The future of mobility: How will it impact the energy industry? The Dbriefs Energy & Resources series Andrew Slaughter, Managing Director, Deloitte

The future of mobility: How will it impact the energy industry? The Dbriefs Energy & Resources series Andrew Slaughter, Managing Director, Deloitte Services LP Suzanna Sanborn, Senior Manager, Deloitte Services LP Thomas Shattuck, Analyst, Deloitte Services LP August 9, 2017

Agenda Introduction The changing mobility landscape Implications for the power & utilities sector Implications for the oil & gas sector Concluding thoughts Q&A Copyright 2017 Deloitte Development LLC. All rights reserved. The future of mobility: How will it impact the energy industry? 2

Introduction Converging forces are transforming the automotive industry and changing the personal mobility landscape. These changes will likely lead to greater adoption of both shared vehicles and driverless (autonomous) vehicles. The evolving personal mobility landscape will impact many industries, including the energy industry. Ride-sharing and autonomous vehicle trends may favor electric vehicles over internal combustion engine (ICE) vehicles. Consequently, the power and utilities sector may face higher demand and/or changes in the load profile for electricity while the oil and gas sector may see declining gasoline demand. These changes will likely create opportunities and challenges for energy companies, and many are already preparing. Copyright 2017 Deloitte Development LLC. All rights reserved. The future of mobility: How will it impact the energy industry? 4

Converging forces are transforming the automotive industry s longstanding structure and dynamics Source: Deloitte University Press Copyright 2017 Deloitte Development LLC. All rights reserved. The future of mobility: How will it impact the energy industry? 6

These changes suggest the emergence of four future states of mobility, which will develop in parallel Vehicle control Driver Assisted Autonomous 3 4 Low Personally-owned autonomous 1 2 Personally-owned driver-driven Asset efficiency Shared autonomous High Shared driver-driven Personal Vehicle ownership Shared Copyright 2017 Deloitte Development LLC. All rights reserved. The future of mobility: How will it impact the energy industry? 7

Polling question #1 By what date do you think the majority of US light duty vehicle sales will be driverless/autonomous vehicles? 2020 2030 2040 or beyond Never Don t know Copyright 2017 Deloitte Development LLC. All rights reserved. The future of mobility: How will it impact the energy industry? 8

Many forces will influence the rate at which the new mobility ecosystem takes shape Forces that could delay or accelerate the shift Regulation & Government Federal, state and local policies Privacy & Security Cyber-security, communication protocols Public attitudes Human-machine interface, safety, shared economy Financial valuations Technology investments, cost of capital projections Technology development Early experiments, pilot programs Employment changes Dislocation effects, reactions, job retraining Source: Deloitte analysis, based on publicly available information. Copyright 2017 Deloitte Development LLC. All rights reserved. The future of mobility: How will it impact the energy industry? 9

This transformation will impact many sectors of the economy, including energy Energy Automotive Transport Retail Telecom Public sector Technology Medical & Legal Finance Media Insurance Copyright 2017 Deloitte Development LLC. All rights reserved. The future of mobility: How will it impact the energy industry? 10

A future of more shared, autonomous vehicles would likely boost electric vehicle adoption Ride-sharing and autonomous vehicle trends would likely favor electric vehicles for several reasons: Higher utilization rates, lower operating costs Less expensive maintenance Autonomous technology integrates better with an electric engine It s easier and safer to recharge a driverless car than to refill with gasoline Our transport system is digitizing, just as the phone system digitized, just as the energy system is digitizing, and this will yield dramatic benefits in terms of asset utilization... flexibility, service levels, and cleanliness. And it simply makes no sense to have an inherently analogue power unit... at the heart of a fully digital, sensorpervaded, solid-state-electronicscontrolled system. Michael Liebreich and Angus McCrone, Bloomberg New Energy Finance Source: https://about.bnef.com/blog/liebreich-mccroneelectric-vehicles-not-just-car/ Copyright 2017 Deloitte Development LLC. All rights reserved. The future of mobility: How will it impact the energy industry? 11

US and global electric vehicle (EV) sales are already accelerating EVs have reached one percent of annual US and global vehicle sales* Thousands sold per year US PEV sales and market share 2010-2017 (June) 180 160 140 120 100 80 60 40 20 0 0% 0.1% 0.4% 0.6% 0.7% 0.7% 0.9% 1.0% 1H17 2010 2011 2012 2013 2014 2015 2016 2017 1.2% 1.0% 0.8% 0.6% 0.4% 0.2% 0.0% Percent of vehicles sold Thousands sold per year 900 800 700 600 500 400 300 200 100 0 Global PEV sales and market share 0.1% 0.0% 0.2% 0.3% 0.4% 0.6% 2010 2011 2012 2013 2014 2015 2016 1.0% 0.9% 0.9% 0.8% 0.7% 0.6% 0.5% 0.4% 0.3% 0.2% 0.1% 0.0% Percent of vehicles sold PEV sales PEV share of light duty vehicle sales Global PEV sales PEV share of light duty vehicle sales *Electric vehicles include battery electric vehicles (BEV) and plug-in hybrid electric vehicles (PHEV) Sources: EDTA, hybridcars.com Copyright 2017 Deloitte Development LLC. All rights reserved. The future of mobility: How will it impact the energy industry? 13

US and global EV projections vary from 19-54% of new car sales in 2040 Oil companies and OPEC project a slower growth trajectory US Department of Energy, EIA 19% of US sales by 2040 BNEF Electric vehicle sales through 2040 Million cars sold per year Carbon Tracker Initiative more than 50% of global sales by 2040 Bloomberg New Energy Finance 54% of global sales by 2040 (33% of total global fleet) Oil companies/opec less than 10 percent of total global fleet by 2040 Sources: EIA, Annual Energy Outlook 2017, Light-Duty Vehicle Sales by Technology Type; Grantham Institute, Carbon Tracker Initiative, Expect the Unexpected ; Bloomberg New Energy Finance, Electric Vehicle Outlook 2017 Executive Summary, July 2017; ExxonMobil and BP energy outlooks Copyright 2017 Deloitte Development LLC. All rights reserved. The future of mobility: How will it impact the energy industry? 14

Range and cost will significantly impact future EV sales growth Falling battery costs are enabling automakers to introduce lowerpriced EVs with longer ranges Falling battery costs help reduce EV prices and boost sales. Lithium ion battery pack prices 2010-2016, $/kwh 1,200 Battery costs, which can account for 30-40 percent of the vehicle s cost, fell 73% from 2010-2016. Lower-priced, longer-range models are being introduced in the US (priced at around $35,000 with a 200 miles per charge range). 1,000 800 600 400 200 1,000 800 642 599 540 350 273 0 2010 2011 2012 2013 2014 2015 2016 Source: BSCE 2017 Factbook, p. 148 Copyright 2017 Deloitte Development LLC. All rights reserved. The future of mobility: How will it impact the energy industry? 15

Polling question #2 What development would motivate you most to purchase an electric vehicle? Longer range between charges Lower price More public charging stations Nothing I am not interested in purchasing an EV I already own an EV Don t know/not applicable Copyright 2017 Deloitte Development LLC. All rights reserved. The future of mobility: How will it impact the energy industry? 16

Expanding charging infrastructure is key to increasing EV adoption Consumers require more charging stations to allay range anxiety At the end of July 2017, the US had 16,118 public charging stations, including 43,876 public charging outlets US public EV charging outlets (cumulative) 45,000 40,000 40,075 35,000 30,000 25,000 20,000 15,000 10,000 5,000 0 31,003 26,077 19,460 12,000 3,410 430 465 814 2008 2009 2010 2011 2012 2013 2014 2015 2016 Sources: http://www.afdc.energy.gov/locator/stations/results?fuel=elec, accessed July 31, 2017; BCSE Factbook 2017 p. 146 Copyright 2017 Deloitte Development LLC. All rights reserved. The future of mobility: How will it impact the energy industry? 17

Several sectors are participating in charging infrastructure buildout, but progress is slowed by lack of a strong business model Challenges to developing a profitable business model: High upfront investment costs Low and uncertain near-term demand; limited data Catch 22 not enough EVs to profit from public chargers, but consumers want public network before buying EVs Competition from home charging Regulation EV service equipment suppliers (EVSE) Electric utilities Sectors building public EV charging infrastructure Copyright 2017 Deloitte Development LLC. All rights reserved. The future of mobility: How will it impact the energy industry? 18

Electric utilities may be well-positioned to play a significant role in building out the EV charging infrastructure Potential advantages: Strong balance sheets Access to low cost capital Potential to rate-base investment Large-scale infrastructure experience Increased electricity load Potential to reduce overall customer costs Leverage off-peak renewable energy Need to be involved anyway, since EV charging will impact grid Potential challenges: Lack national reach and scope Regulatory constraints Risk of overbuilding before demand Cost may fall on some ratepayers who may not benefit Lack expertise in charger buildout Complicated rate structure makes fast charger costs prohibitive Potential to crowd out competition Copyright 2017 Deloitte Development LLC. All rights reserved. The future of mobility: How will it impact the energy industry? 19

Electricity consumption from EVs expected to rise sharply by 2040, but still would likely not exceed 5% of global consumption Global annual electricity consumption from EVs projected to increase as much as 30,000% Projected 2040 1,800 terawatt hours 2016 6 terawatt hours Additional demand would not likely strain grid resources as long as charging is managed to avoid peak demand periods whenever possible. An increase in car sharing and autonomous vehicles will likely boost the total number of miles driven, resulting in an even greater increase in electricity consumption. Source: Bloomberg New Energy Finance, Electric Vehicle Outlook 2017 Executive Summary, July 2017 Copyright 2017 Deloitte Development LLC. All rights reserved. The future of mobility: How will it impact the energy industry? 20

Utilities are preparing to shape and control new EV load The benefits of preparation can outweigh the costs of inaction in areas with high EV penetration Costs of inaction Benefits of preparation Avoid new grid infrastructure investments Optimize grid assets Help enable renewables integration Decrease renewables curtailment Provide ancillary services to the grid Greater investment in peak capacity Shorter life of grid assets Reduced grid efficiency and reliability Inhibited renewables integration Increased electricity costs Room for others to offer customer solutions Copyright 2017 Deloitte Development LLC. All rights reserved. The future of mobility: How will it impact the energy industry? 21

Utilities are developing new tactics to manage, control, and benefit from new EV load Monitor demand with smart meters Collaborate with automakers and others, or use analytics to identify customers with EVs Offer EV and time-of-use (TOU) rates Incorporate EV charging into demand response programs Invest in smart charging Develop new services to capture value of EV batteries and charging Explore new business models Copyright 2017 Deloitte Development LLC. All rights reserved. The future of mobility: How will it impact the energy industry? 22

Transport consumes most of the oil in the United States 19.6 million barrels of petroleum products are consumed every day, of which: 9.3 million b/d of motor gasoline 3.9 million b/d of diesel and other distillates 3.0 million b/d of residual fuel and other petroleum products 2.5 million b/d are natural gas liquids Motor gasoline Distillates Residual and other Natural gas liquids Kerosene and ject fuel Source: US Energy Information Administration 1.6 million b/d of kerosene and jet fuel The changes in the transport sector will likely impact light duty vehicles (LDVs), representing half of all transport energy consumption and which mostly use gasoline. Copyright 2017 Deloitte Development LLC. All rights reserved. The future of mobility: How will it impact the energy industry? 24

Factors that will affect future gasoline demand Source: Deloitte University Press Copyright 2017 Deloitte Development LLC. All rights reserved. The future of mobility: How will it impact the energy industry? 25

Three scenarios to model the Future of Mobility s impact Current policy Existing CAFE standards remain through 2025, a business as usual case. This scenario reflects future vehicles similar to the cars and trucks currently on the road with modest fleet-wide improvements. Continued improvement Extrapolates rising fuel efficiency through 2040, reflecting potential impacts from new technologies. To achieve such high fuel efficiencies, wider adoption of more advanced technologies will be needed. Efficiency decline Includes the efficiency gains from business-as-usual scenario, but assumes that real world results do not fully reflect the gains in the standards. Copyright 2017 Deloitte Development LLC. All rights reserved. The future of mobility: How will it impact the energy industry? 26

The evolving mobility system s impact on gasoline demand Convenience of autonomous vehicles and car sharing will increase the number of people miles travelled, but with more people per car, total vehicle miles travelled will likely increase modestly. New rapidly advancing technology including plug-in hybrids and battery electric vehicles will meet or exceed increasingly strong CAFE standards. Technology adoption will depend on the rate and extent of emergence of the Future States with the existing vehicle stock turning over slowly. Under a broad range of assumptions, higher miles per gallon more than offset vehicle miles travelled potentially leading to declining fuel sales. These scenarios reflect the second-order impacts of the evolving mobility ecosystem on fuel consumption where technology is an enabler of increasing efficiency. Copyright 2017 Deloitte Development LLC. All rights reserved. The future of mobility: How will it impact the energy industry? 27

Business as usual could lead to a consumption decline of 30% 10 LDV fuel consumption (millions of barrels per day) 9 8 7 6 5 4 2016 2020 2024 2028 2032 2036 2040 Current policy Continued improvement Efficiency decline Adjusted EIA motor gasoline consumption Sources: Deloitte projections, US Energy Information Administration Copyright 2017 Deloitte Development LLC. All rights reserved. The future of mobility: How will it impact the energy industry? 28

Shifting geography of demand will have diverging impacts Efficiency decline Current policy Continued improvement Upstream Minimal impacts expected as global supply and demand determines oil prices. Global factors will continue to drive upstream value. With a diverse resource base, the US upstream sector will remain resilient. Refining Minimal need for new capacity, ongoing investments in efficiency and compliance. Potential need for capacity rationalization and possible consolidation of operations. Lack of access to major petrochemical consumers and export markets likely to challenge inland refineries. Pipelines and distribution Incremental changes needed for optimize pipelines, storage and distribution. Declining refinery demands in inland regions to drive capacity consolidation. With low product demand, there will likely be a conversion of refinery sites to distribution terminals. Retail Modest impact expected, with urban and highway retail locations required across the country. Low to negative growth in the total number of outlets. The importance of non-fuel revenue streams will increase. Stations will need to broaden services to meet the need of electric powertrains and car sharing. Copyright 2017 Deloitte Development LLC. All rights reserved. The future of mobility: How will it impact the energy industry? 29

Polling question #3 Which types of oil and gas companies do you think will be impacted the most by changing mobility trends? Upstream companies Pipeline and distribution companies Refiners Retailers Not sure Copyright 2017 Deloitte Development LLC. All rights reserved. The future of mobility: How will it impact the energy industry? 30

What does this mean for power & utility companies? As EVs become more affordable and driving ranges increase, electric companies can promote adoption by educating customers and providing incentives such as rebates on EVs and charging equipment. Electric utilities are well-positioned to help build out the public EV charging infrastructure. They may consider starting a dialogue with state regulators to determine whether public charging station investment can be recovered. Electric companies can handle additional electricity demand from EVs, but they should plan to manage and shape this load, e.g., through special rates and charging software, to avoid extra load during peak demand periods. Electric companies should monitor mobility trends, since a more rapid move toward shared and autonomous vehicles will likely result in a faster shift to electrification, with impacts on location and management of electricity load. Copyright 2017 Deloitte Development LLC. All rights reserved. The future of mobility: How will it impact the energy industry? 32

What does this mean for oil & gas companies? Gasoline consumption will likely decline significantly in the US. Companies will need to re-align capital investment to right-size capacity for lower demand. Not all segments or regions will be affected similarly. For example, petrochemicals and refined product exports could provide long-term potential growth even as domestic demand wanes. Increased car sharing and widespread adoption of electric vehicles will likely require changes across the value chain, particularly for distribution networks and retail gas stations. Copyright 2017 Deloitte Development LLC. All rights reserved. The future of mobility: How will it impact the energy industry? 33

Polling question #4 Which of the following likely describes your next car purchase? Internal combustion engine (gasoline or diesel) Gasoline or diesel electric hybrid (not plug-in) Plug-in hybrid or fully electric plug-in vehicle Other drivetrain (e.g., natural gas, fuel cell, etc.) I don t plan to buy another car (e.g., will use ride share and other new mobility services) Don t know/not applicable Copyright 2017 Deloitte Development LLC. All rights reserved. The future of mobility: How will it impact the energy industry? 34

Join us August 30 at 1 p.m. ET as our Power & Utilities series presents: DOE Quadrennial Energy Review 2 : Transforming the US electricity system Copyright 2017 Deloitte Development LLC. All rights reserved. The future of mobility: How will it impact the energy industry? 36

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Contact information Andrew Slaughter Managing Director Deloitte Center for Energy Solutions Deloitte Services LP anslaughter@deloitte.com Connect with me on LinkedIn Thomas Shattuck Analyst Deloitte Center for Energy Solutions Deloitte Services LP tshattuck@deloitte.com Connect with me on LinkedIn Suzanna Sanborn Senior Manager Deloitte Center for Energy Solutions Deloitte Services LP ssanborn@deloitte.com Connect with me on LinkedIn @SuzannaSanborn Copyright 2017 Deloitte Development LLC. All rights reserved. The future of mobility: How will it impact the energy industry? 38

This presentation contains general information only and Deloitte is not, by means of this presentation, rendering accounting, business, financial, investment, legal, tax, or other professional advice or services. This presentation is not a substitute for such professional advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified professional advisor. Deloitte shall not be responsible for any loss sustained by any person who relies on this presentation. Copyright 2017 Deloitte Development LLC. All rights reserved. The future of mobility: How will it impact the energy industry? 39