Why GM's switch to electric vehicles may be more important for the oilpatch than Keystone XL's cancellation

Comedian Will Ferrell smashed a globe with his fist, caught an arrow in his mouth and travelled to Sweden aboard a storage tanker on Sunday.

And it had nothing to do with promoting another goofball buddy flick. 

It was a Super Bowl commercial launched by General Motors as the largest U.S. automaker marked its newfound ambitions as an electric-carmaker. Less than two weeks ago, GM caught some people by surprise with its pledge to make the vast majority of the vehicles it produces electric by 2035. 

Amid growing calls for action on climate change, some argue it has the potential to be transformative. And for the North American energy sector, particularly oil and gasoline producers, understanding the implications of the electric vehicle (EV) push just became that much more urgent.

Long-term implications

Warren Mabee, director of Queen's University's Institute for Energy and Environmental Policy, believes for the oilpatch, the significance of GM's announcement outweighs the recent cancellation of Keystone XL.

"That really starts to eat away at the demand side of the equation as consumers have more and more electric vehicles available to them," Mabee said. 

"And as the costs sort of come in line with what [consumers are] expecting to pay, I think we're going to see fewer and fewer people opting for gasoline-powered vehicles. 

"That really has long-term implications for the industry."

But he sees opportunities, too, whether they are in batteries or hydrogen.

"Let's try to beat some others to the punch because I think there's some real potential." 

Some market observers have called GM's target date "aggressive." The complexity of the task is substantial and the pledge, as critics have pointed out, is aspirational. 

Significant EV growth will also require a backbone of infrastructure such as recharging stations. Supply chains will need to be established to support key components such as batteries and power systems.

Also key to the effort, if the goal is to slash carbon emissions, is ensuring there is the necessary infrastructure capable of providing renewable energy for plug-in vehicles.

Jody Freeman, a counselor for energy and climate change in the Obama White House in 2009 and 2010, wrote earlier this month in the New York Times: "Shifting from gasoline to electricity helps to decarbonize transportation only if the electrons fuelling cars and trucks are relatively 'green.'"

An industry-wide sea change

General Motors' plans will see it invest $27 billion US in electric and autonomous vehicles in the next five years.

"There can be no doubt the future of transportation, starting now, is electric," said Fred Krupp, head of the Environmental Defence Fund, which is working with GM on the strategy.

And GM is not alone.

Last week, Ford Motor Co. said it would spend at least $22 billion US developing EVs from 2016 through 2025, nearly double what it previously announced. 

Among others, Volkswagen is spending billions of dollars in its pursuit of all-electric Tesla. 

And, last fall, California's Governor Gavin Newson inked an executive order stating all new passenger cars and trucks sold in the state would have to be emission-free by 2035.

Will drivers come for the ride?

Of course, GM promising to go electric doesn't guarantee success. There's a lot of work ahead.

But Mabee believes GM can reach its goal, suggesting big manufacturers have the kind of heft needed to make technological improvements in key areas such as battery life and efficiency.

Consumers will have to come along for the ride, too. 

While GM sold more than 2.5 million vehicles in the U.S. last year, only about 20,000 were electric vehicles, according to Reuters.

Analysts at Rystad Energy said that as battery costs decline, vehicle performance increases and charging infrastructure improves, electric mobility will eventually out-compete its internal combustion engine counterparts. 

To that end, EV technology is advancing rapidly. 

However, Brian Kingston, president of the Canadian Vehicle Manufacturers' Association, said this week in the National Observer, "price parity with gas-powered vehicles remains years off."

Others believe that day could come in the next couple of years. That's why some proponents argue rebates and government incentives are so important to grow the market. The entry-level price of a new Chevrolet Bolt EV hatchback, for example, is more than $45,000 in Canada.  

Still, a recent report from Deloitte found U.S. consumers' biggest concern regarding all-electric vehicles was range and a lack of charging infrastructure, not the price of the vehicle.  And, in Canada, some argue one of the challenges facing would-be buyers is the ability to find one at the dealership.

Still lots of road ahead

For proponents of EVs, automakers' big investments in the sector provide reason for optimism, but there's still a lot of ground to make up.

Dennis DesRosiers, an analyst with DesRosiers Automotive Consultants, noted North America has had electrified vehicles for years now, but they still only make up a small percentage of the overall market.

Last summer, the Paris-based International Energy Agency estimated that electric car sales will account for about three per cent of global car sales in 2020.  

In the first and second quarters of 2020, 3.5 per cent of total new vehicles registered in Canada were zero-emission vehicles, according to Statistics Canada, a category that includes battery-electric vehicles and plug-in hybrids.

"At some point in this century — not this decade, this century — all vehicle companies will have 100 per cent electric vehicles for sale," said DesRosiers, who is based in Richmond Hill, about 35 km north of Toronto.

"That being said, the GM announcement is aggressive in terms of time frame."

The long life of gas-powered cars

Transformation to electric vehicles would mean a slowing demand for gasoline, DesRosiers said, but not overnight.

New cars entering the market today will have a long road life and the vast majority of those vehicles run on gasoline or diesel, he said.

Improved fuel efficiency means new gasoline-powered vehicles will require less fuel than in the past, DeRosiers said, but "the oilpatch has got quite a long road in front of it still." 

"At some point, energy demand related to carbon-based fuels is going to collapse." 

"But I think it's probably a good 20 to 30 years out, possibly even more."

Richard Masson, an executive fellow at the University of Calgary's School of Public Policy, said the oilpatch has to pay attention but doesn't expect a precipitous drop in demand for Alberta crude.

Looking out over the next two decades, Masson said oil markets will need more crude to replace anticipated production declines elsewhere. 

"Alberta is very secure, stable, connected to a big market," said Masson, former head of the Alberta Petroleum Marketing Commission. "We can easily be a good part of that energy mix going forward."

Energy transition 'on its way'

But if fuel and oil demand is squeezed, the big challenge for Canadian oilsands producers may be to be cost-competitive in a global market while also facing environmental scrutiny from investors.  

"If I'm looking at the global demand picture, it means that the competition became that much tighter," said Al Salazar, vice-president of intelligence at Enverus, an energy data analytics firm.