Electric Vehicles (EV's) and their impact on Canadian energy companies?

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2 yen
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Electric Vehicles (EV's) and their impact on Canadian energy companies?

Post by 2 yen » 17 May 2017 06:56

This article by Stanford's Tony Seba on the death of combustion engines and the demise of much of the fossil fuel industry is alarming in how soon the author sees the change coming. I debated putting this in one of the car threads, but the ultimate question is about my portfolio. This question has been asked before, but I still struggle with it. Here goes again. I own KEY, IPL, ENF, TRP and ENB. I've been through their websites and find it hard to tease out the extent to which they are dependent on oil production (KEY, IPL and PPL being the more difficult). Further to that, recently PPL has made strong moves in natural gas for the future. To what extent do future realizations of electric vehicle use impact these companies? At this time, I'm confident in all of them, but is that confidence misplaced? One piece of data that struck me is the prediction that oil production would drop from 8 million barrels a day to 1 million barrels a day in terms of oil required for road transportation. This is not a huge amount of total oil output - and further confuses the situation.

http://business.financialpost.com/news/ ... e-industry

Thoughts?

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Re: Electric Vehicles (EV's) and their impact on Canadian energy companies?

Post by Profit not Prophet » 17 May 2017 08:43

Downloaded the report and will at least read the exec summary besides the news reports. Will cherry pick the dull stuff. I saw the words ''The end of private car ownership' tossed in there somewhere along with a 8 year time frame(nuts for time frame me thinks).

mmm I do recall a quote by Frank Zappa along the lines of 'communism doesn't work because people like to own stuff'(I don't wanna share my car chair).

Being a late boomer I just can't wrap my head around the notion of living without a ride anywhere beyond the village square(transit doesn't go where i plan to go).

I do get that an electric car with 18 moving parts is going to be more reliable than 2,000 but the electrical grid is just not going to do a 8 year switch a roo.

I think we will have time to ease out of some stocks and ease into new ones. I think it effects much more than just energy companies, lots of related stuff from banking to retail.

Could be just a prophet in a hurry.

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Re: Electric Vehicles (EV's) and their impact on Canadian energy companies?

Post by brucecohen » 17 May 2017 09:11

I dream of buying a self-drive electric, but the 8-year timeline is nonsense. For starters, EV market development depends heavily on tax credits in the US and, as reported here, Republican administrations at both the federal and state level are in process of reducing or ending them. Second, trucks consume an enormous amount of fuel. Here we see that Tesla's electric pickup is still at least two years away and here we see that Tesla's heavy-duty semi is at least three years away. Meanwhile, development of recharging stations is suffering from chicken-and-egg syndrome and it's hard to see the trucking industry going electric until the early Teslas have racked up many miles and there's a recharging network.

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Re: Electric Vehicles (EV's) and their impact on Canadian energy companies?

Post by gobsmack » 17 May 2017 09:16

2 yen wrote:
17 May 2017 06:56
To what extent do future realizations of electric vehicle use impact these companies? At this time, I'm confident in all of them, but is that confidence misplaced?
Thanks for putting forward the question. I have been wondering about the same myself. I do think these changes will eventually take place but I find it hard to believe it will change very fast considering how many gas-powered cars we have on the road today. It will take a long time to work through this inventory.
Profit not Prophet wrote:
17 May 2017 08:43
Being a late boomer I just can't wrap my head around the notion of living without a ride anywhere beyond the village square(transit doesn't go where i plan to go).
I own a car today because I need it for my commute. I hate owning a car though. I would much rather prefer to pay for an uber-like service using autonomous vehicles. If such a thing existed and it was competitively priced, I would drop my car in a heartbeat and never look back.

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Re: Electric Vehicles (EV's) and their impact on Canadian energy companies?

Post by kcowan » 17 May 2017 09:49

I think the first mover has not emerged yet. Most auto companies have offering. But until Tesla is profitable with its mass market offering, it is too soon. I think of it like the days of MP3 music players. Too soon to tell. Remember all the social networking offerings before Facebook?
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2 yen
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Re: Electric Vehicles (EV's) and their impact on Canadian energy companies?

Post by 2 yen » 17 May 2017 10:43

Profit not Prophet wrote:
17 May 2017 08:43
Downloaded the report and will at least read the exec summary besides the news reports. Will cherry pick the dull stuff. I saw the words ''The end of private car ownership' tossed in there somewhere along with a 8 year time frame(nuts for time frame me thinks).

mmm I do recall a quote by Frank Zappa along the lines of 'communism doesn't work because people like to own stuff'(I don't wanna share my car chair).

Being a late boomer I just can't wrap my head around the notion of living without a ride anywhere beyond the village square(transit doesn't go where i plan to go).

I do get that an electric car with 18 moving parts is going to be more reliable than 2,000 but the electrical grid is just not going to do a 8 year switch a roo.

I think we will have time to ease out of some stocks and ease into new ones. I think it effects much more than just energy companies, lots of related stuff from banking to retail.

Could be just a prophet in a hurry.
And unis do require writing of their profs.

2 yen

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Re: Electric Vehicles (EV's) and their impact on Canadian energy companies?

Post by 2 yen » 17 May 2017 10:46

brucecohen wrote:
17 May 2017 09:11
I dream of buying a self-drive electric, but the 8-year timeline is nonsense. For starters, EV market development depends heavily on tax credits in the US and, as reported here, Republican administrations at both the federal and state level are in process of reducing or ending them. Second, trucks consume an enormous amount of fuel. Here we see that Tesla's electric pickup is still at least two years away and here we see that Tesla's heavy-duty semi is at least three years away. Meanwhile, development of recharging stations is suffering from chicken-and-egg syndrome and it's hard to see the trucking industry going electric until the early Teslas have racked up many miles and there's a recharging network.
If I had an extra 200K, I'd buy a Tesla SUV - that's about what one would cost in Canada. It is surprising to see on their website that electric costs are cheaper than gas, but not way, way cheaper. I wonder if a lot of people realize this?

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Re: Electric Vehicles (EV's) and their impact on Canadian energy companies?

Post by AltaRed » 17 May 2017 11:33

There are as many projections as there are people conducting studies and writing reports, but statistics generally agree that between 60-70% of current oil demand is used in the various forms of transportation. Let's assume 2/3rd for simplicity. That means about 65 million barrels per day oil consumption and overall oil consumption continues to grow for the time being.

My take is that less than half of the transportation demand is realistically substitutable for electricity. We will be lucky to have half of auto transportation in electric vehicles by 2030 simply because there are vast regions of this planet that will never have the economics to convert to electricity. Imagine driving in the Arctic, Nepal, Congo, iraq, or even the Alaska Highway in an electric vehicle. We know that air and marine transportation doesn't have a viable alternative, nor does much of our heavy truck transport. Rail is a classic example for going electric.

Oil is not going away any time soon BUT I do see, beyond a few spikes because of supply disruptions, oil price stagnation as world oil consumption peaks at approximately 100-110 million barrels per day and starts a slow decline thereafter. On that basis, there is no future in owning oil stocks. My take is Canadian oil production will likely peak in the next year or two as the last of the major oil sands plants come online and then static to slow decline thereafter.

Thus the multi-years of growth projects pipelines are talking about will stall and pipleine stock prices will decline to 'maturity' mode. Take out the high valuation multiples and bring them back to earth. Will there be any reason for pipeline stocks to have multiples greater than our banks? Will there be reason for our O&G companies to even have double digit multiples? My guess is that within the next 5 years, 10 at the most, we will have seen the peak in our energy and pipeline sectors and they will be mature, non-growing companies generating cash flow for shareholders, but no ecnomics for growth. Only one of the current mega-pipeline proposals might need to be built. I hope it is Kinder-Morgan to diversify our oil sales to Asia and I hope ENB Line 3 and TRP Keystone/Energy East are never built. They will not be able to be amortized over their ~30 year toll and tariff plans.

That's it from my back of envelope gut feel. Personally, I am not buying anything new in these sectors. From a Cdn stock perspective. I own ENB and TRP in the pipeline sector and zero in the commodity sector. That is as committed as I will be indefinitely.
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Re: Electric Vehicles (EV's) and their impact on Canadian energy companies?

Post by Chuck » 17 May 2017 12:30

I'm highly skeptical. Just like the high cost of gasoline has made personal vehicles smaller than ever right? Never seen so many compact cars on the road!
LOL. Not so much.

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Re: Electric Vehicles (EV's) and their impact on Canadian energy companies?

Post by twa2w » 17 May 2017 12:50

The other factor that no one seems to account for ( note I did not read the article so maybe it is addressed) is not only the cost and time to built out the electrical charging network but where is the electricity going to come from to charge all these cars, trucks, airplanes, ships. Our current electric grid likely couldn't handle it and we certainly don't have the generation capacity at this time to power all the vehicles currently run by conventional fuels.. Will it be hydro, natgas, nuclear, solar,wind?.

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Re: Electric Vehicles (EV's) and their impact on Canadian energy companies?

Post by AltaRed » 17 May 2017 13:52

Norway has run into significant problems getting its electrical grid upgraded and it is only this year where new vehicle registrations have reached about 50/50 hydrocarbon/electric. Not only is the problem with the overall increase in demand, it is when and where the demand occurs. What happens if all commuters plug in their cars when they get home? At the office? It is an engineering nightmare estimating and accommodating that kind of highly unpredictable variable demand. We've not yet begun to understand how this will all come together.
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Re: Electric Vehicles (EV's) and their impact on Canadian energy companies?

Post by JaydoubleU » 17 May 2017 15:27

Great question, 2 yen.

Like you I own ENB, ENF, and TRP. I also own PPL and ALA. I read the article with great interest and some concern; not for now, but for the long run. What I find interesting about all the companies mentioned, is that they have all shifted to different degrees towards natural gas and renewables: ENB buys Spectra;TRP, Columbia; PPL, Veresen. In addition, ENB, TRP and ALA have made moves into solar, wind, hydro. ENB is getting into off-shore wind; ENF owns a portfolio of solar and wind farms. ALA owns NA's largest battery storage outfit, the so-called holy grail for storing uneven solar and wind power production. None of these projects is large enough to move the needle much on EBITDA, in other words the bread-and-butter still comes from liquid pipelines and storage, but collectively it shows the industry is aware of change and is making adjustments accordingly.

The article says 8 years, but it is also suggested by some observers that this timing may be off "by a few years." My own observation is that the infrastructure is not nearly yet in place to accommodate tens of millions of new electric vehicles on the roads, nor does it appear to be getting built that quickly. However, once electric vehicles do start to hit the roads in significant numbers, where will they get the power? The increased demand for electricity will be so great that utilities will have to turn to the cheapest sources for new power production, and that will be gas, solar and wind. It is intriguing to think that individual households can install their own panels or windmills to produce enough power to run their houses and cars, but as yet, I haven't seen an explosion in this area either. Few families I know have the money to afford a solar system + electric car, even with the generous government rebates. I read about Tesla's cheap solar roof panels, and it does sound exciting, but who is installing these systems, or where? I just don't see much sign of it yet.

These are just a few uninformed observations from a like-minded Canadian dividend income investor.

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Re: Electric Vehicles (EV's) and their impact on Canadian energy companies?

Post by AltaRed » 17 May 2017 16:05

The article is academic without an understanding of reality. Still, it is conceivable there could be very signficant shifts within 15-20 years and yes, the energy infrastructure companies are dabbling...so to speak, but as observed not enough to move the needle...yet. I don't see the pipelines et al going out of business any time soon, To me, it is simply the valuation multiples. They are pretty much priced for perfection, so I wouldn't expect much capital appreciation over the next 10 years.

Tesla is a wild card on the solar front. I've read about their 'solar shingles' too and we had that household discussion already given we need a new roof. But Tesla itself said it is going to take at least a few years to get the bugs out, problems fixed, etc. And quite awhile coming to Canada anyway me thinks. Nor do I believe in being an early adopter. Generation 2 or 3 sounds a whole lot better. So asphalt shingles are going on next month.
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Re: Electric Vehicles (EV's) and their impact on Canadian energy companies?

Post by OhGreatGuru » 17 May 2017 17:37

My data books are not up to date, partly because Stats Can and Natural Resources charge subscription fees for reports they used to hand out free. But "small cars" used to account for only about 16% of energy use for transportation (all modes; freight and passenger )

The other 84% are not going to run on electricity very soon.

In the small car category, all-electric cars are not going to be a practical replacement in most parts of Canada until there is a breakthrough in low-temperature battery performance. (And we won't even go into the infrastructure needed for recharging stations once you travel outside your city limits.). Hybrids are more likely to be attractive in our climate, and they still use gas, just not as much.

Of course places like California will see a lot of electric cars. So demand for oil may go down faster in the US. But it will still only be a fraction of their overall energy use.

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Re: Electric Vehicles (EV's) and their impact on Canadian energy companies?

Post by gobsmack » 18 May 2017 12:00

One additional thought: If we start seeing a clear and decisive shift towards electric vehicles, I imagine this will put downward pressure on gasoline prices. The cheaper gasoline would make gas-powered cars more appealing because it would make it more difficult to justify the higher price of the electric vehicle. I think this can drag on for a long time perhaps slowing the market penetration of electric vehicles.

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