Don’t Get Caught Short with Petroleum

In brief:

  • Electrification and the continued adoption of electric vehicles (EVs) spell a substantial drop in petroleum demand in the near future.
  • The shift to EVs and home appliance replacements won’t happen overnight, and it will not be easy. Natural gas will be an important steppingstone in the transition.
  • Whether you’re an oil and gas producer rethinking its strategic focus, or a utility preparing for a steep ramp up, there are steps you can take to stay ahead of the electrification trend.

Five years ago, you might have walked by a parking lot with an electric vehicle (EV) charging station and stopped to look at the car parked there, pondering the concept. Even more likely, the parking space was empty. Today, odds are you know one or more people who own an EV. You might even be a proud owner yourself.

The steady rise in EV sales, coupled with the electrification trend, eventually spells the loss of demand for over 147.8 billion gallons of petroleum fuel products, or over $490 billion in sales at a national average price of $3.34 per gallon.1

The writing is on the wall: Petroleum’s days as a dominant energy source are numbered. In this blog, we offer our take on electrification and explore how you can position your organization to capitalize on this shift.

From petroleum to electrification

First, let’s examine some of the factors driving transformation in energy. Transportation is the leading contributor of greenhouse gas (GHG) emissions at 29 percent of GHG production, followed closely by electricity. Current regulations like the Clean Power Plan (CPP) of 2015 and vehicle emission regulations target these sources already. In addition, electrification impacts transportation and residentially sourced emissions by replacing fossil-fuel vehicles and residential appliances like oil heaters with electric equivalents. Per the U.S. Energy Information Administration (EIA), in 2020, 44 percent of petroleum usage was for gasoline fuel and another 21 percent was diesel fuel and heating oil. That means demand for 65 percent of petroleum products in the U.S. is at risk from electrification. This change will disrupt the oil and gas industry end to end, from exploration and refining to downstream oil and gas, convenience stores, and even dual brand affiliates who must prepare to replace or offset those revenues.

While the transition from fossil fuels is in full swing, it has primarily affected the electric generation industry to date. Shifts in the transportation industry are nascent but gaining momentum. In 2018, the Edison Electric Institute published annual targets culminating in almost 19 million EVs on the road in 2030. As of April 2021, pandemic aside, those predictions were still on target at roughly two million EVs. If we continue that trajectory, it is reasonable to believe the U.S. transition of its 2019 reported 254 million light-duty vehicle fleet to EVs will be complete well before 2050.

Natural gas as a steppingstone

The shift to EVs and home appliance replacements won’t happen overnight, and it will not be easy. Natural gas will be an important steppingstone in the transition. Natural gas turbines produce a mere 54 percent of the emissions of coal plants—a significant reduction.2 As regulations continue to push net-zero carbon and reduced GHG emissions, natural gas will serve as the dominant fuel source. It currently produces roughly 40 percent of electricity, and will play a key interim role as renewable sources and nuclear scale up. Natural gas isn’t likely to go away given the intermittency of renewables, but advances in technology and battery storage will diminish its role over time. Oil and gas companies must prepare for this shift as we approach 2030 and beyond. Specifically, demand for petroleum products and local gas stations will plummet as utilities produce more and more of society’s energy needs. And even before then, they must manage today’s regulatory risks: Natural gas combined cycle generators barely meet emission thresholds today, and new regulations could arise at any time.

Getting started

Electrification is already transforming the entire energy industry. Disruptions to product demand, workforces, and customers are gaining momentum. How do you remain relevant?

  • Align your operating model and organizational strategy. Whether you’re an oil and gas producer rethinking its strategic focus, or a utility preparing for a steep ramp up, reassess and engineer functional competencies to create and deliver value in a transformed industry. By reimagining your operating model—comprised of people, processes, structures, governance, technology, and data—you’ll accelerate toward your key objectives, whether it’s top-line growth, capability improvement, cost reduction (or a combination of all three). More on this in our e-book.
  • Turn your vision into tangible value by aligning customer, workforce, and operational decisions. For oil and gas companies, adopting and embedding an external customer focus is a gamechanger, much like breaking into a new market. But first, you’ll need a clear understanding of your vision and purpose in creating customer value. Start by defining the present and future market needs you want to meet. Then, align all workforce and operational decisions to this vision. Click here to learn how.
  • Prioritize and enable your workforce. Equipped with a continuous change mindset, your workforce can help you achieve scale, efficiency, and speed. Yet, this mindset is only part of the picture. Rethink the employee experience, leadership competencies, organizational capabilities, and reskilling needs, prioritizing the people-related decisions that can bring your aspirations within closer reach. Learn how to best enable your people along the transformation journey in this e-book.

  1. U.S. national average petroleum fuel price as of December 9, 2021.
  2. Values for calculation sourced from U.S. Energy Information Administration. Natural gas emissions divided by the average of emissions from coal sources.