Moore’s Law Meets Big Oil

Evolution, not revolution. Something that is true in almost all aspects of everyday life until you look around you and the world is completely different. When it comes to political systems I believe evolution leads to better outcomes than revolution, which almost always results in a body count.

But economics is different, driven by the market, technological change, and political influence – revolution is more common. Whether the growth in telegraph lines in the early US, where the Pony Express was set up in 1860 and destroyed by the transcontinental telegraph by 1861, or the growth of the internal combustion engine, or the internet.

Revolution happens fast in the economic world, and in technology, particularly so – driven by Moore’s law computers get faster and cheaper and so their applications grow rapidly.

The oil industry, insurance industry, auto-manufacture industry are all set for an almighty upset. This incredible report goes to something that has been apparent for a while, the oil industry is not likely to recover from this current downturn. Things will bump along for a few years but the market is not going to improve as the previously forecast demand growth simply will not happen. Electric vehicles are now viable, the running costs are low and so long as internal combustion engines see their negative externalities taxed (in the form of petrol duty in the UK), electric vehicles will become more and more competitive.

The market is not ready. Oil companies set their breakeven in the mid-50s, hoping to make money when demand returns. But demand for transportation will decline and continue declining. The environmental issues in China, the diesel scandal in Europe, the air quality concerns in London – all will put pressure on both emerging and developed markets to move more rapidly beyond combustion and towards EV.

The current consensus within the oil industry is that combustion vehicle sales will continue to outnumber EV sales long into the future. This is foolish and rests on a series of assumptions that don’t apply to EV combined with autonomous vehicles. Sales of autonomous electrical vehicles do not need to come close to sales of combustion, non-autonomous vehicles as the ownership of vehicles will change. This isn’t new – it’s the future business model for any automaker who wants to stay in business, but it is also not figured into forecasts for how disruptive EV will be.

Autonomous trucks are being trialled, autonomous vehicles as fleets that can work 24/7 servicing 10+ times as many people as a single car can today are already working in Tesloop. We’re rapidly approaching the inflexion point in the transportation industry, and as battery costs continue to drop towards the mining cost of Lithium, the curve for the adoption of EV becomes ever steeper.

The oil industry will be decimated by a fall in demand for oil – with huge geopolitical implications for the Middle East. The oil industry will still exist, but primarily as feedstock for chemicals and fuel for shipping and planes. The auto-industry will be decimated by a fall in sales and unless manufacturers adopt radically different business models and become first movers as Uber/Lyft type companies they will be swept away. The insurance industry will fail as the cost of insuring dramatically safer vehicles falls. This is all likely to happen before 2030, the world as we know it with petroleum running the world, will be completely different.

Moore’s law drives this – the fall in the cost of processing power makes autonomy work, and any economic process driven by Moore’s law will see gains along the same line – Moore’s law is coming to the transportation market.