Electric Vehicles and Oil & Gas Industry
In the beginning of 20th century, wood and coal were used as a primary source of energy as it provided around 90% of total energy consumption around the globe (EIA, 2013). However, right after 1910, the automotive revolution spurred by Henry Ford forever changed the demand for liquid fuels that bumped up the contribution of crude oil in global energy supply (EIA, 2013). It is because of automotive revolution that by 1970 crude oil managed to take the top spot in global energy mix. The world today consumes more than 90 million barrels of oil per day that makes 40,000 gallons per second (Oil Peak, 2015). In order to satisfy the market needs, the oil and gas segment is constantly innovating and trying to generate new exploration & exploitation technologies.
In light of the Paris Agreement reached in 2015, several countries made a pact for fulfilling the 17 sustainable development goals (Sachs, Maennling, & Toledano, 2017). In the agreement, a clear approach was laid for curbing out the human induced climatic change including use of non-renewable energy sources. The urgency of addressing climate change has called in for global efforts towards technological advancement in oil and gas sector. With all good technologies, there comes a strong point where alternatives do not appear to be lucrative. Predicting the technological shifts is quite difficult task, but whenever it happens, it reshapes the world (Sachs, Maennling, & Toledano, 2017).
Current development in the automotive industry is re-dictating the growth prospects of energy sector especially oil and gas. The call for disruptive technology in shape of electric vehicle proliferation is made through congestion and urban air pollution that is driving the cleaner energy distribution systems in many major cities around the world (OPEC, 2017). The challenge of environmental pollution has appeared to be resolved through advancement and development of environmentally friendly devices. The evidence can be found by the entry of Google, Apple and Tesla into the automotive sector. According to OPEC (2017), battery vehicles are unlikely to gain market share without a technological breakthrough. In this regards, a clear strategic approach to disruptive technologies should be made.
This report will provide a strategic approach towards the disruptive technology and the key problems identified by the researcher previously. The issues discussed in relation to oil and gas industry included congestion, air pollution, environmental concerns, and disruption in supply of oil and rapid advancement in technology including availability of electric vehicles. For this strategic report, the researcher has chosen proliferation of low carbon technologies and its impact on the whole oil and gas industry throughout the globe.
Before moving on to proliferation of low carbon technologies, a general strategic approach towards disruptive technology is discussed. In times of changing environment, the organizations are required to quickly form approach that can lead to success in future. This approach is needed to be different from past as the disruptive technologies dictates the future. It can be hard to let go of the past strategies and approaches if the whole industry has been sourcing competitive advantage out of it. It is indeed possible for companies in certain sector to craft strategies for exploiting the opportunities ahead of the competition.
According to Christensen (2016), technology itself is not disruptive but its whole impact on the business models or strategies followed by industry is disruptive. A disruptive technology emerges and is unlikely to match the likeliness of existing dominant technology with customers’ loyalty. The key features of a disruptive technology are that it is valued by a small number of existing consumers and attracts new customers in future. Disruptive technology also paves the way for new entrants to enter the market in order to replace the incumbents that do not invest in the disruptive technology due to its low demand (Christensen, 2016). Here the question lies that whether electric vehicles can be considered as disruptive technology or not? The table below provides clear reasons of electric vehicles being a disruptive technology.
|CHARACTERISTICS OF DISRUPTIVE TECHNOLOGY||CHARACTERISTICS OF ELECTRIC VEHICLE|
|Market leaders do not value the price of performance attribute set forth by disruptive innovation.||Electric vehicles have higher selling price as it offer reduced energy consumption and low maintenance cost.|
|Poor performance on mainstream consumer’s values.||Electric vehicles have short range battery technology.|
|Introduced first in niche or emerging market.||Prototypes of electric vehicles and niche cars are available.|
|No importance given by competitors for attracting niche market and special customer segments of disruptive innovation.||Electric vehicle manufacturers face competitive disadvantage in regards with current knowledge in battery technology but still are working harder to achieve further development.|
|Lower margin and in-attractive to incumbents that are serving large customer base.||Current prices of electric vehicles are far above 100% as compared to traditional oil/petrol run vehicles.|
As discussed above, electric vehicles have the potential to be regarded as disruptive technology that not only will transform the automotive industry, but also related sectors including oil and gas sector. Electric vehicle expansion will provide new growth prospects to the high-tech manufacturers in the overall value chain. Crude oil and gas will likely be losing energy market share due to proliferation of EV into the market (Ernst & Young, 2016). It is expected that by the next decade, the demand for oil might start to decelerate in the disruptive manner due to EV adoption.
EV adoption is clearly supported by the national policies around the world. Governments, in both developed and developing markets, have significantly implemented the rebates and tax breaks for allowing the consumers and manufacturers to switch to EVs. However, it is quite difficult to predict the natural course of EV adoption in near future, but according to census made by Deutsche Bank and ClearBridge (2016), EV adoption might hit an inflection point over next decade. It is expected that EV sales can hit 60 million by 2030 and after reaching inflection point, this disruptive technology will be adopted rapidly (refer to chart below).
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