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Motor Mouth: Gas prices — and EV battery costs — can only go up from here

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There are lots of way to curb our tailpipe greenhouse gas emissions—we should use all of them

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Driving into the Future’s second season ends with a roundtable examining the effects of rising gas prices versus battery costs. Join our experts for a thoughtful discussion of the benefits and roadblocks to our reduced emissions future.

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“Two dollars a litre isn’t just a notion,” says Canada’s guru of gas, Dan McTeague. “It’s quite likely the possibility we’re looking at over the next couple of years .” In fact, says McTeague, whose official title is actually President of Canadians for Affordable Energy, “$2.50 a litre wouldn’t be out of the realm of possibility.”

According to McTeague, part of that is deliberate, the result of government policies designed to curb our use of fossil fuels, not the least of which is the Liberal’s new carbon tax — set to reach as much as $170 a tonne by 2030 — as well as the soon-to-be-applied Clean Fuel Standard, which McTeague decries as simply a “second carbon tax.”  But none of this is news. We Canadians have long known that a Liberal government intended to price gasoline out of favour, Prime Minister Trudeau signaling from the start of his political crusade that tariffs on fossil fuels were a major part of his agenda.

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What has been a surprise to pretty much everyone, save perhaps Adam Rozencwajg, is how quickly the price of oil has rebounded since the pandemic. With oil hovering in the US$75-per-barrel range, it might be hard to remember that, for a short time in April of last year, oil prices in the United States actually went negative. Yes, someone was willing to pay you to take that oil off their hands.

Fast-forward 18 short months and the managing partner of Goehring and Rozencwajg says that not only is US$100 oil possible, but US$200 and even US$250-a-barrel is within the realm of possibility. Now before you dismiss him as crazy — and he himself acknowledges that more than few pundits are still calling for oil to stabilize — remember that he was just about the only one that predicted oil’s current boom cycle .

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As Rozencwajg sees it, it’s simply the good old law of supply and demand once again rearing its ugly head. Demand for oil has already exceeded pre-COVID-19 levels in some quarters, says the resources expert, with monthly records being set in 2021 in the United States, China, and India, the top three consuming countries. This, despite the fact that the airline industry is yet to fully recover from the pandemic.

Meanwhile, supply is drying up. “No one has spare barrels of oil,” says Rozencwajg, “and that includes Saudi Arabia and Russia.” The one country that might have some oil capacity in hand is the United States, but supply there has plummeted in recent months as much a result of activist investors forcing major oil companies to curb exploration and investment as any coronavirus-induced cutbacks. And in a way, the day of $200-plus oil may already be here. As Rozencwajg explains, natural gas in Europe has skyrocketed from US$1.40 per million cubic feet to as high as US$35 per mmcf, which in the energy equivalency terms resources experts use, prices oil at US$230 a barrel. As The Economist says, the age of fossil-fuel abundance truly is dead.

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A driver prepares to charge his Tesla car at a Tesla Supercharger charging station on August 12, 2020 in Skei, Norway.
A driver prepares to charge his Tesla car at a Tesla Supercharger charging station on August 12, 2020 in Skei, Norway. Photo by Sean Gallup /Getty

All of this should be welcome news to the pro-electric vehicle crowd, proponents of battery-powered electrics long contending that the popularity of BEVs would increase as the cost of running an ICE-powered car becomes more prohibitive.

Hold your horses, says Rozencwajg, not so fast. For BEVs to take advantage of that price surge, the cost of batteries would have to continue their steady decline. But, while most experts are calling for the cost of lithium-ion to decline to the US$100 per kilowatt-hour that would make BEVs price-competitive with internal combustion, Rozencwajg thinks that the price of batteries has already bottomed out.

The reason is again supply and demand. According to the International Energy Agency, electric vehicles require six times as much mineral input as a conventional car, and wind-generated electricity nine times as much minerals as a typical gas-fired power plant. In all, the IEA estimates that, to meet projected demand, we’ll need 40 times as much lithium as we produce today and up to 25 times as much graphite, cobalt, and nickel, none of which, applying classic economics, points to a downward price trend. As Bloomberg points out in a recent article, the battery cell itself — as opposed to the packaging — now accounts for 82 per cent of the cost of the battery (up from 70 per cent just a few years ago) and is largely dependent on the cost of raw materials.

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Simply switching our gas-guzzling pickups and SUVs for equally gluttonous BEVs is far from the most efficient way to reduce our carbon footprint

Rozencwajg thinks copper supplies are especially vulnerable because of its ubiquity in all things electric. Copper is essential to power creation, distribution, and use. As Rozencwajg says, “whether it’s a hydrogen fuel-cell, a lithium-ion battery, or you’re just trying to wire the huge parts of India that remain unelectrified [for the infrastructure that would support BEVs], copper has a very bright future on the demand side.” For the non-hedge fund analysts amongst us, that means copper is going to get expensive. And while he won’t try to predict a future price point for batteries, Rozencwajg does think that 2021’s US$132-per-kWh average is the “bottom” of the lithium-ion market. And, yes, that might run counter to common speculation , but I’d remind you yet again that, while those same analysts were calling for oil to continue its once steady march to irrelevance, Rozencwajg was one of the few — the only? — to predict its recent resurgence .

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That’s all a long way of saying that the electric vehicle’s long-promised price parity may be a lot further in the future than promised. BEVs are still, without healthy subsidization, limited to the well-monied. Most of the products serving the zero-emission market fall into the $60,000-plus luxury segment, the best most manufacturers can do being to slip slightly under the $45,000 threshold required to qualify for Canada’s $5,000 federal subsidy. Your purchase of a $25,000 plug-in Honda Civic equivalent still lies some time in the distant future, and the thought of a $14,098 BEV as capable as Mitsubishi’s little-engine-that-could Mirage is positively laughable.

Parts of a Ford pre-production all-electric F-150 Lightning truck prototype are seen at the Rouge Electric Vehicle Center in Dearborn, Michigan, U.S. September 16, 2021.
Parts of a Ford pre-production all-electric F-150 Lightning truck prototype are seen at the Rouge Electric Vehicle Center in Dearborn, Michigan, U.S. September 16, 2021. Photo by Rebecca Cook /Reuters

That is not to say, however, that the automobile industry’s steady march to electrification is abating. A reduction in automotive tailpipe emissions is necessary and, with BEVs leading the charge, beginning to pick up some steam. On the other hand, lithium-ion is not a magic elixir that will, in and of itself, make all our energy or emissions problems go away. Simply switching our gas-guzzling pickups and SUVs — according to David Adams, president of the Global Automakers of Canada, fully 83 per cent of all the vehicles sold in Canada last month were light-duty trucks — for equally gluttonous BEVs with their 200-plus kilowatt-hours of battery is a huge waste of energy and resources. It’s also far from the most efficient way to reduce our carbon footprint.

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Battery-powered vehicles will surely be a huge part of our mobility future. But, from a total energy consumption point of view, hybrids make more sense for pickups. Ditto for hydrogen which, as we detailed in last week’s Is Hydrogen the Fuel of the Future Driving into the Future forum, is a more logical zero-emissions solution for long-haul trucking (the U.S. Clean Air Task Force, for instance, estimates that the number of truck stops in the United States would have to increase eight-fold if all heavy vehicles were battery-powered, but the current infrastructure would suffice if they were hydrogen-powered).

Indeed, relying completely on battery power for all our transportation needs now may turn out to be as big a mistake as devoting all our resources to internal-combustion was at the dawn of the automobile age 100 years ago. There are lots of way to curb our automotive greenhouse gas emissions. We should use all of…



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