Oil has occupied a central place in the American economy for the past century — powering houses, automobiles, factories and everything in between. As a result, the oil companies that drilled, shipped and sold black gold reaped billion in profit year after year and continue to do so.
But for the first time oil and gas companies are openly grappling with a less-than-certain future where climate change and related advances in other energy sources make them less dominant.
In its annual energy outlook released last week, BP said that it expected oil demand to peak in the next two decades as renewable energy grows and consumers purchase hundreds of millions of electric vehicles. In an outlook released in February, Exxon Mobil projected a peak in demand for gasoline in the coming decades and acknowledged that some of its assets “may not be attractive investments” as a result of the shifting energy market.
These changes may sound subtle, but they signify a marked shift in direction in an industry that for years fought government climate regulation and in many cases sought to murky the science underpinning the need for action on global warming.
“The recognition of the energy transition has grown over the past year with the oil and gas players,” says Marie-Helene Ben Samoun, managing director of the Boston Consulting Group’s oil and gas practice. “They are not only acknowledging global warming, but they are also acknowledging the energy transition and the impact on their own portfolio.”
The biggest change for oil and gas companies will be the declining need for oil to power the internal combustion engine as electric vehicles become more prevalent and the remaining gas-powered cars become more efficient. Exxon Mobil projected this year that demand for liquid fuel for passenger vehicles will likely peak by 2040. BP reports that the total number of electric cars could hit 300 million by 2040 dealing a significant blow to fuel consumption. That rise plays a significant role given that nearly half of oil consumed in the U.S. in 2016 was used to produce motor gasoline, according…