...OR LNG...OR HYDROGEN...OR...:

PEOPLE have fretted about when the world's oil will start to run out ever since M. King Hubbert came up with the idea of "peak oil" back in the 1950s. The American geologist, who worked for Shell, pointed out that we are destined to reach a moment when oil production stops rising and goes into terminal decline. With it, the era of cheap oil that fuelled the post-war economic boom would end. The idea still provokes great debate, and many forecasters are predicting that global production will peak by the end of this decade as supplies dwindle.

Now there is a different view. A small number of analysts forecast that oil production will start to fall by 2020 - not because we are running out, but because we just won't need it.

They argue that the world will wean itself off oil voluntarily, through major advances in vehicle technology. Peak oil will not be a supply-side phenomenon brought about by shrinking reserves, but by motorists buying electric cars and conventional cars with highly efficient engines. If they are right, this shift will start the long-term transition from oil to electricity as the main transport fuel, reduce economies' vulnerability to spikes in the oil price, and cap greenhouse emissions from crude oil. [...]

Investment analysts at Deutsche Bank in New York argue in a series of reports that the electric vehicle is a disruptive technology and its short-term potential is widely underappreciated. "Transportation is likely to change more in the next 10 years than over the last 50," says Dan Galves, the bank's chief car-industry analyst. That's not because of some imminent technological breakthrough, but because he expects that the relative costs of electric and petrol cars will soon be transformed.

Electric cars are far more expensive to buy than their petrol equivalents, largely because the cost of the lithium-ion battery that powers the vehicle is so high - currently about $12,000. But the fuel costs of electric vehicles are already far lower than for petrol-powered ones. In the US, for example, the petrol for an average car costs about 8 cents per kilometre, compared with less than 2 cents for the electricity to power an electric car. In Europe, where fuel tax is higher, the numbers are 12.5 cents and 2.5 cents, respectively. Either way, that is a huge gap. So for electric vehicles to compete on price, battery costs need only fall far enough to be swallowed by that gap, and Galves believes that it is likely to happen sooner than most people think.

First, he expects the costs of batteries to plummet as mass production ramps up - just as they did for laptops - to less than $7000 by 2015. Second, the gap is likely to widen with most analysts expecting oil prices to keep rising. "On a 10-to-15-year view, it's almost impossible for electrification not to carve out a decent portion of the market," says Galves, who expects electric vehicles to be economic within a decade even without the subsidies that many governments currently give.

The effect of falling electric vehicle costs will be reinforced by strengthening fuel efficiency and emissions policies in the world's most important car markets. The policies of the world's biggest gas guzzler will soon be among the toughest. In 1975, US president Jimmy Carter passed a law forcing vehicle manufacturers in the US to meet average fuel efficiency standards. For cars, that number has languished at around 27 miles per gallon (11.5 kilometres per litre) since the early 1990s, but recent legislation means average fuel economy must double to 54.5 mpg by 2025. The standard has been rising since 1978, and by 2020 the targets become so demanding, says Galves, that car manufacturers will not be able to meet them without selling a significant number of electric vehicles. Galves expects them to make up a fifth of US car sales in 2020.

The impact will be dramatic. Every day, US vehicles guzzle about 9 million barrels of oil - the biggest single element in our daily global consumption of almost 90 million barrels (see chart). Deutsche Bank oil analysts expect US petrol consumption to plummet, almost halving by 2030.

The story is the same in the European Union, which regulates carbon dioxide emissions per kilometre rather than miles per gallon (see chart). Cars manufactured there in 2020 must reduce their average emissions by more than a quarter compared with models made in 2015. Such standards will especially encourage electrification because they govern "tailpipe" emissions pumped out in the day-to-day running of car engines and not those emitted while they are being built. By this measure, electric vehicles are zero emission. Deutsche Bank expects them to make up 25 per cent of Europe's car sales in 2020, accelerating the decline in demand for petrol.

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