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The fossil energy sector is transforming. The old business model is not going to work any longer

Myth

Due to low oil prices, the oil, coal and gas sector was only temporarily in trouble. In general, though, their business model stays the same and demand for fossil energy will continue to grow.

Facts

Due to low fossil energy prices, coal, oil and gas companies lost 40% of their value between 2014 and 2016. After the peak in coal consumption, a decline in oil consumption will have to follow after 2020. The improvements in electric vehicles will provide a remarkable contribution to this shift.

The fossil energy sector has to transform

The Bloomberg 2016 scenario calculates the consequences for future oil demand due to growth of the electric vehicle market

Source: Bloomberg New Energy Finance 2016

The fossil energy industry is in turmoil. As a result of the Paris Agreement the demand for fossil energy will have to fall in the near future. A decline in demand will influence the price and value of fossil energy reserves and assets. Climate change and the anticipated transformation of the energy sector pose a risk to investors. According to a 2015 survey for the Austrian capital market approx. EUR 21 billion are exposed to carbon risk in the Austrian capital markets. A new strategy for a carbon-neutral world is necessary for investors and many business sectors. But besides risks there are many opportunities for clean investments at hand.

The trend towards electric vehicles will have major consequences for future oil demand. According to an analysis by Bloomberg New Energy Finance the dramatic fall in battery prices (-65% between 2010 and 2015) has allowed new market dynamics. By 2023 two million barrels/day could be replaced by electric vehicles based on a shift to electricity. The demand for oil will be 13 mio. b/d lower than in a business-as-usual scenario when a 35% market share of EV will be reached. Therefore the need for (renewable) electricity capacities will rise accordingly.