Electric cars could upend oil markets much sooner than everyone thinks.

According to a new report from Bloomberg New Energy Finance (BNEF), the rapid decline in the cost of building batteries for electric vehicles (EVs) will make them cheaper than the internal combustion engine in just a few years. By the 2020s, EVs could beat conventional vehicles on price, a shocking development and a potential epochal shift for energy markets.

Battery prices declined by 35 percent in 2015, another impressive feat for the technology as it marches towards both relevance and market share. BNEF believes that EVs - on an unsubsidized basis - will be just as affordable as a car that runs on gasoline...within six years. That means that by 2022, BNEF argues, EVs will reach "the point of liftoff for sales." The cost-competitive prediction for EVs even assumes that gasoline-powered cars continue to improve efficiency at a rate of 3.5 percent per year.

The report projects that EVs will control 35 percent of the auto market by 2040. That will be possible because an EV with extended range will cost just $22,000 in today's dollars.

Behind those cost declines is the dramatic fall in the prices of batteries. Costs for lithium-ion batteries have plummeted to just $350 per kWh in 2015, a 65 percent cost reduction since 2010. But battery manufacturers are not done yet. By 2030, costs will fall to $120 per kWh, or less than half of today's levels. From there, costs will continue to decline.

For oil markets, the conclusions should be alarming. BNEF sums it up succinctly: "The electric vehicle revolution could turn out to be more dramatic than governments and oil companies have yet realized."

The oil industry is clearly not planning for the EV revolution. Tom Randall of Bloomberg reported that ConocoPhillips' CEO Ryan Lance told him in 2015 that "EVs won't have a material impact for another 50 years--probably not in his lifetime."

But BNEF sees EVs displacing 2 million barrels per day (mb/d) of oil demand as early as 2023. That is just the start. The real pain will come after that point as EV sales start to skyrocket. BNEF estimates that EVs could capture 35 percent of the market by 2040, which would displace 13 mb/d. For an oil market currently in tatters because supply is exceeding demand by a meager 1 to 2 mb/d, the destruction of 13 mb/d of demand should be unsettling, to say the least. EVs present an existential threat.

At the same time, the sharp rise in EVs would lead to a surge in demand for electricity, as the 41 million EVs sold in 2040 would need to be routinely charged up. All of those cars could require 1,900 TWh of electricity each day, equivalent to about 8 percent of global electricity demand in 2015.

Of course, these are just projections. And as anyone familiar with the projections of the IEA, EIA, or OPEC will tell you, projections are wrong 100 percent of the time. But the exact figures - whether its 25, 35, or 45 percent of market share - are not the important thing to focus on. The key takeaway is the trend, which points to the potential for rapid growth for EVs, taking ever larger chunks of market share away from oil.

The writing is on the wall - as a technology, battery costs will continue to decline as manufacturing and the chemistry improves. Oil companies can reduce costs, but commodities don't see costs decline in the same way. Finite natural resources see costs rise as they become scarcer. In the long-term, very few people expect oil to be as cheap as it is today at around $30 per barrel. And to the extent that oil remains cheap indefinitely, it will be because EVs destroy demand. It is cliché at this point, but as the old adage goes: the Stone Age didn't end because we ran out of stones.

By Nick Cunningham Of Oilprice.com