How electric cars could smash BP plc and Royal Dutch Shell plc

Oil rig at sunset

Investors in UK-listed oil giants BP(LSE: BP) and Royal Dutch Shell(LSE: RDSB) have been paying close attention to the oil price because they know that unless it climbs higher, their juicy 7%-plus dividend yields will be in jeopardy. However, they need to look to more distant horizons, because even if the oil price does climb a little higher this year, the long-term outlook is mixed.

Golden years

I've always thought 'black gold' to be a rather daft a description for oil, given that gold has few practical uses but the global economy runs on crude. However, that may not always be the case, due to the rise of electric vehicles and renewable energy. A new report from the World Energy Council suggests these two trends could hit demand for oil sooner and harder than expected. Oil consumption could actually start falling within the next 10 to 15 years and if correct, this would play havoc with the investment case for BP and Shell.

Renewable energy has its critics but few disagree that it's getting rapidly cheaper. Bloomberg New Energy Finance (BNEF) says that solar energy costs have fallen 80% since 2008 and are set to fall another 60% to average $40/MWh by 2040. Wind energy costs are set to fall another 40% from here.

Our friends electric

Electric cars also have their critics but the bandwagon is finally starting to roll. The number of plug-in electric cars on the world's highways is set to pass 2m by the end of this year, as the Nissan Leaf and Tesla Model S make inroads. Norway and the Netherlands plan to phase out all fossil fuel cars by 2025. Even in the laggardly UK, electric car sales will overtake internal combustion engines by 2027, according to Go Ultra Low. The shift could go even faster than that, if a new, affordable electric car grabs the public imagination. Maybe next year's Tesla Model 3, aimed squarely at the mass-market will be the one.

BP and Shell have seen much of this coming, and have shifted their focus to natural gas. This looks a wise move, with the World Energy Council forecasting continuing growth in this sector. However, tighter limits on carbon emissions or even cheaper renewables could wreck their get-out plan. BNEF forecasts that renewables will be cheaper than both gas and coal by 2027.

Of stones and oil

Anybody who tries to predict the future of the oil market should remember the short-lived panic over "peak oil", which was supposed to see the world running out of the black stuff. Former Saudi oil minister Sheikh Yamani made a slightly better call 16 years ago when he said that by 2030 there will be a huge amount of oil but no buyers: "The Stone Age came to an end, not because we had a lack of stones, and the oil age will come to an end not because we have a lack of oil."

That day is unlikely to arrive as soon as 2030, with the world still consuming 97m barrels of oil per day. However, the clock is ticking, and BP and Shell could be in for a rude (or should that be crude?) awakening. 

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Harvey Jones has no position in any shares mentioned. The Motley Fool UK has recommended BP and Royal Dutch Shell B. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.