Oil refinery

The oil industry is fooling itself – oblivious to the technological tsunami coming its way.

Let’s begin by looking at the case for the status quo, for things pretty much carrying on as they are. Electric cars talking off only very slowly, and oil and other fossil fuels remaining the main sources of our energy.

The case for the hegemony of oil and the internal combustion engine

John S. Watson, Chairman of the Board and CEO at Chevron recently made the case for oil continuing to be the main fuel for the global economy. He said: "During my 36 years with Chevron, oil prices have dropped 50% or more five times. In the most recent fall, oil went from a high of just over $115 a barrel to under $50 a barrel in just six months. When prices fall, industry pulls back on investment and scales back the workforce in line with activities. Ours is a long-term business, so we know that eventually supply and demand will come back into balance and prices will stabilise. The global economy depends on it."

He continued: “More than 50% of the world's energy currently comes from oil and natural gas – and another nearly 30% from coal. Fossil fuels have enabled the greatest advancements in living standards over the last 150 years. They’re abundant; reliable; energy-dense; can be stored; provide multiple, high-value consumer products beyond power and fuel; and have a global infrastructure of refineries, pipelines, ships, and distribution systems that’s been more than a century in the making.”

As for the threat posed by renewables, he said; “Despite rapid growth in installed capacity, the share of total primary energy demand supplied by wind and solar generation is expected to still be about 3% in 2040. While that’s a big jump from the less than 1% of the energy supplied by these renewables today, those forecasts make clear that, without a game-changing energy technology breakthrough, renewables will be insufficient to independently provide enough affordable and reliable energy to meet the needs of the developed world while also raising the living standards of developing countries.”

The Financial Times looked at a similar idea, but coming at at it from a quite different angle.

It cited data suggesting that by 2040 up to one quarter of the world’s cars will electric.

It also quoted Salim Morsy, an analyst at Bloomberg New Energy Finance who predicts that by 2040, 35% of new cars will be electric cars, and 25% of the global car fleet will be electric. He said: “A lot of people think that’s actually very conservative.” Very conservative – that is an understatement and a half.

Viktor Irle, an analyst said that “because it will cannibalise sales of the internal combustion engine’ car makers are not incentivised to make electric cars more affordable.”

And finally, OPEC said; “without a technology breakthrough, battery electric vehicles are not expected to gain significant market share in the foreseeable future.”

The case for renewables and electric cars

The core argument against all of the above, is that if we want to stop climate change, then the above narrative is simply not good enough. The case for climate change may or may not be proven, but what cynics overlook is that climate change may pose a much bigger threat than is appreciated. It is possible that, by continuing with our addiction to oil, we dice with the potential collapse in human civilization.

Oil companies and car makers may try to deny the significance of new technologies, but unless we adopt renewable energies and electric cars at a much faster rate than projected, we risk cannibalising civilization.

But technology is changing fast – the cost of one unit of energy generated by solar power today is 1%, that’s 1%, of what it was 40 years ago – and thanks to advances in nanotechnologies and new materials, such as graphene, there is a good reason to think that this cost will continue to fall – such that by 2040 the cost of energy may be so cheap that it will practically be free – with most costs relating to infrastructure and distribution – and without using fossil fuels.

Both OPEC and John S. Watson, talked about a how ‘only’ a ‘technology breakthrough’ can change this.” Well, that depends on what you mean by a ‘technology breakthrough’. In fact, technology breakthroughs occur all the time, and at such a rate that they become predictable, that is why we have Moore’s Law which has described how computers double in speed every 18 months or so for half a century.

In fact, for renewables to become more attractive than fossil fuels, all we need is for technological breakthroughs to carry on at the same pace we have become used to – and frankly, given the advances we are seeing in nanotechnology, that seems likely.

Then there is energy storage.

Crack that, and we crack the problem of providing energy generated from solar when it is dark, or energy from the wind when the wind is becalmed.

The very same FT piece, referred to above, showed how the cost of lithium-ion batteries measured in costs in kilowatts per hour has fallen from $1,000 in 2008 to approaching $100 today.

Enter the debate Tesla. It is doing something that no one has done before, investing big time into lithium-ion factories. Reports suggest that it is already close to going below the $100 megawatt hour range.

UBS says that battery costs will be “competitive with internal combustion engine cars in Europe by 2021 and in China by 2025."

Then there is the issue of autonomous cars. Much has been written about autonomous cars here before – suffice to say they will be safer than cars driven by a human, make more efficient use of road infrastructure, and remove the need to find a parking space. The advantages are overwhelming, and to work best they need to be electric.

This is not something that will happen by around the year 2040, it will happen in the next decade.

To say that one third of new cars will be electric by 2040 is to grossly underestimate the rise of technology – more likely 90% of new cars will be electric by 2030.

If the rise of the iPhone has taught us anything, it is surely that when a new technology is right, it’s popularity can explode.

The oil and much of the car industry appear to have failed to grasp what is happening – and thus, are ripe for disruption

And by the way, all this applies without even mentioning synthetic oil – which will be 100% renewable.