Students of disruptive innovation over the last several decades will recognize the pattern. Solar panels and electric cars, once derided as fringe products for niche markets, are marching to dominance. The end of oil will come sooner than we think.
And sooner than the oil companies admit, at least publicly. Solar energy could supply 23 percent of global power by 2040; ExxonMobil sees all renewables supplying only 11 percent by then. Electric vehicles could capture a third of the transport market by 2035; BP’s forecast for that year: 6 percent. The industry’s business-as-usual scenarios mean billions of dollars in investment capital could be stranded as fossil fuel demand craters, according to a new report from Carbon Tracker Initiative.
“This is demand destruction,” Carbon Tracker’s CEO, Anthony Hobley, told ImpactAlpha. “The tech genie is out of the bottle.”
Electric vehicles (EVs) alone could reduce demand for oil by 2 million barrels of oil per day (mbd) by 2025, the report said, about the same amount that caused the price of oil to collapse in 2014 and 2015. By 2040, electric vehicles could displace 16 mbd of oil and 25 mbd by 2050. The oil industry generally sees continued growth in demand.
What’s significant about the new report is that the projections don’t significantly depend on government climate action nor a price on carbon via a carbon tax or other mechanism. The shift is more profound: a customer-driven transition toward better, cheaper solutions not unlike historic shifts to PCs, digital photography and streaming music.
“Trump can no more stop the energy transition than a U.S. president could stop the transition from steam engines to the automobile,” Hobley said. Of course, if the world were to move decisively toward climate action, the transformation could be even more dramatic.
The key question now is how fast fossil fuel producers — and their investors — revise their business-as-usual scenarios to account for the changing demand landscape. That could become a legal question in cases such as New York Attorney General Eric Schneiderman’s investigation of ExxonMobil’s asset-valuation practices.
Even small changes in demand can send major ripples through energy markets. The Carbon Tracker report cites the collapse of the U.S. coal industry caused by a loss of 10 percent of the market for power generation, and the loss of more than 100 billion euros by Europe’s five major utilities from only an 8 percent growth in renewables between 2008 and 2013. A separate Goldman Sachs report last year forecast solar and wind will generate more new energy capacity in the next five years than the shale-oil revolution did in the last five.
The Carbon Tracker report suggests coal demand could peak in 2020 and fall to half the 2012 level by 2050. Oil demand could be flat from 2020 to 2030 and then fall steadily. Most major oil and gas companies do not expect peak coal before 2030 and none see oil peaking before 2040.
The report adds to a drumbeat of data points about the accelerating transition to a low-carbon economy. A Bloomberg New Energy Finance report found the cost of solar generation, which has fallen more than 60 percent since 2009, could drop another 40 to 60 percent by 2025. That will make solar power the cheapest form of energy almost everywhere in the next decade. Recent solar projects have already beaten out coal in the United Arab Emirates and Chile.
The cost of battery storage — key to both solar power and electric cars — is also falling rapidly. The price of lithium-ion batteries has fallen below $350 per kilowatt-hour, down by more than two-thirds since 2010, and could fall below $100 per kWh within a decade. The stunning drop means global battery storage capacity could rise from one gigawatt-hour today to 250 gigawatt-hours by 2030, according to the International Renewable Energy Agency.
The Carbon Tracker report projects a buildout of 500 gigawatts of capacity between 2030 and 2040. “In such a scenario of rapid change, the mass stranding of downstream fossil fuel assets is highly likely,” the report says. The report finds that electric vehicles could have 20 percent market share by 2030. By 2050, 1.7 billion electric vehicles on the market could command more than two-third of the market, while conventional internal combustion vehicles would make up just 12 percent.
Oil companies that take action early could soften the blow for investors by diversifying their power sources and reducing the carbon intensity of their holdings. “Oil and gas companies that continue business-as-usual,” he said, “raise the risk of the destructive transition.”
Photo credit: Tesla