I always thought that the biggest threat to our economy would be the depletion of oil reserves, and that we had to prepare for a time when Kuwait would not be able to produce more than a million barrels of oil per day.
But things have changed. Now, it is more likely that oil will be most affected by a fall in prices, not a depletion of reserves. I am not talking about a seasonal price drop, but a permanent one due to the shift away from fossil fuels to renewable energy such as wind and solar.
A more important shift is taking place in the type of cars we drive, from gas-powered to electric cars. Although electric car sales account for only 3 percent of all cars, there are indications that this figure will rise sharply over the next few years. Mary Barra, CEO of General Motors Company (GM), announced that the company would stop producing gas-powered cars in 2035, sending shock waves out in the auto industry.
GM is the largest auto company in the United States with over one million employees, making this statement all the more striking. The company had built an electric car called EVI about twenty years ago, but it abruptly abandoned it in favor of gas cars.
The statement came at a time when car manufacturers are under pressure to switch to the electric car market.
According to a statement by Audi president and auto industry expert Markus Rossman, published in the New York Times on January 27, 2021, 10 years ago no one was able to see the industry’s development path. There were pressures resulting from setting standards for fuel consumption per kilometer.
The Obama administration put a cap on fuel consumption of an average 90 kilometers per gallon, putting pressure on the auto industry. Companies found that investing in electric car manufacture as an alternative to their gas cars may be more beneficial than a commitment to making cars that consume one gallon for every 90 kilometers. Volkswagen has announced that there will be an electric car for every type of gas car it produces by 2030.
There is fear that the shift to the electric car industry will lead to the disappearance of many jobs and a rise in unemployment. According to the German newspaper Handelsblatt in its October 1, 2018 edition, in Germany, this shift will threaten 600,000 out of the 800,000 current jobs. This is because, on average, there are about 1,000 spare parts in a gas car, compared to 200 in an electric car. However, the same newspaper believes: “There will be new jobs in digitization, and that the electric car will be a moving computer that includes delicate sensors, laser, and radar.”
Of course, this will not make up for the jobs eliminated. It seems that GM’s decision to switch to manufacturing electric cars was an alignment with the Biden era. The new president is going back to the old fuel consumption efficiency rate, responding to the pressure for a cleaner environment by announcing the construction of 500,000 electric charging stations across the US by 2030. A strong network of charging stations is needed for widespread adoption of electric cars as buying a $2,000 charging unit does not solve the problem that plagues apartment dwellers.
But what about the economic impact of the shift to electric cars? It seems that oil companies are a few steps ahead of oil states on this matter. According to the September 25, 2020 edition of The Washington Post, oil companies have already begun to create new strategies. Quoting from Daniel Yergin's book, The New Map: Energy, Climate, and the Clash of Nations, Bill McKibben says that the future of the oil industry will not be shaped by OPEC countries, and that oil companies are starting to chart new courses.
In August 2020, BP announced that it would cut its oil and gas production by about 35 percent within 10 years, shifting investments into renewable energy. This reflects a shift in anxiety about the future, from a concern about a shortage of oil reserves to a concern about a surplus. Meanwhile we, in Kuwait and the Gulf states, were always worried that the day would come when we would have to reduce our production due to a decline in production capacity. Things have changed, and now, we have to worry about the drop in oil prices due to low demand, which we saw in the first months of the coronavirus pandemic.
Going forward, this drop will not be because of a pandemic, but because of the shift to electric cars. Currently, 68 percent of oil is consumed in transportation, which includes aircraft and ships, and 25 percent is used for private cars. And although total conversion to electric cars will drive the need for electric power, most of which comes from fossil fueled energy plants, this increase will not compensate for the overall drop in demand for oil. It is important to remember that a 10 percent reduction in oil demand leads to a price drop of well over 10 percent.
The electric car that will reduce carbon emissions is environmentally friendly, but it is not friendly to us, at first glance. But we have to think on our feet and learn to make it our friend. We must adapt to its effects on our economy and prepare for a life of low global demand for oil.
If we don't plan ahead for the time when General Motors will stop producing fuel cars, we will be taken by surprise and find ourselves in trouble, unable to sell even half of our current oil production.
This article was originally published in, and translated from, Kuwaiti newspaper al-Qabas.
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