barrel of crude oil. For gasoline, the EIA number for energy content
is 5.057mBtu, and for diesel 5.778mBtu.

20

WELLS, WIRES, AND WHEELS… - EROCI AND THE TOUGH ROAD AHEAD FOR OIL

For the price of oil, we take the average of the Brent and WTI benchmarks so far in 2019, which comesto $60/bbl. However, as we go through each stage of our EROCI analysis we look at a range of different
oil prices, from $25/bbl all the way up to $100/bbl, before then deriving the prices at which we calculate
crude oil would have to trade to yield the same amount of useful energy for gasoline and diesel for a$100bn outlay as would the same outlay on new wind and solar projects with the electricity used to
power EVs.
In terms of the breakdown of expenditure, we work backwards from the cost to the end-consumer at thepump. In other words, in order to deliver the gasoline or diesel to the pump, we ask how much of ournotional $100bn we could spend on the crude oil itself, and how much would have to be spent to cover
the costs of refining and transporting the oil to the end user, while also allowing for the taxes payable
across the value chain. Looking again at the EIA’s webpage on prices at the pump for gasoline and diesel,
we derive the breakdown shown in Figure 13.24
In other words, we assume that of the $100bn outlay, only $53bn is spend on the crude oil itself, while
the rest is accounted for by the various other costs that need to be covered to get the oil to the endconsumer as either gasoline or diesel.
In terms of the energy losses, we assume that gasoline has 10% less energy than crude oil, but that
diesel has the same energy content as crude oil. This means that in terms of the gross energy at thepump, there is 10% less available for a gasoline engine than for a diesel engine.
Finally, we then have to account for the energy losses in the combustion process in gasoline-ICE anddiesel engines. For gasoline engines, we assume a thermal-efficiency rate of 20%, while for diesel
engines we assume a thermal-efficiency rate of 35%. Of course, these are stylized assumptions as inreality efficiency rates will vary between different engines, but we think these are reasonable estimates
for the generic efficiency of the gasoline engine and diesel engines that comprise the world’s existingvehicle fleet today.25
Figure 13: Breakdown of cost of gasoline and diesel at the pump

Taxes

Transport/
marketingReﬁning

Crude oil

0

10

20

30

40

50

60

Source: US Energy Information Administration, BNP Paribas Asset Management estimates.

24. See the EIA website at https://www.eia.gov/petroleum/gasdiesel/. The most recent EIA data for May 2019 shows that forgasoline 54% of the end-user price for gasoline is accounted for by the crude oil, and for diesel 49%. We take 53% as an averageof these two numbers given the greater weighting of gasoline in overall LDV consumption.
25. We take these numbers from: https://rentar.com/efficient-engines-thermodynamics-combustion-efficiency/. The BNEF Electric
Vehicle Outlook 2019 cited above estimates that the efficiency of gasoline engines has the potential for a 25% improvement by
2050, but since there is also scope for EV motors to improve their efficiency – and for the costs of both renewable electricity
generation and EVs to fall further – we base our analysis on the numbers today. Moreover, the average efficiency of gasoline
engines on the road today is probably below 20% given the number of old models still on the road.

21

WELLS, WIRES, AND WHEELS… - EROCI AND THE TOUGH ROAD AHEAD FOR OIL

What this means is that on our calculations 80% of the gross energy available at the pump as gasoline
is lost in a gasoline engine and so does not provide useful or mechanical energy at the wheels, while fordiesel on our numbers 65% of the gross energy at the pump is lost.
Figure 14 and Figure 15 then show the full three-step approach of our analysis for gasoline and diesel
respectively that we use to derive our net-EROCI numbers. For gasoline, we start with the gross potential
energy that we would get if we were able to spend the full $100bn on crude oil. At $60/bbl this would
equate to 1.67bn barrels of oil, which equates to 2,824TWh.
However, we then have to factor in the costs of refining, transporting, and taxing the oil, and on ourassumption that these costs will take up 47% of the total outlay, this leaves us with 53% of the grosspotential energy as the gross energy actually purchased. This would equate to 883m barrels of oil,which in turn equates to 1,497TWh.
After accounting for the energy losses in refining gasoline, we have 1,347TWh of gross energy available
at the pump, and then after taking in to account the energy losses in the gasoline-ICE, we end up with
270TWh of useful energy.
This means that the net energy available to do useful work at the wheels for an LDV with a gasolinepowered ICE is equivalent to only 10% of the gross potential energy inherent in $100bn worth of crude
oil at $60/bbl.
Figure 14: Derivation of net EROCI for $100bn spent on oil for gasoline at $60/bbl (TWh)
3500
3000

2824

2500
2000
1500

1497

1347

1000

Costs ofreﬁning,transportation,
Reﬁning losses
Engine losses
and taxes
0Gross potential
Gross energy
Gross energy-150
energyactuallyat the pump-500
purchased
-1000
-1077
-1500
-1327
500

270
Net EROCI-2000
Source: US Energy Information Administration, BNP Paribas Asset Management estimates.

For diesel, we again start with the gross potential energy that we would get if we were able to spend
the full $100bn on crude oil (2,824TWh), and with no energy losses at the refinery this gives us a grossenergy at the pump for diesel after factoring in the costs of refining, transporting, and taxing the oil of
1,497TWh.

22

WELLS, WIRES, AND WHEELS… - EROCI AND THE TOUGH ROAD AHEAD FOR OIL

Figure 15: Derivation of net EROCI for $100bn spent on oil for diesel at $60/bbl (TWh)
3500
3000

2824

2500
2000
1500

1497

1497

1000

Costs ofreﬁning,transportation,and taxes
Reﬁning losses
Engine losses
0
Gross potential
Gross energy
Gross energy
0energyactuallyat the pump-500
purchased
-1000
-973
-1500
-1327
500

524
Net EROCI-2000
Source: US Energy Information Administration, BNP Paribas Asset Management estimates.

After then taking in to account the energy losses in the diesel engine at our assumed thermal-efficiency
rate of 35%, we finish with 524TWh of useful mechanical energy.
This means that the net energy available to do useful work at the wheels for a diesel-powered LDV isequivalent to only 19% of the gross potential energy inherent in $100bn worth of crude oil at $60/bbl.
- 2.3 KEY ASSUMPTIONS FOR NEW WIND AND SOLAR PROJECTS AND EVS
How much useful energy our $100bn outlay on new wind and solar projects will procure is a functionof three things:
1. The assumed cost of building and operating new onshore-wind, offshore-wind, and solar-PV projects.
This encompasses the upfront capital costs, the operating costs over the lifetime of the projects, theassumed cost of capital, assumed load factor, and assumed operating life.
2. The breakdown of the expenditure on building and operating these projects over their lifetime, andthen transporting the electricity generated to the charging station.
3. The energy losses that occur along the way. The energy losses are of two main kinds: (i) energy
losses as the power is transported across the networks; (ii) energy losses in charging the battery inan EV and converting it into chemical energy and then back into the electrical energy that provides
the useful work at the wheels.
For the cost of building and running new wind and solar projects, we set out our key assumptionsin Figure 16, while Figure 17 then shows the outputs from these assumptions after also factoring intransportation costs.

23

WELLS, WIRES, AND WHEELS… - EROCI AND THE TOUGH ROAD AHEAD FOR OIL

Figure 16: Key modelling assumptions for new wind and solar projects

TECHNOLOGYASSUMED
COST TO BUILD

CAPITALCOSTS

OPERATING
COSTS

ASSUMED
LOAD FACTOR

ASSUMED COST
OF CAPITALASSUMEDOPERATING LIFE

Onshore wind$1.2bn/GW

80%

20%

25%

6%

25 years

Offshore wind$1.8bn/GW

70%

30%

50%

10%

25 years

Solar-PV$0.8bn/GW

85%

15%

15%

6%

25 years

Source: Exane BNP Paribas, Credit Suisse, BNP Paribas Asset Management.

As can be seen in Figure 16, the capital costs are by far the largest component for all three of ourrenewable energies, accounting for 80% of the total lifetime costs for new onshore-wind projects, 70%
for new offshore-wind projects, and 85% for new solar-PV projects.
We assume a cost of capital of 6% for new onshore-wind and solar-PV projects, but a higher 10% for new
offshore-wind projects as we regard these as riskier.
Figure 17: Key modelling assumptions for new wind and solar projects

TECHNOLOGYAMOUNT OF CAPACITYBUILT WITH $100BNGROSS LIFETIMEOUTPUT*

NET LIFETIMEEROCI**

BREAK-EVEN POWER
PRICE

Onshore wind

47GW

2,583TWh

1,673TWh$60/MWh

Offshore wind

27GW

2,903TWh

1,881TWh$70/MWh

Solar-PV

75GW

2,437Wh

1,667Wh$65/MWh

Source: Exane BNP Paribas, Credit Suisse, BNP Paribas Asset Management. *Gross lifetime output is the amount of power generated
over 25 years before transportation and energy-conversion losses. Net lifetime EROCI is the total amount of useful energy provided
at the wheels of EVs over 25 years.

On these assumptions we derive break-even costs for new onshore-wind, offshore-wind, and solar-PV
projects of $60/MWh, $70/MWh, and $65/MWh respectively.26 For the capacity factors, we assume 25%
and 50% for onshore- and offshore-wind respectively, and 15% for solar-PV.27 Finally, for the motor in
EVs we assume an overall efficiency rate of ~70%, which breaks down as ~80% charging efficiency and~90% electric-propulsion efficiency.28
Figures 18-20 then show how we derive the net-energy yield for $100 billion spent on new onshoreand offshore-wind and solar-PV projects from the starting point of the gross potential energy inherent
in building new capacity with a $100bn outlay.

26. The latest study by Bloomberg New Energy Finance (BNEF) of the break-even costs for new onshore-wind, offshore-wind,and solar-PV projects – commonly referred to as the levelized cost of electricity (LCOE) – gives the following numbers: global
average LCOE for onshore wind of $50/MWh, for offshore wind of $95/MWh, and for solar-PV of $57/MWh. The BNEF study was
published in March 2019, with the full version only available to subscribers but the summary available at: https://about.bnef.
com/blog/battery-powers-latest-plunge-costs-threatens-coal-gas/. In short, BNEF’s average global new-build costs are alreadylower than the costs we are assuming for onshore wind and solar-PV, and while the BNEF number for offshore wind is higher
than ours we would note that the latest costs in northern Europe are well below the $70/MWh that we are assuming: the mostrecently awarded offshore-wind project in Europe was the Dunkirk project won by a consortium for a long-term offtake priceof “well below €50/MWh” (see the Reuters story of 14 June 2019: https://www.reuters.com/article/france-renewables-dunkirk/
update-1-edf-consortium-wins-600-mw-dunkirk-offshore-wind-project-idUSL8N23L2MV).
27. We base our solar capacity factor of 15% on our estimate of the average global capacity factor for solar-PV in 2018. The BP
Statistical Review of World Energy 2019 cited above gives 2018 solar-PV output of 585TWh, while the IEA's 2019 A Snapshotof Global PV (available at http://www.iea-pvps.org/index.php?id=266) shows that in 2018 global solar-PV capacity averaged
450GW.
28. This is based on the following source: https://insideevs.com/news/332584/efficiency-compared-battery-electric-73-hydrogen22-ice-13/.

24

WELLS, WIRES, AND WHEELS… - EROCI AND THE TOUGH ROAD AHEAD FOR OIL

2.3.1

ONSHORE WIND: FROM GROSS POTENTIAL ENERGY TO NET EROCIFor new onshore wind (Figure 18), our starting point, as it was with oil, is the gross potential energy
from a $100bn investment assuming no transportation costs or energy losses. On this basis, we would
be able to spend $100bn on the capital and operating costs of the project, and as per Figure 16 above
this would allow for $80bn to be spend on the new capacity itself – requiring a return of 6% – and $20bn
on the lifetime operating costs.
At our assumed capital cost of $1.2bn/GW, this would give 63GW of new capacity – i.e. $80bn/($1.2bn*1.06) – and at our assumed load factor of 25% this would give 138TWh of annual output and3,443TWh of lifetime output over 25 years.
Figure 18: Derivation of net EROCI for $100bn spent on new onshore-wind projects (TWh)
4000
3500
3000
2500

3443

2583

2324

2000

1673

1500
1000
500

Costs ofEnergy losses
Charging andtransportationinnetworks
battery
losses0Gross potential
Gross energy
Gross energy atenergyactually
the charging
-258
-500
purchased
point
-651
-1000
-861

Net EROCI-1500
Source: Exane BNP Paribas, Credit Suisse, BNP Paribas Asset Management.

However, we then have to factor in the costs of transporting the energy to the end-consumer at the
charging point, and we assume that this would account for 25% of the total outlay. This means we haveto take $25bn off the $100bn we initially assumed as being available for investing in new projects,
which means that we end up with 47GW of new capacity – i.e. ($75bn*0.8)/($1.2bn*1.06) – which on
our assumed load factor of 25% gives us 2,583TWh of gross energy actually purchased.
After accounting for energy losses over the transmission and distribution networks of 10%, we have
2,324TWh of gross energy available at the charging point.
Finally, after taking in to account the energy losses in charging the battery and converting the energy
in the motor (~30%), we end up with 1,673TWh of useful energy from our $100bn outlay.
This means that the net energy available to do useful work at the wheels for an EV powered by onshore
wind is equivalent to 50% of the gross potential energy inherent in $100bn worth of new onshore-windprojects at a capital cost of $1.2bn/GW.

25

WELLS, WIRES, AND WHEELS… - EROCI AND THE TOUGH ROAD AHEAD FOR OIL

2.3.2 OFFSHORE WIND: FROM GROSS POTENTIAL ENERGY TO NET EROCIFor new offshore wind (Figure 19) our starting point again is the gross potential energy from a $100bn
investment assuming no transportation costs or energy losses. On this basis, we would be able to spend$100bn on the capital and operating costs of the project, and as per Figure 10 this would allow for$70bn to be spend on the new capacity itself – requiring a return of 10% – and $30bn on the lifetime
operating costs.
At our assumed capital cost of $1.8bn/GW, this would give 35GW of new capacity – i.e. $70bn/($1.8bn*1.10) – and at our assumed load factor of 50% this would give 155TWh of annual output and3,871TWh of lifetime output over 25 years.
Again, though, we then have to factor in the costs of transporting the energy to the end-consumer at the
charging point, and again we assume that this would account for 25% of the total outlay. This means wehave to take $25bn off the $100bn we initially assumed as being available for the capital investment in
new generation capacity, which means that we end up with 27GW of new capacity – i.e. ($75bn*0.7)/($1.8bn*1.10) – which on our assumed load factor of 50% gives us 2,903TWh of gross energy actuallypurchased.
Figure 19: Derivation of net EROCI for $100bn spent on new offshore-wind projects (TWh)
5000
4000

3871
2903

3000

2613
1881

2000
1000
0
-1000

Costs oftransportation
Gross potential
energyEnergy losses
in networks
Gross energy
actuallypurchased

-290

-968

Charging andbattery losses
Gross energy at
the charging
point

Net EROCI
-732
-

-2000
Source: Exane BNP Paribas, Credit Suisse, BNP Paribas Asset Management.

After accounting for energy losses over the transmission and distribution networks of 10%, we then have
2,613TWh of gross energy available at the charging point.
Finally, after taking in to account the energy losses in charging the battery and converting the energy
in the motor (~30%), we end up with 1,881TWh of useful energy from our $100bn outlay.
This means that the net energy available to do useful work at the wheels for an EV powered by offshore
wind – as with onshore wind –is equivalent to 50% of the gross potential energy inherent in $100bn
worth of new offshore-wind projects at a capital cost of $1.8bn/GW.

26

WELLS, WIRES, AND WHEELS… - EROCI AND THE TOUGH ROAD AHEAD FOR OIL

2.3.3 SOLAR-PV: FROM GROSS POTENTIAL ENERGY TO NET EROCIFor new solar-PV (Figure 20), our starting point is again the gross potential energy from a $100bn
investment assuming no transportation costs or energy losses. On this basis, we would be able tospend $100bn on the capital and operating costs of the project, and as per Figure 20 this would allow
for 85bn to be spend on the new capacity itself – requiring a return of 6% – and $15bn on the lifetime
operating costs.
At our assumed capital cost of $0.8bn/GW, this would give 100GW of new capacity – i.e. $85bn/($0.8bn*1.06) – and at our assumed load factor of 15% this would give 103TWh of annual output and3,249TWh of lifetime output over 25 years.
Again, though, in the real world we then have to factor in the costs of transporting the energy to theend-consumer at the charging point, and again we assume that this would account for 25% of the total
outlay.
This means we have to take $25bn off the $100bn we initially assumed as being available for the capital
investment in new generation capacity, which means that we end up with 75GW of new capacity – i.e.
($75bn*0.85)/($0.8bn*1.06) – which on our assumed load factor of 15% gives us 2,437TWh of grossenergy actually purchased.
After accounting for energy losses over the transmission and distribution networks of a lower 5% (wethink it reasonable to assume that more of the new solar capacity would be embedded capacity thanwould be the case for onshore and offshore wind), we then have 2,315TWh of gross energy available atthe charging point.
Figure 20: Derivation of net EROCI for $100bn spent on new solar-PV projects (TWh)
3500

3249

3000
2500

2437

2315

2000

1667

1500
1000
500

Costs ofEnergy losses
Charging andtransportationin networks
battery losses
0
Gross potential
Gross energy
Gross energy at-122energyactually
the charging-500
purchased
point
-648
-1000
-812

Net EROCI-1500
Source: Exane BNP Paribas, Credit Suisse, BNP Paribas Asset Management.

Finally, after taking in to account the energy losses in charging the battery and converting the energy
in the motor (~30%), we end up with 1,667TWh of useful mechanical energy from our $100bn outlay.
This means that the net energy available to do useful work at the wheels for a solar-powered EV isequivalent to 50% of the gross potential energy inherent in $100bn worth of new solar projects at acapital cost of $0.8bn/GW.

27

WELLS, WIRES, AND WHEELS… - EROCI AND THE TOUGH ROAD AHEAD FOR OIL

3

G R O S S E R OCI : OI L V REN EWA BL ES

In this section we show how much gross energy can be purchased with an outlay of $100bn on oil andon new wind and solar projects, and how much gross energy can then be delivered to the end consumer
at the pump or charging point. Our calculations for oil assume that the $100bn is spent buying barrelsof oil on the spot market, while for wind and solar we take into account the cost of building new projects, and the operating costs incurred in running those projects, over the course of their lifetimes. For
all three of the renewables projects we look at here – onshore wind, offshore wind, and solar-PV – weassume an operating life of 25 years.
- 3.1 GROSS POTENTIAL EROCI VERSUS GROSS EROCI AT THE PUMP OR CHARGING POINT
We begin by looking at the gross potential energy that $100bn could buy if spent on oil or new wind andsolar projects. This is the amount of energy that $100bn would purchase if we did not have to worry
about the practical realities of transporting the energy to the end-consumer at the pump (for gasoline
and diesel) or charging point (for EVs).
Even on a gross potential EROCI basis – i.e. before taking account of the costs and energy losses incurredin the transportation of energy to the pump or charging point – we find that oil priced at $60/bbl
provides less energy for a $100bn outlay than does the same amount spent on new wind and solar
projects. Indeed, even at $50/bbl oil yields less gross potential energy for a $100bn outlay than does
the same sum spent on new onshore- and offshore-wind projects, while solar is close to competitive
with oil at $50/bbl on this basis.
After then taking in to account the cost and energy losses incurred in the conversion of crude oil into
gasoline and diesel and its transportation to the pump, and comparing this with the costs and energy
losses incurred in the transportation of wind- and solar-generated electricity to the charging point, wefind that our new renewables projects are even more competitive.
Compared with gasoline at the pump for the same $100bn outlay, electricity from new offshore-windprojects provide as much energy at the charging point as does gasoline at the pump with oil at $30/bbl,
while new onshore-wind and solar power provide as much as gasoline with oil at $35/bbl. Versus diesel
at the pump, new offshore-wind-powered electricity at the charging point is very competitive with oil at$35/bbl, while new onshore-wind and solar power provide more energy than oil at $40/bbl.
- 3.2 GROSS POTENTIAL EROCI: HOW MUCH GROSS POTENTIAL ENERGY DOES $100BN BUY?
If we did not have to worry about transporting oil to the refinery and converting it into gasoline or diesel
and then transporting it again to the pump, how much gross potential energy would we get for a $100bn
outlay at different oil prices?
Similarly, if we did not have to worry about transporting electricity from wind and solar farms to thecharging point, how much gross potential energy would we get for a capital investment of $100bn?
Let us look at each of our four energy sources in turn and see how they compare on this basis before
then accounting for the practical matters of refining (for gasoline and diesel) and transporting thesedifferent energy sources.

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WELLS, WIRES, AND WHEELS… - EROCI AND THE TOUGH ROAD AHEAD FOR OIL

3.2.1 OIL: HOW MUCH GROSS POTENTIAL ENERGY DOES $100BN BUY?
At the current Brent price of $60/bbl, a $100bn outlay would enable the purchase of 1.67bn barrels ofoil. With one barrel of oil being equivalent in energy terms to 1.7MWh, this makes 1.67bn barrels of oil
equivalent to 2,824TWh, and this is therefore the gross potential energy that a $100bn outlay on the
spot market today would yield (Figure 21).
Figure 21 also shows the gross potential energy associated with a range of different oil prices. At $25/
bbl, a $100bn outlay would purchase 4bn barrels of oil equating to 6,778TWh (oil prices last averaged$25/bbl for a whole year in 2002); at $100bbl, the same expenditure would yield 1bn barrels of oil, or
1,694TWh (Brent last averaged $100/bbl or more over the four years 2011-14).
Figure 21: Gross potential EROCI for oil at different prices
mboe

TWh

8000
6778

7000

5648

6000
5000
4000

4236

4000
3333

3000

3389
2500

2000

2000

2824
1667

2259
1333

1000
0

1694
1000

Oil atOil atOil atOil atOil atOil atOil at$25/bbl$30/bbl$40/bbl$50/bbl$60/bbl$75/bbl$100/bbl

Source: BNP Paribas Asset Management estimates.

3.2.2 ONSHORE WIND: HOW MUCH GROSS POTENTIAL ENERGY FOR $100BN?
As explained in Section 2, we assume that for a new onshore-wind project with an expected operating
life of 25 years, 80% of the total costs would consist of the upfront capital investment, and 20% of theoperating and maintenance costs over the project’s working life.
At our assumed new-build cost of $1.2bn/GW, and our assumed cost of capital for onshore wind of 6%,
the $80bn available for the upfront capital investment would enable 63GW of new generation capacity
to be built, i.e. $80bn/($1.2bn*1.06). At our assumed load factor of 25%, this would generate 138TWha year – i.e. (63GW*24*365)*0.25 – and hence 3,443TWh of gross potential energy over our assumed
operating life of 25 years.
3.2.3 OFFSHORE WIND: HOW MUCH GROSS POTENTIAL ENERGY FOR $100BN?
As explained in Section 2, we assume that for a new offshore-wind project with an expected operating
life of 25 years, 70% of the total costs would consist of the upfront capital investment, and 30% of theoperating and maintenance costs over the project’s working life.
At our assumed new-build cost of $1.8bn/GW, and our assumed cost of capital for offshore wind of 10%,
the $70bn available for the upfront capital investment would enable 35GW of new generation capacity
to be built, i.e. $70bn/($1.8bn*1.1). At our assumed load factor of 50%, this would generate 155TWha year – i.e. (35GW*24*365)*0.5 – and hence 3,871TWh of gross potential energy over our assumed
operating life of 25 years.

29

WELLS, WIRES, AND WHEELS… - EROCI AND THE TOUGH ROAD AHEAD FOR OIL

3.2.4 SOLAR-PV: HOW MUCH GROSS POTENTIAL ENERGY FOR $100BN?
As explained in Section 2, we assume that for a new solar-PV project with an expected operating lifeof 25 years, 85% of the total costs would consist of the upfront capital investment, and only 15% of theoperating and maintenance costs over the project’s working life.
At our assumed new-build cost of $0.8bn/GW, and our assumed cost of capital for solar-PV of 6%, the$85bn available for the upfront capital investment would enable 100GW of new generation capacity to
be built, i.e. $85bn/($0.8bn*1.06). At our assumed load factor of 15%, this would generate 130TWh ayear – i.e. (100GW*24*365)*0.15 – and hence 3,249TWh of gross potential energy over our assumed
operating life of 25 years.
3.2.5 OIL V RENEWABLES: HOW MUCH GROSS POTENTIAL ENERGY FOR $100BN?
Figure 22 shows how much gross potential energy a $100bn outlay would yield for a purchase of oil ata range of different prices, and for an investment in new wind and solar projects.
Both new offshore- and onshore-wind projects would yield more gross potential energy than oil priced
at $50/bbl for an equivalent outlay of $100bn, while new solar projects would yield almost as muchgross potential energy as oil priced at $50/bbl.
Figure 22: Gross potential EROCI from new renewables projects versus oil (TWh)
8000
7000

6778

6000

5648

5000

4236

4000

3871

3443

3000

3389

3249

2824
2259

2000

1694

1000
0

Oil at$25/bblOil at$30/bblOil at$40/bbl

Offshore
OnshoreOil atSolar PV at Oil at
wind atwind at $50/bbl $0.8bn/GW $60/bbl$1.8bn/GW $1.2bn/GW

Oil at$75/bblOil at$100/bbl

Source: BNP Paribas Asset Management estimates.

In reality, of course, the costs and energy losses incurred in getting oil and electricity to the endconsumer in a usable form do have to be taken into account. Accordingly, let us now account for these
real-world costs and energy losses to see how this alters the amount of gross energy a $100bn outlay
on our four energy sources delivers to the pump or charging point.
- 3.3 GROSS EROCI AT THE PUMP OR CHARGING POINT – HOW MUCH DOES $100BN BUY?
As explained in Section 2, on our assumptions for the breakdown of costs for gasoline sold at the pump
(Figure 13 above),29 only ~53% is paid for the actual energy contained in the crude oil initially.
The rest goes on refining costs (~15%), transportation (~15%), and excise taxes (~17%). Moreover, while
diesel has almost exactly the same energy content per barrel as crude oil, gasoline contains 10% lessenergy per barrel than crude.
29. These numbers are based on end-user prices in the US and so give a more generous energy yield than would be the case inmany other jurisdictions owing to the low level of US energy taxes (in the EU, for example, taxes would represent up to 75% of
the end-user price at the pump).

30

WELLS, WIRES, AND WHEELS… - EROCI AND THE TOUGH ROAD AHEAD FOR OIL

Similarly, for electricity there is the cost of transporting the power to the end-consumer to be accounted
for, and there are also energy losses incurred across the transmission and distribution networks. As
explained in Section 2, we assume that transporting the electricity from new wind and solar projects tothe end user will account for 25% of the total cost of getting the power to the end user.
On top of this, we assume that for solar power, 5% of the electricity generated will be lost in transportation
to the end consumer, and for both onshore and offshore wind that 10% will be lost.
3.3.1 GASOLINE: WIND AND SOLAR COMPETITIVE WITH OIL AT $30-$35/BBL
Figure 23 shows the amount of gross energy delivered to the pump as gasoline for a $100bn outlay atdifferent oil prices, and the amount of gross energy delivered to the charging point for a $100bn outlay
on new onshore- and offshore-wind projects, and new solar-PV projects.
As can be seen, at $60/bbl, a $100bn outlay on oil would deliver 1,347TWh of gross energy to the pump.
This breaks down as $53bn of expenditure on the oil itself and the remaining 47% on refining, costs,
transportation costs, and excise taxes. $53bn spent on oil at $60/bbl would purchase 883m barrels ofoil, which equates to 1,497TWh.
Figure 23: Gross EROCI at the pump/charging point: gasoline versus new renewables projects (TWh)
3500

3233

3000

2694

2500

2613
2324

2315
2021

2000

1617

1500

1347
1078

1000

808

500
0

Oil at$25/bblOil at$30/bbl

Offshore Onshore Solar PV at Oil at
wind atwind at $0.8bn/GW $40/bbl$1.8bn/GW $1.2bn/GW

Oil at$50/bblOil at$60/bblOil at$75/bblOil at$100/bbl

Source: BNP Paribas Asset Management estimates.

However, after being refined into gasoline the energy content is reduced by 10%, such that for a $100bn
outlay at $60/bbl covering the full costs of getting oil to the pump as gasoline the gross energy provided
would be 1,347TWh.
For wind and solar, the cost of transportation and the energy losses incurred by transporting electrons
across transmission and distribution networks also reduce the amount of gross energy available
to the end-user at the charging point. For a $100bn outlay, we assume that $25bn will go towards
transportation costs along transmission and distribution networks. This would leave $75bn for the
new wind and solar projects themselves, with 80% of this sum available for capital investment in new
onshore projects, 70% for new offshore projects, and 85% for new solar-PV projects.
For onshore wind, after the adjustment for transportation costs, this gives $60bn for new generation
capacity (with the residual $15bn needed for lifetime O&M costs over 25 years), and at our assumed
new-build cost of $1.2bn/GW with a 6% cost of capital this would result in 47GW of new capacity. At ourassumed load factor of 25%, this would yield 103TWh per year before energy losses, and 93TWh peryear after assuming 10% is lost in transportation.

31

WELLS, WIRES, AND WHEELS… - EROCI AND THE TOUGH ROAD AHEAD FOR OIL

Multiplying this by 25 gives a gross EROCI at the charging point for a $100bn outlay on new onshorewind projects of 2,324TWh.
For offshore wind, after the adjustment for transportation costs, this gives $53bn for new generation
capacity (with the residual $22bn needed for lifetime O&M costs over 25 years), and at our assumed
new-build cost of $1.8bn/GW with a 10% cost of capital this would result in 27GW of new capacity. At
our assumed load factor of 50%, this would yield 116TWh per year before energy losses, and 105TWh
per year after assuming 10% is lost in transportation.
Multiplying this by 25 gives a gross EROCI at the charging point for a $100bn outlay on new offshorewind projects of 2,613TWh.
For solar-PV, after the adjustment for transportation costs, this gives $64bn for new generation capacity(with the residual $11bn needed for lifetime O&M costs over 25 years), and at our assumed new-build
cost of $0.8bn/GW with a 6% cost of capital this would result in 75GW of new capacity. At our assumed
load factor of 15%, this would yield 97TWh per year before energy losses, and 93TWh per year after
assuming 5% is lost in transportation.
Multiplying this by 25 gives a gross EROCI at the charging point for a $100bn outlay on new solar-PV
projects of 2,315TWh.
In short, for the same outlay on oil and renewables, new offshore-wind projects would provide as
much gross energy at the charging point as gasoline would at the pump with oil priced at $30/bbl,
while new onshore-wind and solar-PV projects would provide as much as gasoline with oil priced at$35/bbl.
3.3.2 DIESEL: WIND COMPETITIVE WITH OIL AT $35-$40/BBL, SOLAR AT $50/BBL
Figure 24 shows the amount of gross energy delivered to the pump as diesel for a $100bn outlay atdifferent oil prices, and the amount of gross energy delivered to the charging point for a $100bn outlay
on new onshore- and offshore-wind projects, and new solar-PV projects.
Figure 24: Gross EROCI at the pump/charging point: diesel versus new renewables projects (TWh)
4000
3500

3592
2994

3000

2613

2500

2324

2315

2245

2000

1796
1497

1500

1197
898

1000
500
0

Oil at$25/bblOil at Offshore Onshore Solar PV at Oil at$30/bbl wind at
wind at $0.8bn/GW $40/bbl$1.8bn/GW $1.2bn/GW

Source: BNP Paribas Asset Management estimates.

32

Oil at$50/bblOil at$60/bblOil at$75/bblOil at$100/bbl

WELLS, WIRES, AND WHEELS… - EROCI AND THE TOUGH ROAD AHEAD FOR OIL

The figures for our three renewable-energy sources are unchanged from Figure 17 above, while fordiesel there is a greater gross-energy yield than for gasoline as it has the same energy content per
barrel as crude oil. Accordingly, this raises the price level slightly at which oil can deliver the sameamount of gross energy to the pump in the form of diesel as renewables can to the charging point.
This means that for the same outlay on oil and renewables, new offshore-wind projects would provide
as much gross energy at the charging point as diesel would at the pump with oil priced at $35/bbl,
while new onshore-wind and solar-PV projects would provide slightly more than diesel with oil priced
at $40/bbl.
- 3.4 CONCLUSION ON GROSS EROCI: GASOLINE AND DIESEL NEED OIL AT $35-$50/BBL
Even before factoring in the respective energy losses incurred by the combustion of gasoline and diesel
in gasoline and diesel engines on the one hand, and the charging and energy-conversion losses in an
EV battery on the other, it is clear that oil is currently priced way above levels at which it would becompetitive with power from new wind and solar projects on a full life-cycle basis.
Indeed, at just over $60/bbl Brent is currently trading at twice the level it would need to be for gasoline
to provide the same gross energy at the pump as electricity from new offshore-wind projects at the
charging point for an equivalent outlay, assuming there were a level playing field.
And these numbers look considerably worse for oil once we take in to account these energy losses inorder to derive the net EROCI on a $100bn capital outlay on oil versus renewables.

33

WELLS, WIRES, AND WHEELS… - EROCI AND THE TOUGH ROAD AHEAD FOR OIL

4

N E T E R O C I : OI L V REN EWA B L ES

In this section we look at how much net energy can be purchased with an outlay of $100bn on oil andon new wind and solar projects. Our calculations build on the analysis laid out in Section 3, in that we
begin with the gross energy delivered to the pump for gasoline and diesel on the one hand, and thegross energy delivered from new wind and solar projects to the charging point on the other.
The point of our analysis is to show how much useful or propulsive energy is provided – i.e. how much of
the gross energy delivered to the pump or charging point translates into mobility – by a $100bn outlay.
This means accounting for the fact that for all of the fuels we are looking at here – gasoline, diesel,and electricity from new onshore-wind, offshore-wind, and solar-PV projects – there are energy losses
between the pump or charging point on the one hand, and the wheels on the other. As explained above,
our assumptions on these energy-conversion losses are as follows:
1. For gasoline, we assume a thermal efficiency of 20% for a gasoline engine
2. For diesel, we assume a thermal efficiency of 35% for a diesel engine
3. For the motor in EVs we assume an overall efficiency rate of ~70% (this breaks down as ~80%
charging efficiency and ~90% electric-propulsion efficiency).
Our analysis leads to a very stark conclusion for the oil industry: for the same capital outlay today, windand solar energy will already produce significantly more useful energy for EVs than oil at $60/bbl will
for cars and other LDVs. Indeed, our model says that with the technology already available today, andfor the same capital outlay of $100bn with oil priced at $60/bbl, wind and solar energy would produce
6.2x-7x more useful energy for EVs than would oil for gasoline-powered LDVs, and 3.2x-3.6x more usefulenergy than would oil for diesel-powered LDVs.
- 4.1 GASOLINE: HOW MUCH NET ENERGY DOES $100BN AT $60/BBL OIL BUY?
As we saw in Section 3.3.1 above, with oil priced at $60/bbl we calculate that $100bn of oil purchasedon the spot market and then refined into gasoline would deliver 1,347TWh of gross energy at the pump
(Figure 22 above). Accordingly, to derive the net EROCI on this outlay, we simply need to account for theenergy losses incurred by the combustion process in a gasoline-ICE.
Accordingly, and as shown in Figure 25, taking our assumption of a 20%-efficient gasoline engine gives us
a net energy yield for a $100bn investment with the oil price at $60/bbl of 270TWh (i.e.1,347TWh*0.2).
Figure 25: Net EROCI: gasoline versus new renewables projects in tandem with EVs at oil prices (TWh)
2000
1800
1600

1881
1673

1667

1400
1200
1000
800

647

600

404

400

323

200
0

Offshore
Onshore Solar PV atwind atwind at $0.8bn/GW$1.8bn/GW $1.2bn/GW

Oil at$25/bblOil at$40/bblSource: BNP Paribas Asset Management estimates.

34

Oil at$50/bbl270

Oil at$60/bbl216
Oil at$75/bbl162
Oil at$100/bbl

WELLS, WIRES, AND WHEELS… - EROCI AND THE TOUGH ROAD AHEAD FOR OIL

4.1.1 ONSHORE WIND: HOW MUCH USEFUL ENERGY FOR $100BN?
As explained in Section 3.3.1 above, we calculate that $100bn spent on new onshore-wind projects
would deliver 2,324TWh of gross energy at the charging point (Figure 22 above). Adjusting for theenergy losses incurred in the charging and energy-conversion processes on the basis of our assumed
respective efficiency rates of ~80% and ~90% gives us an overall efficiency rate for EV motors of ~70%,such that our 2,324TWh of gross energy at the charging point becomes 1,673TWh of useful energy at
the wheels.
This means that on our numbers the net EROCI of onshore wind is 6.2x higher than that of oil at $60/
bbl with that oil used to produce gasoline (i.e. 1,673TWh versus 270TWh).
4.1.2 OFFSHORE WIND: HOW MUCH USEFUL ENERGY FOR $100BN?
Using the same methodology and EV-efficiency assumptions for offshore wind as for onshore, the2,613TWh of gross energy at the charging point from a $100bn outlay on new projects shown in
Figure 22 above becomes 1,881TWh of useful energy at the wheels (Figure 25).
This means that on our numbers the net EROCI of offshore wind is 7x higher than that of oil at $60/bbl
with that oil used to produce gasoline (i.e. 1,881TWh versus 270TWh).
4.1.3 SOLAR: HOW MUCH USEFUL ENERGY FOR $100BN?
Again, on the same methodology and EV-efficiency assumptions for solar as for onshore wind, the1,862TWh of gross energy at the pump from a $100bn outlay on new projects shown in Figure 23 above
becomes 1,667TWh of propulsive energy at the wheels (Figure 25).
This means that on our numbers the net EROCI of solar-PV is 6.2x higher than that of oil at $60/bbl
with that oil used to produce gasoline (i.e. 1,881TWh versus 270TWh).
- 4.2 EROCI IMPLIES GASOLINE NEEDS OIL BREAK-EVENS OF $9-10/BBL OVER LONG TERM
From all of our EROCI analysis above, we conclude that oil would have to trade at $9-10/bbl to yield asmuch useful energy for ICE LDVs running on gasoline as new wind and solar projects will generate for
EVs over an assumed operating life of 25 years (Figure 26).
Figure 26: Net EROCI from new renewables projects in tandem with EVs versus oil used for gasoline
vehicles (TWh)
2000
1800

1881

1881
1673

1600

1673

1667

1667

1400
1200
1000
800
600
400
200
0

Offshorewind at$1.8bn/GW

Oil at$9/bblOnshoreOil at Solar PV atwind at$10/bbl $0.8bn/GW$1.2bn/GW

Source: BNP Paribas Asset Management estimates.

35

Oil at$10/bl

270

216

162

Oil at$60/bblOil at$75/bblOil at$100/bbl

WELLS, WIRES, AND WHEELS… - EROCI AND THE TOUGH ROAD AHEAD FOR OIL

For gasoline to yield as much useful energy as new onshore-wind projects for a $100bn outlay,
we calculate that oil would have to trade at $10/bbl.
For gasoline to yield as much useful energy as new offshore-wind projects for a $100bn outlay,
we calculate that oil would have to trade at $9/bbl.
For gasoline to yield as much useful energy as new solar-PV projects for a $100bn outlay, we calculatethat oil would have to trade at $10/bbl.
In other words, for gasoline to be competitive as a fuel in LDVs over the long term based on theeconomics of renewables already today, oil would need to trade at 80-85% below the current market
price.
- 4.3 DIESEL: HOW MUCH NET ENERGY DOES $100BN AT $60/BBL OIL BUY?
As we saw in Section 3.3.2 above, with oil priced at $60/bbl, we calculate that $100bn of oil purchasedon the spot market and then refined into diesel would deliver 1,497TWh of gross energy at the pump.
Accordingly, to derive the net EROCI on this outlay, we simply need to account for the energy losses
incurred by the combustion process in a diesel engine.
As shown in Figure 27, taking our assumption of a 35%-efficient diesel engine gives us a net energy yield
for a $100bn investment with oil at $60/bbl of 524TWh (i.e.1,497TWh*0.35).
Figure 27: Net EROCI: diesel versus new renewables projects in tandem with EVs at different oil prices
(TWh)
2000
1800
1600

1881
1673

1667

1400

1257

1200
1000

786

800

629

600

524

400

419

314

200
0

Onshore Solar PV at
Offshorewind at $0.8bn/GW
wind at$1.8bn/GW $1.2bn/GW

Oil at$25/bblOil at$40/bblOil at$50/bblOil at$60/bblOil at$75/bblOil at$100/bbl

Source: BNP Paribas Asset Management estimates.

The figures for our three renewable-energy sources are unchanged from Figure 24 above. This meansthat while the net EROCI of oil converted into diesel is higher than that of gasoline, it is still well belowthat of new wind and solar projects.
For new onshore-wind projects, the net EROCI on our numbers is 3.2x higher than that of oil at thecurrent Brent price of $60/bbl with that oil used to produce diesel (i.e. 1,673TWh versus 524TWh).

36

WELLS, WIRES, AND WHEELS… - EROCI AND THE TOUGH ROAD AHEAD FOR OIL

For new offshore-wind projects, the net EROCI on our numbers is 3.6x higher than that of oil at thecurrent Brent price of $60/bbl with that oil used to produce diesel (i.e. 1,881TWh versus 524TWh).
For new solar-PV projects, the net EROCI on our numbers is 3.2x higher than that of oil at the current
Brent price of $60/bbl with that oil used to produce diesel (i.e. 1,667TWh versus 524TWh).
- 4.4 EROCI IMPLIES DIESEL NEEDS OIL BREAK-EVENS OF $17-$19/BBL OVER LONG TERM
From all of our EROCI analysis above, we conclude that oil would have to trade at $17-19/bbl to yieldas much useful energy for diesel-fuelled LDVs as new wind and new solar projects will generate for EVs
over an assumed operating life of 25 years (Figure 28).
Figure 28: Net EROCI from new renewables projects in tandem with EVs versus oil used for diesel LPVs
(TWh)
2000
1800
1600

1881

1881
1673

1673

1667

1667

1400
1200
1000
800
600

524

400

419

314

200
0
Offshore
Oil atOnshoreOil atSolar PV at Oil at
wind at$17/bblwind at$19/bbl $0.8bn/GW $19/bbl$1.8bn/GW$1.2bn/GW

Oil at$60/bblOil at$75/bblOil at$100/bbl

Source: BNP Paribas Asset Management estimates.

For diesel to yield as much useful energy as new onshore-wind projects for a $100bn outlay, we calculatethat oil would have to trade at $19/bbl.
For diesel to yield as much useful energy as new offshore-wind projects for a $100bn outlay, we calculatethat oil would have to trade at $17bbl.
For diesel to yield as much useful energy as new solar-PV projects for a $100bn outlay, we calculate thatoil would have to trade at $19/bbl.
In other words, for diesel to be competitive as a fuel for LDVs over the long term based on theeconomics of renewables already today, oil would need to trade at 70-72% below the current market
price for Brent.

37

WELLS, WIRES, AND WHEELS… - EROCI AND THE TOUGH ROAD AHEAD FOR OIL- 4.5 CONCLUSION: GASOLINE AND DIESEL ECONOMICALLY UNSUSTAINABLE AS LDV FUELSOur EROCI analysis shows that after adjusting for all of the costs and all of the energy losses of delivering
oil from the well to the wheels on the one hand, and renewable electricity from new wind and solar
projects to the wheels of EVs on the other, new wind and solar projects combined with EVs would
deliver 6.2x-7x more useful energy than gasoline with oil at $60/bbl, and 3.2x-3.6x more than diesel.
Moreover, this is on the basis of the costs and efficiency rates of the renewable-electricity technologies
as they exist today. Yet over time, the costs of renewables will only continue to fall, while their efficiency
rates will only continue to rise (thereby enabling higher load factors).
In particular, the scope for average solar-generation load factors to rise above the 11% we have assumed
in this report is enormous given (i) the potential for further improvements in solar-PV efficiency rates,and (ii) the deployment of solar at much greater scale in sunnier parts of the world such as Africa, India,
and the Middle East.
In short, whether in the form of gasoline or diesel, oil’s days as a fuel for LDVs are clearly numberedbecause our EROCI analysis shows that the economics of new wind and solar projects combined with
EVs are set to become irresistible.

38

WELLS, WIRES, AND WHEELS… - EROCI AND THE TOUGH ROAD AHEAD FOR OIL

39

August 2019 - Design: AM STUIDO - P1907043

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