6 minute read 18 Dec 2020
Charging of an electric car article

Six electric vehicle opportunities for oil and gas players

By Fay Shong

EY Americas Oil & Gas Digital Strategy Leader

Transformational thinker and leader within downstream energy. Advocate for Working Women in Oil & Gas. Proud Chicagoan and advocate for the Arts. Mother.

6 minute read 18 Dec 2020

The time is right for oil and gas to leverage its built-in strengths and capitalize on the growing market for EVs.

In brief
  • Strong brands, large operational infrastructures and broad retail networks can help oil and gas players pursue the EV market.
  • Regardless of the energy transition scenario, regional differences are already making a mark on the shift to renewables.
  • Buying, building and partnering will all be necessary to achieve EV market success.

Each year, the cost parity of electric vehicles (EVs) compared with internal combustion engine vehicles grows closer. EVs could entirely offset annual marginal growth in oil demand as early as 2027, with oil demand reaching its peak by the late 2020s, the Carbon Tracker Initiative estimates. Amid that transition, the COVID-19 pandemic has slowed global manufacturing activity and travel, leading to sharp drops in demand and prices.

As the oil and gas sector looks for new sources of growth, it’s an ideal time to increase its focus on the EV market. By 2030, EVs will represent nearly half of global vehicle sales, according to LMC Automotive and Bloomberg.

By pursuing the EV market, oil and gas companies can draw on built-in strengths: strong brands, global operational infrastructures and retail networks that could provide a foundation for the future of mobility. EV initiatives will connect oil and gas companies with a new and growing consumer base and involve them in the evolution of smart cities and infrastructure.

EV initiatives will connect oil and gas companies with a new and growing consumer base and involve them in the evolution of smart cities and infrastructure.

Six promising EV markets for oil and gas

Electric mobility is likely to be one of the biggest cross-industry phenomena in the 21st century, spanning dozens of opportunities. For the oil and gas industry, the best prospects lie within six key markets.

1. Public charging stations

The potential market for public charging stations is significant, and downstream players are particularly well-positioned to capitalize on it. For companies with an existing gasoline network and strong brand, the synergies are large. These companies also have the know-how to set up and operate retail sites.

EV charging can complement other services, particularly during the transition period when gasoline and electricity will both be in demand. And just as they do for gasoline stations today, oil and gas companies can choose to operate a charging station network in a discrete region to leverage geographic-related efficiencies.

Electric vehicle sales

50%

By 2030, EVs will represent nearly half of global vehicle sales, according to LMC Automotive and Bloomberg.

2. Point of interface (POI)

POI refers to information and communications technology that enables contact between customers and the business solution or site. In practice, this can take the form of a mobile application that helps customers find charging stations, learn price details, monitor and control charging and make payments, for example. With a small capex requirement and short investment horizon, the opportunity is well-suited for downstream oil and gas players.

Most integrated oil companies (IOCs) have already developed digital tools to improve the customer experience. These can be easily expanded to integrate EV-related services.

3. EV financing and leasing

Many oil and gas companies already have frameworks that could enable capital finance management for the purchase of new or used EVs for businesses and individuals, including leasing and lending.

EV fleets are a particularly promising area. Corporations looking to procure a pilot EV fleet may find it more attractive to lease as prices fall over the next five years or so. This trend is opening a secondary financing market.

Another business model would be to offer ways to purchase a vehicle and separately lease the battery, which typically needs to be replaced within 10 years or less.

4. Fleet management

Oil and gas companies could take responsibility for managing how an enterprise’s internal combustion engine vehicle fleet is migrated to EVs (apart from providing services such as fuel management, asset utilization, payment gateways and accident management solutions). This value pool is particularly favorable for the oil and gas downstream sector, and it dovetails with businesses’ environmental, social and governance (ESG) goals. Fleet conversion is an attractive way to get immediate results in reducing carbon footprints, and this will only get more alluring as the costs of EVs decline.

For example, an oil company could give fleets access to charging stations, as well as the usual fuel stations, through a new fuel and charge card, offering fleet managers added flexibility when they choose to migrate to EVs. An app would enable fleets to find the nearby sites and process payments, regardless of whether they are consuming gasoline or electricity. Dashboards then deliver a total cost of ownership comparison among different fuel types in a fleet. Such integrated solutions make the transition to electric easier.

Battery-related services are an excellent opportunity for oil and gas players to broaden and connect with their customer base. Consumers see EVs as pieces of technology and feel wary that the manufacturer is the sole refuge for service.

5. Smart city planning

Cities worldwide are looking to improve mobility and transportation through updated infrastructure and increased connectivity. Current infrastructure is aging and unable to meet these evolving needs. With oil and gas sector leadership, EVs could serve as a crucial enabler for upgrades.

Smart city planning creates investment cases for the EV market by addressing traffic flows, adoption rates and location feasibility for supply equipment. Oil and gas companies can design detailed EV routes and establish a profit analysis model to gauge the return on current and future routes.

6. Battery swapping and management

Battery-related services are an excellent opportunity for oil and gas players to broaden and connect with their customer base. Consumers see EVs as pieces of technology and feel wary that the manufacturer is the sole refuge for service.

Charging stations and EV battery banks that let consumers swap depleted batteries for charged ones provide peace of mind and convenience. Fuel retailers could provide this service, including options to rent or lease batteries.

This framework also creates a secondary market for batteries. Oil and gas players could trade the batteries or recycle them as storage for renewable energy sources.

Market scenarios and strategies

As oil and gas companies develop strategies for these six markets, they must evaluate them against global scenarios for how an energy transition might unfold. In any of these Fueling the Future scenarios, oil and gas companies eventually shift capital toward alternative and emerging energy technologies. In any transition, business lines that enable vehicle electrification financing, smart city planning and PoI will be appealing. All that's in question is how fast a transition occurs.

Regional differences are already affecting strategic decisions. A few players, mostly European, are setting clear and aggressive goals to go green and carbon-neutral by 2050. At the other end of the spectrum, another group — mostly US players — are skeptical; previous investments in renewables have shown meager returns, and they prefer to wait for the industry to further develop. In the middle, some IOCs are “putting a toe in the water” — exploring new solutions without committing too much capital or re-engineering their core businesses.

Enabling a transition from gasoline pumps and oil changes to charging stations and battery banks will require a multi-faceted capital approach. The opportunities are large and complex, and traditional sector boundaries are dissolving. Acquisitions, partnerships, alliances, joint ventures and horizonal diversification will all play a role in building this new world. 

The views of third parties set out in this publication are not necessarily the views of the global EY organization or its member firms. Moreover, they should be seen in the context of the time they were made.

 

Summary

The growing EV market is a classic example of the duality of a crisis. For the oil and gas sector, the existential threat of an energy transition away from fossil fuels could also be an opportunity to enter new markets and reconnect with consumers.

About this article

By Fay Shong

EY Americas Oil & Gas Digital Strategy Leader

Transformational thinker and leader within downstream energy. Advocate for Working Women in Oil & Gas. Proud Chicagoan and advocate for the Arts. Mother.