A friend recently shared a car conundrum. On the one hand, she and her husband were enthusiastic about the transition to cleaner energy. One of their cars was already an electric vehicle (EV). But they were hesitant to convert their second car to an EV because they live in an area with frequent power outages. An internal combustion engine (ICE) vehicle seemed like a smart backup and besides, her husband really liked the car. Their plan was to get as much life out of it as possible, maybe another 40 years.

This is an issue I can sympathize with. We still have an ICE vehicle ourselves (a hybrid, sure, but it still runs off gasoline). It’s not just power outages that I worry about. At least in the U.S., there’s still a severe lack of public charging infrastructure, batteries with significantly longer ranges, and cheaper price points.

In spite of these deficits, I had to tell my friend her plan wouldn’t work. Because in forty years, no one will be driving fossil fueled cars and you don’t want to be on the wrong side of that transition.

In Part 1 of this newsletter, I’ll explain my reasoning for such a bold assertion, looking at how a variety of factors come together over the short and long term to make the end of ICE vehicles inevitable. In Part 2, I’l share suggestions for how you might approach your own transportation conundrums.

I realize this is long and, in places, a little technical. But I think it’s important to be aware of the details of this issue, so you’re less likely to fall for industry propaganda and because the implications extend far beyond just transportation. I also think you’ll be surprised by my recommendations, so I hope you’ll bring equal enthusiasm to Part 2 in a couple of weeks.

Here are the biggest disruptions that I think will make ICE vehicles obsolete over the next 40 years (or less).

Near term disruptions (the next 1-5 years)

Geopolitics

I like to think we’re all aware that the price of gas and diesel is not simply a matter of whether the Strait of Hormuz is open or closed. In the last few years, the Ukrainians and the Iran-backed forces have separately demonstrated how relatively cheap drones and missiles can devastate oil industry infrastructure. Repairs to infrastructure are costly and can take weeks or years to complete, depending on the severity and frequency of attacks. Strategic oil reserves have also been depleted, meaning there’s almost no buffer to respond to continued supply-side shocks in the system.

Given that 26 ships in the Strait of Hormuz were hit with missiles or drones during the first two weeks of October, hostilities continue to keep supply tight and the risk of transport high for remaining stock. Tanker crew are receiving four to six times their normal wages, while insurance premiums for a single crossing of the Strait can be as high as $20 million, compared to $20-50K prior to the war.

Industry executives are calling it “the great fuel crisis,” saying they see no end in sight.

But soaring gas prices, and in some part of the world gas shortages, are only accelerating a global trend favoring EVs that was well underway before the war. According to Our World in Data, global sales of ICE vehicles peaked in 2017. Many countries outside the U.S. now see reliance on oil as a national security risk and are implementing policies to further encourage electrification and EV adoption.
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The refinery crunch

The issues driving up gas and diesel prices are not just temporary disruptions, if indeed the geopolitical issues are temporary, but also structural ones. The number of global refineries has been falling over the last three decades. Older refineries that were “inefficient, badly located, damaged, facing major capital requirements or simply unable to earn an adequate return” were closed, while newer ones were refurbished and expanded. As a result, in the United States, “The nation’s collective fuel-making capacity is 3% lower than it was at its peak in 2019.”

​Nor have investors shown much interest in funding the construction of new refineries. President Trump announced construction of a new refinery in Brownsville, TX—the first major new refinery to be built here in 50 years—although it could take up to eight years before operations begin. As you’ll read, a lot is likely to happen before then.

The point is that the majority of global refineries are old. And during the current shortage, they are running at over 90% capacity to try to keep up with demand. This puts additional strain on aging infrastructure, making an outage or breakdown more likely, which will further strain supply. It also means that the problem can’t be solved by simply pumping more oil out of the ground.

So whether it’s drones hitting infrastructure or parts failing in facilities that can’t slow down, the limiting factor for global oil availability is refining, and that’s unlikely to improve in the short term. That means prices will remain high or even increase, further driving the adoption of EVs.

Midterm disruptions (the next 5 - 15 years)

The increased cost of extraction

In 2023, the Journal of Petroleum Technology warned the Energy Return on Investment (EROI) for oil—a ratio of the usable energy of a fuel compared with the energy required to extract, process, and distribute it— was plummeting. “Higher EROI value indicates a more energy-efficient method, while lower value suggests that more energy is being invested in the energy-production process than is ultimately gained from the produced energy.” For example, it takes less energy to extract oil from onshore fields than from deep sea rigs, causing the EROI to swing from 30 to 12 for two sources of the same substance.

And this is exactly why the EROI is falling: the world is quickly running out of easily extracted onshore oil. The weighted average EROI of all oil products is projected to decrease to 6.7 in the next 10-15 years, while the average EROI for modern photovoltaic panels is expected to increase to 15-20+ (depending on location). Other forms of renewable energy have even higher EROIs.

Already oil companies in the U.S. and Europe are scaling back and laying off workers. The CEO of an American oil company told shareholders last year that, “Crews are being cut. The pace of new well development is slowing. The company estimates fracking teams in the Permian are down 20% from earlier this year. Rig counts are following a similar path.”

Many experts, including those in the industry itself, expect “peak oil,” or the period of maximum global oil production, to happen sometime before 2030. After that, the amount of oil extracted will slowly decline. Or quickly decline, depending on how the factors we’re discussing here play out. All we can say for sure is that the economics of the situation only point in one direction: less oil, even higher prices, more demand for EVs.

The water crisis

Water is both a tool and a byproduct at almost every step in the production of a barrel of oil. It presents two different but equally concerning problems.

First, there’s the water that is used to frack and refine oil. It’s estimated that each well used for fracking consumes can range anywhere between 1.5 to 16 million gallons of water, depending on the conditions, in order to break up rock and release otherwise trapped oil (USGS). Some of that water is recycled water from other extraction processes, but much of it is fresh water. With tens of thousands of wells in the U.S. alone, this is the equivalent of “approximately the annual water consumption of 40 to 80 cities each with a population of 50,000”.

The refining process also uses fresh water, primarily for cooling, which is then lost to evaporation. Lawrence Berkeley National Laboratory estimates one to two billion gallons of water is used in the refining process every day. This water primarily comes from surface water (streams and lakes) and municipal water systems.

While the total amount of freshwater consumed by the oil industry as a whole may be much lower than say, agriculture, it’s still significant. That’s especially true considering UN scientists have warned we are entering “an era of global water bankruptcy.” For example, Corpus Christi faced the imminent depletion of their water supply this year. The region is home to four oil refineries and petrochecmical processing facilities, which consume twice as much water as all 500,000 residential customers combined.

A series of strong storms replenished reservoirs enough to prevent any hard decisions about who got priority over the dwindling supply. But with climate change, there’s virtually no way of avoiding it. The city is planning major investments in desalination to solve the issue, which means whether you pay increased prices at the pump or through taxes (or both), you’re still essentially funding the water the oil industry uses.

The second issue is that of wastewater, known in the industry as “produced water,” that is generated as a byproduct of oil and gas extraction. Approximately three barrels of produced water are generated with every barrel of fracked oil. The waste product is often 3-10 times saltier than sea water and laced with hydro chemicals and occasionally radioactive elements. To dispose of it, the oil industry either injects it underground (38%) or reuses it for additional extraction activities (43%). Injecting the toxic water underground creates serious problems, like earthquakes and blowouts in urban areas.

Oil industry representatives claim they are running out of places to dispose of their waste. They warn that if they can’t find an alternative to injecting the nearly 1 trillion gallons of produced water generated every year from extraction processes, they will have to stop drilling.

It’s hard to imagine that happening, but it’s also true that the alternatives being explored are not popular. In Texas, “industry representatives are proposing a new, big business of treating fracking wastewater to make it less toxic, then pouring it directly onto cropland and into waterways.”

But there’s reason for concern. There’s little scientific evidence to backup claims of safety and at least in the case of California, who already allows produced water to be sprayed on crops, the firm hired to conduct the safety analysis has worked for Chevron and other fossil fuel companies in the past. The Texas legislature was concerned enough they passed a law that exonerates any company that uses treated produced water should the waste harm people, livestock or property.

Corpus Christi (and the other global cities facing extreme water stress) should be a warning: our elected officials are not prepared for these problems. In the next decade, people will increasingly have to choose between their drinking water or their gas. The only way residents win that battle is through demand destruction for fossil fuels.

The long term forecast (15+ years)

When we put this all together, it becomes clear that oil supply will remain tight and then get tighter as geopolitical conflicts further damage oil infrastructure and we pass Peak Oil.

Meanwhile, as EROI falls over the coming five to fifteen years, we’ll see a reduction in the total number of wells and refineries, especially as the cost to keep them operational becomes too high. Even the industry admits “the energy needed to produce oil liquids could approach unsustainable levels, a phenomenon called energy cannibalism.” Investors are unlikely to front new construction under these conditions.

Climate change is the catalyst that will make all of these issues worse. The water crisis, as we discussed above, will intensify. The frequency and severity of storms that hit coastal oil infrastructure will intensify. Given the average age of such infrastructure, this will certainly accelerate facility outages if not outright closures. As resources become scarce, we can expect more geopolitical conflicts.

The danger is that people might believe that a momentary return to lower gas prices indicates things are returning back to normal. Prices will fluctuate, but we aren’t ever returning to a stable state of low gas and diesel prices. The factors I’ve laid out here will only push prices higher over time, which in return will lead to greater EV demand. Jesse Jenkins, a professor of energy systems engineering and policy at Princeton, framed it this way:

Keep in mind that Professor Jenkins is looking at this from a strictly economic perspective. But the impacts of climate change are not linear. Right now average global temperatures are 1.4 degrees above the pre-industrial baseline, and warming 0.29 to 0.4 degrees every decade. In forty years, we’ll be at 2.56 to 3.0 degrees of warming, an almost catastrophic level of warming to our current way of life. And that’s assuming the rate of warming itself doesn’t increase (a topic for another newsletter). Above 2.5 degrees of warming, we’ll experience huge levels of migration as parts of the world become unlivable, severe supply chain destruction (not just disruption), massive crop failures, and the economic collapse of multiple sectors, such as insurance and maybe even the oil industry itself.

Just as countries have come to see fossil fuel dependence as a national security risk, I believe everyday citizens will increasingly see renewables as more than just environmentally friendly, but perhaps one of the biggest tools they have in the fight against runaway inflation, dwindling water supplies, and social unrest, regardless of which party wins their elections.

All of this means that there is a lot riding on your choice of transportation. Demand destruction is one of the most powerful tools we have to delay, or better yet avoid, the future I describe above.

Right now, Americans are way behind in the transition. And it will cost us. It goes without saying that you don’t want to be one of the last people to buy an EV.

I realize this might have a lot to take in and you might be feeling anxious about what this all means for you. If it were as simple as everyone buys an EV as soon as possible, I’d say that. But unfortunately it isn’t.

In Part 2, which comes out in two weeks, I’ll talk about how I think you should approach this decision depending on where you live and how much money you have available to invest. If you have a question about what I’ve presented here, just reply to this email and I’ll incorporate my answers into the next installment if I think it’s relevant to a wider audience.

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P.S. A huge shoutout of gratitude to my writing group, who encouraged me to get all this out of my head and out to a wider audience. A tremendous amount of research and thinking went into this and at times I worried no one would care and/or want to read the details. Even if you don’t have a question, your encouragement to keep doing newsletters like this would mean the world to my writing group, so they might finally get some relief from hearing about my writing anxieties.

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