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- big energy companies are seriously under-estimating the speed at which low-carbon technologies are advancing and they could be left with stranded assets unless they change their approach
- big energy companies are seriously under-estimating the speed at which low-carbon technologies are advancing and they could be left with stranded assets unless they change their approach
After a terrible couple of years, this looks like a good time for the fossil fuels sector. Oil prices are on the up again, President Donald Trump promises to sweep away many of the restrictions the industry had imposed upon it during the Obama Administration, the former head of ExxonMobil is Secretary of State and there is even talk of watering down fuel economy requirements.
Trump has pushed through executive orders to revive the Keystone XL and Dakota Access pipelines and he has even promised to revive the moribund US coal industry, causing shares in coal miners to soar. But a new report suggests that demand for coal and oil could peak by 2020 thanks to dramatic falls in the cost of solar power and electric vehicles.
The report, Expect the Unexpected: The Disruptive Power of Low-Carbon Technology, co-authored by the Grantham Institute for the study of Climate Change and the Environment at Imperial College, London and the Carbon Tracker Initiative, says that the big energy companies are seriously under-estimating the speed at which low-carbon technologies are advancing and they could be left with stranded assets unless they change their approach .
The growth in sales of electric vehicles could cut demand for oil by 2 million barrels per day as soon as 2025, the report says – the same amount that caused the oil price to collapse in 2014-15. The market for EVs is currently growing by 60% year-on-year and there are already more than 1 million on the roads. Battery costs fell by 73% to $268/kWh in the seven years to 2015 according to the US Department of Energy, and Tesla, the electric car maker, predicts they will reach $100/kWh by 2020.
Carbon Tracker says that EVs will be cheaper than conventional internal combustion engines from 2020 and could have a fifth of the road transport market by 2030. Add in growth in hydrogen cars and petrol/electric hybrids, and conventional ICEs could account for less than half the market. By 2050 EVs sales could hit 1.7 billion (69% of the market) while ICEs would make up just 12%.
This could displace 25m bpd of oil by 2050, in stark contrast to the continuous growth in oil demand the industry expects. BP’s 2017 outlook expects EVs to make up just 6% of the market in 2035.
Meanwhile, Carbon Tracker says that solar PV could supply almost a quarter (23%) of global power generation in 2040 and 29% by 2050, entirely phasing out coal and leaving natural gas with just a 1% market share. By contrast, ExxonMobil sees all renewables supplying just 11% of global power generation by 2040.
The cost of solar PV is 85% lower than it was seven years ago and the study suggests that it will become “materially cheaper than alternative power options globally” leading to the addition of more than 5000GW of capacity between 2030 and 2040. “In such a scenario of rapid change, the mass stranding of downstream fossil fuel assets is highly likely,” it says.
The report argues that the use of Business-As-Usual scenarios should be retired and that scenarios should now apply, as a minimum, the latest cost reduction projections for solar PV and EVs, along with emissions commitments nations have made in their Nationally Determined Contributions (NDCs) under the Paris Climate Agreement, to reflect the current state of the low-carbon transition.
“This new “starting point” scenario more accurately reflects the current state of play and finds that coal demand could peak in 2020 and fall to half of 2012 levels by 2050. Oil demand could be flat from 2020 to 2030 then fall steadily to 2050,” the report asserts. Most major oil and gas companies do not expect coal to peak before 2030 and none see peak oil demand occurring before 2040.
But Luke Sussams, senior researcher at Carbon Tracker, says: “Electric vehicles and solar power are game-changers that the fossil fuel industry consistently underestimates. Further innovation could make our scenarios look conservative in 5 years’ time, in which case the demand misread by companies will have been amplified even more.”
The report’s authors say that the speed of technological changes means that PV and electric vehicles could take 10% of fossil fuels’ market share within just 10 years. “This may not sound much but it can be the beginning of the end once demand starts to decline,” they write. “A 10% loss of power market share caused the collapse of the US coal mining industry and Europe’s five major utilities lost more than €100 billion in value from 2008 to 2013 because they were unprepared for an 8% growth in renewable power, of which solar PV was a big part.”
James Leaton, head of research at Carbon Tracker, adds: “There is no more business as usual in the energy sector – so it is time that scenario was discarded. There are a number of low-carbon technologies about to achieve critical mass decades before some companies expect.”
