Oil could converge to about $15 per barrel by the early 2040s when electric vehicles (EVs) are expected to take a larger share, implying fossil fuels' much shorter life span as the main fuel for transportation, according to an International Monetary Fund (IMF) research paper.

"Under the fast adoption scenario, as the transition from oil takes hold, by the early 2040s, oil could become the new coal and oil prices could converge to the level of coal and natural gas, about $15 per barrel in 2015 prices," said the IMF Working Paper, authored by Reda Cherif, Fuad Hasanov, and Aditya Pande.

Highlighting that the next decade could witness a large increase in the use of EVs in personal transportation; it said with road transportation accounting for one-half of the oil use globally and a sole role for oil as the essentially the only fuel source, a substantial drop in the oil price could occur.

Observing that coal did not disappear after 1960 but became much less economically and geopolitically relevant, it said the same fate might await oil once it loses its exclusive role in fuelling cars.

Neither the increase in energy demand to power EVs, nor the expected growth in emerging economies (particularly in India and China) would prevent the displacement of oil and a subsequent decline in oil prices, it said.

"If all the extra demand in electricity to power EVs were to be generated from oil solely, the demand for oil would still fall substantially even with current technology," the paper added.

Finding that renewable technology seems to have reached a threshold in terms of costs and efficiency owing to massive investments, particularly in Europe and China; it said "if this trend continues, renewables would represent a sizeable share in the global energy-mix and more than compensate for the additional demand in electricity to power the EVs."

The relatively cheap oil is no guarantee for the continuous use of motor vehicles in emerging markets, it said, reminding that coal is still available and relatively cheap; yet steam boats and steam trains disappeared completely many decades ago.

Lower oil prices — even around $50-$60 for the next decade or two — due to increased shale production might delay the energy transition, mainly by depressing alternative fuel transportation penetration, it said.

The EV sales had fallen slightly with the 2014-16 oil price fall.

However, EV manufacturers have also cut costs faster, it said, adding the car industry is about to reach a turning point in terms of cost of EVs relative to the average income.

"With comparable prices of electric and motor vehicles and much lower cost to charge and maintain an electric car compared to a motor vehicle, oil price would have to fall substantially to keep motor vehicles economically competitive," it said.

Moreover, cost is not the only factor determining technological adoptions, it said, citing that coal was cheaper and more easily available than oil throughout the 1920s to 1940s, and yet this did not prevent coal’s swift displacement.

Stressing that the transition away from oil has deep implications, the paper said the economic model of many oil exporting nations would not be sustainable in such a world.

The paper also said a transition to EVs would also disrupt the auto industry, both in production and maintenance, with much shorter value chains and more reliable vehicles.

The production of EVs requires a much smaller number of parts and much less maintenance in comparison to motor vehicles, and the possibility of on-shoring into advanced economies would be likely.

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