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A new analysis by Goldman Sachs looks at how the perception that low-carbon energy would cut future oil demand — especially via electric vehicles — could actually boost the finances of the world's most powerful oil companies over the coming decade or so.
Why it matters: The lengthy report and that counterintuitive conclusion underscore the complicated interplay between powerful legacy companies, emerging technologies and market behavior.
Big picture: It looks back at industry investment cycles over the past 40+ years: expansion, contraction, and one now taking hold again after the downturn called "restraint."
- It's marked by "disciplined investments, further industry consolidation, structural cost deflation" and other forces.
Winners and losers: This heralds the start of a "new golden age" for the "reborn seven sisters," referring to ExxonMobil, Shell, Chevron, BP, Total, Equinor and Eni, the research predicts. Historically, the majors perform best financially during "restraint" phases.
Where EVs come in: One part of the report looks at how prospect of energy decarbonization, especially the focus on EVs, is among the forces helping to disincentivize investments in big, expensive supply projects. This will continue recent years of low investment in new supply projects.
The verdict: "Decarbonization and EVs could be the best thing that's ever happened to Big Oil," the Goldman Sachs analysis led by Michele Della Vigna notes. The report says:
"[T]he demand impact of EVs, even under the more bullish scenarios, is likely to be smaller than the supply displacement from fewer [final investment decisions] driven by the higher risk premium on long-term oil. "
- EVs will likely cut oil demand by somewhere in the one to four million barrels per day range by 2030, while the oil production lost from projects delayed or scuttled since the 2014 downturn is in the 6 million range.
- EVs are expected to start having a net tightening effect on the oil market in the 2020s.
Why this helps Big Oil specifically: The biggest companies stand to reap benefits in years ahead from their continued investments during the downturn.
"Like the ‘Seven Sisters’ of the 1950s, these global Majors are once again dominating complex, long lead time developments in non-OECD countries, locking in higher returns, better fiscal terms and a more reliable global oil services supply chain," the report states.
Go deeper: Bloomberg explores the report here.