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Changing Lanes: a Roadmap for Transport and Future Energy Markets

Multiple Operators Suffer Damage to Fiber Networks from Hurricane Michael

Factbox: Hurricane Michael Impact Turns from Production Loss to Demand Destruction

Storm Tracker: More than 860,000 customers still in dark in Michael's wake

Factbox: Utilities, Oil Producers Brace for Hurricane Michael Along U.S. Gulf


Changing Lanes: a Roadmap for Transport and Future Energy Markets

Revolution is a misused term when it comes to road transport. Advances in battery technology and a growing awareness of climate change issues are putting the traditional internal combustion engine (ICE) under pressure like never before but predictions of its sudden demise look overblown. Oil is likely to play a central role in powering mobility for decades to come.

Oil’s advantages as a transport fuel are as applicable today as they were more than a century ago when the Model T Ford arguably triggered the last transport revolution because of its simplicity, reliability and economy. Rolling off some of the world’s first modern production lines the four-cylinder vehicle turned mass passenger-car ownership into a reality. The same refined products that fueled those early vehicles are still the most flexible and cost-effective ways for consumers to power their cars today despite volatile markets and alternative technologies.

Electric vehicles (EVs) may offer a glimpse of the future but for the time being their impact is limited. Despite improvements in battery technology range is limited even for the most expensive models, which still can’t compete with ICE cars as a complete package. S&P Global Platts Analytics forecasts that oil production will have to increase to meet rising demand for the next two decades. Meanwhile, demand for petrochemicals feedstock is expected to continue growing strongly, along with oil use in the marine and aviation sectors. Although vehicle manufacturers are increasingly investing in developing EV technology overall oil demand is still expected to exceed 100 million b/d this year, according to S&P Global Platts Analytics estimates.

What EVs Mean for the Energy System

Population growth and rapid expansion in emerging economies, especially in Asia, will continue to stoke consumption from vehicles in the medium term. But passenger-car oil use is expected to peak around 2030, along with a slowdown in commercial vehicle oil demand growth. “There is a lot of talk about peak demand but this is far too early to be worrying about the demise of fossil fuels in the near term. Despite growth of EVs in double digits, overall sales amount to less than 2% of the total market,” said Chris Midgley, head of S&P Global Platts Analytics. “The current near-on 3 million EVs displaces less than around 60,000 b/d, or less than 0.06% of total global demand.”

Meanwhile, momentum is building around EVs and hybrid variants of the technology as viable alternatives to the future of mobility. Plug-in ranges are increasing and charging times are falling. Consumers are also becoming more concerned about emissions and the need to find alternatives to fossil fuels to meet their daily transport needs especially in urbanized areas. This has fed anxiety over the future of oil as the world’s primary source of transport fuel.

Professor Dieter Helm, an expert in transport and environmental issues at Oxford University and energy policy adviser to the British government, argues that advances in EV technology will eat into oil’s dominance as a transport fuel much sooner than the industry expects.

Digitization of public transport and traffic management along with infrastructure improvements could also be catalysts for faster change. However, Helm who recently published the book Burn Out: the endgame for fossil fuels has taken a more radical view on the future of oil.

“The impact on oil demand will build up in the next decade, potentially much faster than the International Energy Agency and the oil companies predict,” Helm told S&P Global Platts. “There will be tipping points where motorists switch to electric, once they are confident that the electric charging infrastructure is in place, and as the costs of the vehicles fall.” Although fuel demand for passenger transport could decline, demand could benefit in other areas such as petrochemicals and industrial consumption, which could both be boosted by EVs.

How Oil Companies are Responding to EVs

In reality, change will most likely be far slower than Helm would ideally like to see. Skeptics point out that while fast-charging stations are proliferating in parts of Europe such as the Netherlands, in many other European countries the vast majority of cars are more than 10 years old. Diesel remains a mainstay passenger car and haulage fuel, while the growth of EVs around the world is heavily incentivized by government subsidies and regulations.

Neither is the EV the only alternative to the domination of the ICE-powered car in mobility. Hydrogen especially in commercial transport and mass transportation could play an important role in the emerging energy mix as could natural gas. Fossil-fuel powered engines are also becoming more efficient, with manufacturers squeezing extra miles out of conventional valves and cylinders.

The most efficient petrol-driven cars are now capable of mileages close to 100 miles/gallon. According to BP the average car globally may have achieved less than 30 miles/gallon in 2015 but that is still more range efficient than the most expensive EVs. And engines are becoming more frugal. BP forecasts the average passenger car will achieve almost 50 miles/gallon by 2035. In its model, these efficiency gains could absorb most of the increases in the number of EVs expected on highways.

However, oil companies are still hedging their bets. Shell and Total have invested billions of dollars to expand liquefied natural gas (LNG) production, in part to feed expected increases in electricity demand, which could arise from EVs reaching a critical mass. Super majors — which have dominated highways and street corners with their refueling stations — are also investing to install recharging solutions into their networks. Electricity utilities are also looking for ways to tap the emerging market for recharging.

Instead of revolution the changes currently underway in the world of mobility appear more evolutionary, with oil set to continue playing an important role as a primary transport fuel source for decades to come.

Impact of EVs on Battery Metals and the Environment

Executive Summary

Fossil fuels have dominated transportation for the past century and are likely to continue to for the foreseeable future. However, new technologies and fuels, climate change policies and market drivers now threaten its dominance like never before.

Developments in batteries could make electric vehicles (EVs) cost competitive within a decade. Government policies and subsidies add to the pressure for change. Vehicle manufacturers are also investing tens of billions of dollars to prepare for a future that might see a growing share of EV sales.

Heavier duty vehicles, ranging from vans to long-distance trucks and buses, are also seeing a wider range of new cleaner fuel options. The transition is important for the downstream oil industry since both gasoline and diesel consumption may be threatened.

Electrification is not the only potential challenge for oil. Autonomous vehicles (AVs) could turn the world of transportation into a service industry with fewer cars on roads. Much higher utilization rates would have a wide ranging impact on fuel use, vehicle sales and even urban design. EVs are not necessarily the end game. Hydrogen could ultimately be better in terms of range and refueling, especially for heavy duty vehicles.

Europe is at the forefront of regulating the low-carbon transport revolution. The region’s policymakers are actively pushing manufacturers and consumers toward higher-efficiency loweremissions vehicles.

China’s market is the most dynamic in terms of low-carbon transport. By almost any measure, China currently leads the world in road transport electrification. Moreover, EV growth offers China an opportunity to re-write the established order in both domestic and foreign markets, potentially benefiting as a world leading EV exporter.

Change isn’t guaranteed. Refueling and range are concerns for consumers. The overall performance of EVs is well below ICEs. Currently, the lack of widespread recharging stations is a key constraint on the market. The infrastructure is being built, but there is much to be done to give consumers the comfort level provided by gasoline and diesel.

The recharging impact on the electric grid is another factor that will have to be monitored carefully. Network management of EV demand is a critical factor in the transition to alternative transport.

Costs for EVs and battery packs must come down to the point where there is no significant premium over car ownership. Niche buyers may pay more for perceived environmental benefits, but the industry must still provide clear value for wider penetration to take off. That is not yet the case for EVs.

Costs are coming down. Lithium ion battery pack costs have dropped to below $300/kWh today, from $1,000/ kWh in 2010. Expansive plans for additional battery manufacturing capacity should continue to drive the costs down, potentially toward $100/kWh, where it should achieve parity with ICE’s in markets with higher fuel prices.

EV demand is already proving disruptive for the metals industry, especially for lithium and cobalt prices. Sufficient minerals and metals exist in the earth’s crust to satisfy projected demand. However, more production and mine investment is essential to minimize the impact of what most analysts see as an impending supply deficit, and to keep prices steady, especially for lithium.

The oil industry has time to adapt. EVs first have to penetrate new car sales — currently less than 2% globally — and then slowly over time replace the entire fleet, which is 10 times the size of new car sales. This is a process that will occur over decades, not years. Despite EV growth, global road transportation demand for oil should continue to rise well beyond 2030. And even if conventional road transport turns negative in the future, there will be demand for petroleum for other uses such as petrochemicals, or air and marine transportation.

Large oil producers such as Saudi Arabia and OPEC are already adapting to the changing face of transport by investing in new technology and engaging with industry stakeholders. Major upstream projects are unlikely to be affected by growing EV penetration in the near term. Oil demand could also benefit from growing use of plastics and other petrochemicals products in the construction of lighter EVs.

EV developments may capture the headlines and the public’s imagination but the evidence suggests that even after a century of road domination the engine and fossil fuels both have a big role to play in the future of transport.



Multiple Operators Suffer Damage to Fiber Networks from Hurricane Michael

Communications providers are working to restore services in areas impacted by Hurricane Michael, but storm debris, power outages and significant fiber damage are hindering progress in those counties most devastated by the storm.

As of Oct. 14, a number of counties along the Florida Panhandle had more than half of their cell sites down, including Bay County — home of Panama City and Mexico Beach, described as "ground zero" of the storm by U.S. Federal Emergency Management Agency administrator Brock Long — where 66.1% of cell sites were down. Similarly, neighboring Gulf County had 69.6% of cell sites down, according to data from the U.S. Federal Communications Commission.

Based on the amount of damage in the area and ongoing power outages, it could be weeks before services are restored. Long said Oct. 12 that after search and rescue, restoring communications in impacted counties is among FEMA's top priorities.

"You have to be able to communicate to appropriately respond and we are trying to do everything we can to get the private sector vendors, the Verizon [Communications Inc.]'s of the world, to get in to try to get their systems back up and running," he said.

Long added, however, that the process is not easy. "There was a tremendous amount of debris. When you look at the damage in Mexico Beach, that is where the ocean rose potentially 14 feet … and shoved buildings out of the way. When you have that type of damage, it takes time to get in and go through," he said.

Hurricane Michael made landfall Oct. 10 near Mexico Beach as a Category 4 hurricane with 155-mile-per-hour winds.

For its part, Verizon said the "vast majority" of Florida and Georgia service has been restored, with 99% of the company's network in Georgia in service and 97% of its network in Florida. But the company noted there are pockets, particularly near Panama City, where the damage is severe.

"The storm caused unprecedented damage to our fiber, which is essential for our network — including many of our temporary portable assets — to work. Our fiber crews are working around the clock to make repairs, and while they are making good progress, we still have work to do to get the fiber completely repaired," the company said Oct. 14.

Fiber is the connecting component of a network that carries data from point to point. It is necessary for Verizon's permanent and temporary cell sites to be operational. The company noted that while it has multiple fiber paths to carry data, "The severity and intensity of the storm caused damage to all duplicate routes in the Panama City and Panama City Beach area."

In terms of wireline services, the FCC said 291,300 subscribers remain out of service as of Oct. 14, including 205,643 subscribers in Florida. The figures were down from a day earlier, when a total of 337,223 subscribers were without service, including 233,843 in Florida.

The top residential video and broadband provider in Bay County is Comcast Corp., according to MediaCensus data from Kagan, a research group within S&P Global Market Intelligence. Comcast, the largest cable operator in the U.S., said in an Oct. 12 statement that it is working to get Xfinity services back online.

"As power returns … and it becomes safe for our technicians and restoration crews, we will work to repair any damages affecting our network," the company said.

As of Oct. 15, more than 162,000 customers in Florida remained without power, including all 27,275 customers served by Gulf Coast Electric Cooperative. The cooperative said in an Oct. 12 Facebook Inc. post that its distribution system "suffered catastrophic damage"

In Gulf County, the top residential video provider is AT&T Inc.'s satellite video service DIRECTV, according to MediaCensus data, while the top residential broadband provider is Mediacom Communications Corp., the fifth-largest cable operator in the U.S.

Mediacom said Oct. 14 that its recovery efforts are underway but its network in Florida has 14 miles of severely damaged fiber near Walton County, as well as 25 miles of damaged fiber east of Panama City that is obstructing video transmission from Gulf County to Walton County.

"Our current priority remains focusing on repairing damage to our high-speed data transport network and main transmission facilities and repairing downed lines where we have access to the area. We have outages from widespread loss of commercial power along with downed lines, and structural damage throughout our systems," the cable operator said.



Factbox: Hurricane Michael Impact Turns from Production Loss to Demand Destruction

Houston, Oct. 11 2018 — Hurricane Michael made landfall at the Florida panhandle as a Category 4 hurricane Wednesday with 155 mph winds, quickly destroying demand for power, natural gas and refined oil products. Shut-in oil production rose modestly from Tuesday to over 700,000 b/d, but the storm has stayed east of much of the region's production, which means supply should be back online quickly.

Meanwhile, the severity of the storm has surprised to the upside, which could a mean longer lasting and more severe impact on demand for power, natural gas, refined products and ultimately crude oil.

"We expect the impact on refined products demand to be below that of previous hurricanes in the Gulf Coast such as Harvey in 2017, as the region impacted by Michael has lower population density than Houston ... Nevertheless, the impacts are favoring the high side of our estimates given the sheer severity of the storm," said Claudio Giamberti, Head of Demand and Refining at S&P Global Platts Analytics.

As of 7 pm EDT, the eye of Michael was moving over southwestern Georgia with maximum sustained winds still at 100 mph, according to the National Hurricane Center. The storm is expected to move northeast across the Carolinas before heading back out to sea Friday morning.



Storm Tracker: More than 860,000 customers still in dark in Michael's wake

Highlights

Florida, Georgia, Carolinas hardest hit

Peakloads down about 20% on week

Houston, Oct. 11 2018 — As the remnants of Hurricane Michael churned through the South Thursday, it cut power to more than 870,000 customers, shaving large chunks off daily peakloads and, while more than 30,000 technicians began working to restore service.

The center of Tropical storm Michael was about 25 miles south of Greensboro, North Carolina, as of 2 pm EDT Thursday, the National Hurricane Center said. It still had maximum sustained winds of 50 mph, moving northeast at 23 mph with an expected move offshore from southeastern Virginia Thursday night.

Since it made landfall near Mexico Beach on the Florida Panhandle between 1 pm and 2 pm EDT Wednesday, the storm left more than 860,000 people without power, but some of those services have been restored.



Factbox: Utilities, Oil Producers Brace for Hurricane Michael Along U.S. Gulf

Houston, Oct. 09 2018 — With Hurricane Michael expected to make landfall on the Florida Panhandle as a Category 3 storm Wednesday, offshore oil and gas producers were busy evacuating crews and shutting in production Monday. By mid-day, nearly 20% of Gulf of Mexico oil production had been taken offline. That number will likely have risen when reported Tuesday as operators continued to shut down platforms Monday afternoon.

Meanwhile, just 24 days after Hurricane Florence made landfall, electric utilities were gearing up for Hurricane Michael restoration efforts by staging crews and supplies in the storm's path. Lost power demand is likely to have a knock-on effect on natural gas demand and prices.

After it brings over 100 mph winds to the western-most portion of Florida, Hurricane Michael is expected to turn northeast, bringing wind and rain to Alabama, Georgia and the Carolinas before heading back out to sea. Thiis article covers the key takeaways across commodities.