The Tesla Revolution Why Big Oil is Losing the Energy War

The Tesla Revolution Why Big Oil Is Losing The Energy War

Prologue

Nearly 10 years ago, I started investigating the history of oil and how its depletion could impact our postindustrial society. The situation concerned  me after I learned about it f irsthand from the experienced geologist Colin Campbell (PhD, formerly at BP) who had studied the issue for decades. Would there be enough oil around to fuel society in the centuries or even decades to come?

The book Willem and I coauthored in 2008, The Permanent Oil Crisis, emerged from this concern. Our aim was to raise awareness  of the issue of peak oil and the need to transition to alternative forms of energy. Its basic premise was that a structural undersupply of cheap oil would disrupt the world economy, because the peak in conventional oil production was at hand. Oil supplies had been f lat for several years, and oil prices were on the rise, with limited new sources of supply in sight. The situation was urgent given the lack of alternatives at the time, and we needed to transition to clean sources of energy.

In this new book, The Tesla Revolution, we examine what has happened in oil markets since then, with almost 10 years of learning added to the mix. Thanks to large-scale shifts towards alternatives over the last decade, our view is more positive now.

The world of clean energy is advancing rapidly thanks to the efforts of countless people who, like us, are concerned about the end of cheap oil, about how fossil fuel-based carbon emissions are linked to climate change, or both. Just as Nikola Tesla, together with Thomas Edison, revolutionized the world 120 years ago by sparking the electrical age, we are now enter- ing a revolution in clean transport, electricity, and heating.

This new ‘Tesla Revolution’ in clean energy is driven primarily by the urgency to scale alternatives to oil in transportation, as signaled by high oil prices.

We know that oil is and will continue to be more expen- sive than in the early 2000s and prior, since we now need to extract either lesser-quality oil, or at more remote locations, or at far greater depths. The recent rise of shale oil in the United States is not changing this situation, since most of it is also costly to extract, as we explore in Chapter 4. Shale oil took the world by storm, and just like the oil industry, we did not see it coming early enough.

The shale oil boom is drying up, however, since the Mid- dle East started pumping f lat out in 2014, and oil prices have recently dropped even lower, to $40-$50 per barrel (still three times higher than in the early 2000s and prior). Since March 2015, shale oil production has fallen by 15%–in just 16 months. Since the costs of extraction are high—shale oil is not the cheap oil we’re used to—major investments have been scrapped, well drilling has halted, and company bankruptcies are growing.

This situation is not unique to shale oil; if we look at oil production globally, we now need hundreds of billion-dollar investments every year in deep-water f ields and oil sands to increase oil production, and many projects have recently been postponed.

Our key message is still valid. We cannot rely on continued smooth growth in (cheap) oil production. There is a large downside risk that oil supply will slump within the next 10 years, bringing substantial economic repercussions as almost all transportation today depends on oil. Not to mention the risk of severe geopolitical instability, since history teaches us that Western countries secure oil supplies via covert opera- tions or military means, which we elaborate on in Chapter 3.

In this post cheap-oil era, we believe we need to work on reducing oil dependency and risk. In a f igurative sense, sourcing transportation energy from clean sources where possible is an economic ‘pension policy’ that anyone who cares about their future should buy into. The faster we can scale alternative energy sources for transportation, the more likely it is that suff icient energy will be available.

The second driver of the Tesla Revolution is the urgency to scale alternatives for all fossil fuels—especially coal—to dramatically reduce carbon emissions. Carbon reductions are needed to halt the chemical alteration of the earth’s atmosphere and thereby minimize the disruptive risks of climate change.

Reducing carbon pollution is currently a big driver of many government energy policies and a factor in the investment strategies of many companies and f inancial institutions. In our view, climate change is just as big a risk as cheap oil depletion in the next decades, and much greater for 2050 and beyond, since increasing climate disruptions will affect the world’s economies. We just don’t know what the effects will be in our lifetimes, let alone closer to the year 2100 and beyond.

Many people working to transform our fossil fuel-based economy, including the CEOs of Tesla Motors and Toyota, share our concerns. In our view, any book on energy pub- lished today needs to look at the extent to which carbon emission reductions are driving the world away from fossil fuels, as we discuss in Chapter 5. We will also update you on last year’s Paris Agreement on Climate Change, carbon reduction policies, and Big Oil’s underground carbon stock and the investment implications of it.

The key questions we explore are at the heart of coal and natural gas: Has coal begun its long-term demise, as carbon reductions require? Will natural  gas play a major role in the future as a bridge to a clean energy world?

That brings me to the impact that the two drivers—ex- pensive oil and climate change—is having on the global energy picture.

In 2008, when writing our previous book, Tesla Motors was a small player with its Roadster electric sports car, and its Chinese counterpart Build Your Dreams (BYD) only sold mini electric city cars. Now, thanks to many innovations, especially in lithium-ion batteries, the entire car world is changing rapidly.

In the wake of Tesla Motors’ rise, major car companies around the world, from the United States to Germany to Japan, are aggressively pursuing electric cars, hybrid cars, or fuel-cell car models. Soon, they may follow further in the footsteps of Tesla and BYD which, at the time of publication, are the f irst two fully integrated electric car—battery— solar-energy companies, bringing renewable driving to your garage or front door.

Thanks to their efforts, it is likely that, not too long from now, car companies will take away transportation market share from Big Oil as electric cars in all segments become both desired and cost competitive. That will not put oil companies out of business (at least not for the foreseeable future), but it will push them to provide oil increasingly for trucking, shipping, f light, and chemicals, which are still more challenging uses to tackle. We examine this and a lot more in Chapters 1 and 6, not just for batteries and electric cars, but also for fuel cells, solar photovoltaic cells, wind power, electricity grids, and other technologies.

So much is happening around the world daily that the news is diff icult to keep up with. Did you know that over 40,000 German households have battery systems connected to their solar panels? Or that more than 200 million electric bikes, scooters, and motorcycles are being driven on China’s streets already? Or that solar panels power at least 40 mil- lion households in regions without electricity grids?

The lack of good information has led to a lot of confu- sion when it comes to how fast renewables are entering the world’s energy system. In our experience, many opinions and so-called facts are vented on the Internet and in newspapers based on outdated information and data, usually limited to experience within the country in which people live, or are ridden with bias. Part of this confusion comes from a lack of up-to-date information on the scale of renewables in the world’s energy system as a whole.

To reduce some of this confusion, we paint a picture of the pace of change of the clean energy transition relative to the world’s energy system in Chapter 1. Based on the most up-to-date data, up to the end of 2016, we explain how much fossil fuel and clean energy is used, for different energy uses, and the differences across continents and climates.

This provides a bird’s-eye view of the current situation seen from the perspective of where we are headed and the scaling that is needed to accelerate the Tesla Revolution—a key part of the book—as we need to know whether the world is moving fast enough and how it could move faster to accelerate the rise of clean energy in the world’s energy mix.

We hope that if you aren’t already enthusiastic about clean energy, our book will inspire you to join and accelerate the Tesla Revolution. We all have a role to play in bringing the earth closer to a clean energy world. Without people buying electric cars or solar panels, building great tech in- novations, shaping energy policies, or f inancing large-scale clean energy infrastructure, not much will change. We also hope that you f ind the content useful and that its clarity contributes to your thinking on energy, to help you make better energy decisions in your daily life. We have more decision power than we think.

Rembrandt Koppelaar (rembrandtkoppelaar@gmail.com) London, November 2016

Source:The Tesla Revolution Why Big Oil is Losing the Energy War by Willem Middelkoop & Rembrandt Koppelaar