The Pain Will Never Be Over

The oil industry has suffered over the past three years. Since the fall in oil prices in 2014 companies have gone bust, tens of thousands have lost their jobs, and hundreds of billions of dollars in spending has been delayed or cancelled.

Oil companies can be profitable again. Oil service contractors too. But the good times aren’t ever coming back.

renewable-energy-investment.png

The world is currently investing over US$250bn/yr in renewables. This compares to US$450bn/yr in oil and gas (I can’t find a source for coal). But the thing is – every penny invested in renewables eats the cake of oil and gas. With every new turbine installed part of a hydrocarbon fueled power station is replaced. With every solar panel installed, demand for hydrocarbons falls – and by more than the total installed power of the unit.

  1. The virtuous circle – efficiency increases throughout the chain
    1. The efficiency of solar panels and wind turbines increases, with more power captured per unit time
    2. Installation gets more efficient as best practise is adopted
    3. More installers move into the market and lower installation costs (a particular issue in the offshore wind sector where oil and gas service companies who previously ignored the market move in and professionalise the industry)
    4. More infrastructure installed means it’s easier to install the next marginal bit of infrastructure – you may need to install a second power line or upgrade a substation but it still requires much less investment
  2. Renewables go direct to energy – with hydrocarbons you have to find it, dig it up, ship it (likely several times) maybe refine it, and then eventually you can burn it to turn it into electricity. Renewables go direct, cutting out the transportation energy, cutting out the refining costs and pumping costs. So the total factor efficiency of renewables is actually measured far higher than hydrocarbons
  3. No one goes from an EV to IC – people who buy into EV buy into it for good. Petrol stations lose customers for good with every person who switches away from internal combustion engines – so if 10% of cars sold are EV in any one year, there’s every year of growth in EV behind that where those people may buy a car once every 5-10 years, but they’re not buying IC-engined cars.
  4. Storage Рsorted. Everyone knows the issue with renewables nowadays is the ability to store energy. Something we are rapidly solving. And every day, as more and more electric vehicles are sold, we get closer to solving it. Part of the solution is going to come through using batteries that were once installed in a car for renewables storage. The cycle on a battery degrades it over time to the point where you eventually need to replace it to make the car efficient enough to be worthwhile once again. Those batteries that are replaced are still a valuable resource when it comes to storing energy.
  5. Autonomy – autonomous cars are going to be EV. And with autonomous cars the entire ownership model for cars changes, the number of cars needed falls (eating some more cake in the form of energy required for the heavy industry of car manufacturing)

The fossil fuel industry will still be around, for decades to come. Aviation and shipping will still use oil and gas. And heavy industry needs the heat intensity that you get from hydrocarbons, hydrocarbons are more efficient at this. Petrochemicals will become ever more important to the world as our population continues to grow. But when people talk about a supply gap of 10s of millions of barrels a day caused by declining production in the major producing fields globally – they fail to realise that renewables, through pricing power more than anything else now, are drinking their milkshake – not draining the fields. But ensuring it’s not worth pulling it out of the ground at all.

The stupidest thing you can do with oil is burn it

Nature gave us these incredible long-chain hydrocarbons, something that takes huge amounts of energy to create. Reworking those long chains into plastics and chemicals and a hundred other uses is the intelligent way to use them. Burning them built the modern world. And we should be thankful for that. But stopping burning them now makes sense as the cost of renewables has fallen to parity or even below hydrocarbons.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s