The Market Will Kill Oil Before the Government Does

European governments are making a big splash, pledging an assault on traditional cars to help clean up polluted air in cities. The latest strike came Wednesday in the U.K., which says it will ban the sale of diesel- and gasoline-powered cars by 2040.

Those plans might not be quite as ambitious as they first seem. Consumers, automakers, and even some oil companies are already preparing for a battery-powered future.

The U.K. government’s plan to tackle record levels of air pollution was announced two weeks after French President Emmanuel Macron announced a similar plan to cut smog and become a carbon neutral nation.

While the targets will send a strong signal to automakers in Europe about the kinds of vehicles they should be producing over the next quarter century, they’re more likely to confirm that companies like Nissan Motor Co., Volvo Car Group, and BMW AG are on the right track.

“The industry is already working full speed on developing new, more environmentally friendly technologies,” Moody’s Investor Service said Wednesday in a statement regarding the U.K. plans.

Car companies say they’re ready for the paradigm shift. “We do see electrification as absolutely central to our future strategy,” BMW spokesman Graham Biggs said in a phone interview.

Europe’s car market is set to undergo unprecedented changes over the next two decades, driven as much by economics as government policy. Rapidly falling battery costs will make zero-emission electric vehicles as affordable as internal-combustion engine cars over the next 10 years, according to Bloomberg New Energy Finance.

In the U.K., plug-in cars are still only about 1 percent of all vehicle sales in the country. But that will hit almost 80 percent by 2040, according the London-based researcher. In France too, more than 70 percent of new cars sold will come with a plug even without Macron’s new targets, the researcher said.

“Given the rate of improvement in battery and electric-vehicle technology over the last 10 years, by 2040 small-combustion engines in private cars could well have disappeared without any government intervention,” Alastair Lewis, a professor at the National Centre for Atmospheric Science at the University of York, said in an email.

The shift to electric vehicles will upend oil markets, and gas stations will give way to home charging units. Britain’s retail stations are closing at a rate of about 100 per year, according to energy consultant Wood Mackenzie.

“If auto manufacturers can deliver this, then oil demand will peak and then decline swiftly,” Alan Gelder, Wood Mackenzie senior vice president, refining and chemicals research, said in an email. “This will have a massive impact on the refining sector and the oil markets.”

Royal Dutch Shell Plc, BP Plc and Total SA are betting that demand for natural gas will rise as the world shifts to cleaner-burning fuels. The electricity needed for battery-powered cars could be generated by burning natural gas, companies say.

Shell has said oil demand could max out in as little as 15 years, while BP forecasts it may happen in the 2040s. Meanwhile, demand for natural gas will continue to grow for years, they say.


Total has invested in a battery company, and Shell wants more wind and hydrogen production in its portfolio. Still, the investments are small compared with traditional oil and gas.

New infrastructure—such as charging stations for electric cars—will be needed before diesel and gasoline cars can be taken completely off the roads.

“Getting from 70-odd percent to 100 percent is a different ball game,” said Albert Cheung, analyst at Bloomberg New Energy Finance.

— With assistance from Thomas Seal and Rakteem Katakey.

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