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Big Oil’s Transportation Fuel Business is at Risk from Biofuels and Electric Cars

Lux Research

Diversification into other areas of production including high-value chemicals, and cost-cutting are key to fighting off the growing challenge, Lux Research says

BOSTON, MA – July 14, 2016 – The trillion-dollar oil industry, which gets 80% of its revenues from transportation fuels, needs to diversify into adjacent areas to counter a serious threat from alternative fuels and battery technologies, according to Lux Research. While rumors of oil’s demise have been around for decades, the threats are becoming much more real.

Even in the case of moderate adoption, biofuels would be a $220 billion industry worth a 13% share of transportation fuels in 2030. Meanwhile electric vehicles are approaching an inflection point between 2035 and 2040 where half of all cars sold will be plug-ins. All told 31% of global vehicles will be running on alternative fuels in 2030, and the drop in demand will make typical oil production in the U.K., Brazil, Canada and parts of the U.S. uneconomical.

“Oil’s dominant position in transportation fuels has proved impregnable for more than a century, but real threats abound now,” said Brent Giles, Lux Research Director and lead author of the report titled, “Dealing with Threats to the Transportation Fuel Oil Industry.”

“Government regulations have had a profound impact on the transportation fuels, catalyzing gasoline and diesel substitutes like biofuels and electricity, and major players need to diversify to maintain their long-term competitiveness,” he added.


Lux Research analysts evaluated the threats facing transportation fuel oil, and came up with ways to manage the looming risks. Among their findings:

  • Costs will need to go down. Upstream costs in 2014 were 25% to 30% below 2012 highs, largely driven by a collapse of demand. Costs can be lowered further over the next decade, thanks to advances like robotics, improved fracturing methods, lean engineering and treatment solutions for flowback water.

  • Neste, Valero are emerging models. With global commitments targeting 35% cuts in gasoline and diesel consumption, oil companies need to diversify. Natural gas and bio-derived natural gas offer opportunities. Bio-fuels are another area, as exemplified by advances made by Neste and Valero Energy.

  • High-value chemicals offer opportunities. Specialty chemicals could make a difference between profit and loss for oil majors, and steer them into an industry that is less vulnerable to regulatory limits. But oil companies need to position themselves well to manufacture unusual, high-value chemicals rather than just the commodities most produce today.

The report, titled “Dealing with Threats to the Transportation Fuel Oil Industry,” is part of the Lux Research Exploration and Production Intelligence service.

To hear more on the subject, register for the complimentary webinar, “The Future Oilfield: Drilling in 2030” on July 26th at 11:00 am EDT.