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Peter Tertzakian

Peter Tertzakian

Peter is an economist, investment strategist, author and public speaker on issues vital to the future of energy. He has clocked over 30 years of…

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The Myth Of An Imminent Energy Transition

Cushing oil storage

100 million. It’s a number that drowns comprehension; it’s more jelly beans than can fit in an average-sized swimming pool.

Within a year, world oil consumption will top 100 million barrels of oil per day. Over the same time period, close to 100 million new piston-firing vehicles will be bought by petroleum-thirsty customers.

I hate to say it, but any notion of imminent “energy transition” or “decarbonization” is folly.

In fact, the percentage of fossil fuels in the world’s energy mix—coal, oil and natural gas—is still lingering well above 80 percent, a figure that has changed little in 30 years. That remains so, despite being challenged by serious environmental policies, financial pressures, viable alternative systems, public awareness and social activism.

It’s true that wind and solar are being deployed quickly, at an exponential rate in fact. But impressive as it all is, renewable energy installations are far too slow to catch the still-hardy appetite for fossil fuel consumption. Such energy obesity is not virtuous, but it’s a fact needing acknowledgement in a world of over seven billion people, each of whom are wanting for more light, heat, mobility and a panoply of mostly useless gadgetry.

Oil and gas are growing especially fast. Recently published data reminds us that we’re consuming hydrocarbons faster than ever, at robust rates on a global absolute basis (see Figure 1). Market share for oil and gas is holding steady at just under 60 percent. Related: Is Russia About To Abandon The OPEC Deal?

(Click to enlarge)

The resilience of fossil fuels is sobering, even after massive capital assault.

Over the past decade, the world has spent US$ 3.0 trillion on renewable energy, according to the International Energy Agency (Figure 2). For that expenditure, the clean cadre has taken a couple of points of share away from coal, the black stuff that seems to have nine lives (Figure 3).

(Click to enlarge)

That’s a pricy calculus to date: some trillion-and-a-half dollars has been the ticket to steal only a percentage point of market share from an easy, reviled target.

It’s true: The price of renewable energy and electric energy storage is coming down quickly. Such new technologies are a marvel, in fact a necessity for the future. So, maybe the next trillion dollars of capital will buy more market share than just faint chatter on a chart.

Meaningful “transitions” occur when new offerings handily clobber the installed user base. When calculators came to market the use of slide rules went into rapid demise. In the world of energy, where renewables and electric vehicles are the new entrants, it is as if calculators are coming to market, but slide rule sales are increasing their presence too.

For now, we’re in an era of “energy diversification,” where alternative sources to fossil fuels, notably renewables, are growing alongside—not at the expense of—the incumbents. Related: These Two Shale Plays Are Making A Comeback

In large part, the rigidity of the establishment is because the long-term cost of bringing a Joule of energy to consumers, from every source and system, is falling. And in western economies energy producers of all types are innovating to reduce their environmental footprint and make their products cleaner too.

Over the past few years, there has been growing acceptance of a narrative that I call Plan A: “Technology will facilitate the rapid demise of fossil fuels.”

Plan A is not working, because all systems, including fossil fuels, can deploy technology and compete to assault or defend market share.

Yet, crossing the 100 million thresholds of anything has a worrying air of unsustainability. So, a new plan is needed, one that doesn’t rely on overzealous polarization of energy systems and the naivety of thinking that energy transitions are as simple as pitching out a slide rule.

We need Plan B, a narrative that accepts the difficulty of change in energy markets. It’s a plan that doesn’t confuse market share with sustainability and reducing emissions. It’s a plan that is inclusive, collaborative and recognizes that: “All diverse energy types and stakeholders must be part of the solution.”

By Peter Tertzakian

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  • Jhm on May 17 2018 said:
    It is foolish to make these comparisons on the basis of primary energy units. Over two thirds of primary energy is rejected, waste heat. In the US wind and solar provide 3.55 quads while the whole transportation sector only uses 5.9 quads of energy service. Thus, wind and solar already provides over half the energy that a fully electrified transportation sector would need.

    Likewise coal may provide 14 quads of primary energy but it only delivers 4.2 quads that are useful to end consumers. So wind and solar in the US are already covering 84% of the energy service that coal provides.

    So get over your primary energy numbers, they are a bunch of hot air. The next time wind and solar double, it will knock a huge amount out of fossil fuel consumption. And the world will see how foolish these primary energy units are. It energy services that matter.
  • Lee James on May 18 2018 said:
    All energy solutions are needed, as you say. We can continue to plod along, investing about the same number of dollars each year in renewable energy. Fortunately, a dollar buys more renewable energy with each passing year. Still, the progress is relatively slow and, as mentioned, technology advances for dirty-fuels extraction as well as for improved clean energy.

    Health and clean air and water are the obvious dirty-energy problems. But let's not forget: the world goes to war over oil. And -- very importantly -- oil revenues often make possible a central-planning focus on weapons and foreign adventure (Russia and Iran). The world could be a happier place were we not so dependent on burning fossil fuel ... and selling those fuels to do the wrong thing.

    The world needs to get off of oil and gas just as fast as we can.

    We need to pay for today's pollution, today. We also need to acknowledge the true cost to world security of our oil dependency, and determine how much we really want to pay for that, going forward.
  • Mamdouh G Salameh on May 18 2018 said:
    In December 8, 2016, the United States Association for Energy Economics (USAEE) published a paper of mine titled:”A Post-Oil Era Is a Myth” in which I argued forcefully and convincingly that while experts around the world sit in their ivory towers and project the advent of the post-oil era within the next fifty years, the realities of the situation cast doubt on their projections. I concluded that oil will continue to reign supreme through the 21st century and maybe far beyond.

    I am very glad that Mr Tertzakhan has reached the same conclusion by saying an imminent energy transition is a myth.

    Not only world oil consumption will hit some 100 million barrels a day (mbd) next year, but also oil is projected to account for 33% of global primary energy consumption in 2040 as it did in 2016 despite rising global oil production and consumption.

    And despite an expenditure on renewable energy estimated by the IEA at $3 trillion, renewables only account for just over 3% of global primary energy consumption.

    Transport and electricity generation are the two biggest sectors in the global primary energy consumption accounting for 30% and 40% respectively.

    A few experts have been projecting the advent of the post-oil era within the next fifty years. They are now saying that widespread electric vehicle use could spell the end of oil. The tipping point, they reckon, is 50 million electric cars on the roads. This they believe could be reached by 2024.

    Hardly a day goes by without another media report about the impending demise of the Internal Combustion Engine (ICE) as petroleum-powered cars and trucks are replaced by super-clean Electric Vehicles (EVs). Except it isn’t true.

    Currently, electric and hybrid cars combined number under 2 million cars out of 1.477 billion ICE on the roads worldwide, or a negligible 0.14%. This is despite support by significant government subsidies.

    The total number of ICEs is projected to reach 2.0 bn by 2025 rising to 2.79 bn by 2040 according to US Research.

    However, 50 million EVs or even 320 million EVs as BP is projecting for 2040 on the roads could hardly make a dent on the global demand for oil let alone replace it.

    In 2017 the world used 36 bn barrels of oil (bb) of which 66% or 24 bb were used to power 1.477 billion ICEs around the world. Bringing 50 EVs on the roads will reduce the global oil demand by only 0.81 bb, or 3.4% in 2024. Even bringing 320 million EVs on the roads will only reduce global oil demand by 3.15 bb or 11%. This will neither be the end of oil nor a tipping point.

    A tipping point could only be reached once 739 million EVs (50% of global number of ICEs or 1.395 billion ICEs ) are on the roads worldwide by 2024 and 2040 respectively. This is impossible to achieve within that time frame.

    Moreover, there will be a need for trillions of dollars of investment to expand the global electricity generation capacity in order to accommodate the extra electricity needed to recharge 50 million electric cars.

    So a post-oil era or an imminent energy transition is a huge myth. Oil will continue to reign supreme through the 21st century and maybe far beyond.

    Dr Mamdouh G Salameh
    International Oil Economist
    Visiting Professor of Energy Economics at ESCP Europe Business School, London
  • Randy Verret on May 18 2018 said:
    I think you are absolutely right. The transition from fossil fuels will take decades and the ongoing green "vilification program" serves no constructive purpose in a rational energy discussion. Somehow, we need a change. Government agencies, energy providers, environmental groups & the public need to be actively engaged in an adult conversation as to what REAL alternatives we have as we move forward. Collaboration BEATS confrontation. All the ongoing "drama & theater" is USELESS when the answers to these challenging imperatives are PHYSICS. Continually throwing fossil fuels & nuclear under the "energy bus" is not a constructive pursuit. There is NO EVIDENCE that renewables (alone) will provide a sustainable, scalable & CLEAN alternative to replace 95% of our transportation fuels and 85% of electric generation. Just the Facts. No "Easy Button" here folks. Like many challenges in our nations history, let's roll up our sleeves & go to work to find SOLUTIONS and stop pushing peas around on our plate...
  • David Jones on May 18 2018 said:
    This really depends on how you look at it. Do we asses the current results based on the amount of market share acquired by alternative sources of energy? Then yes, it looks as if it is very costly for little effect but, and this is a major one, the technology is currently not able to provide the same kind of service coverage as oil while the trend in development is clear. The actual gains are impressive, considering the following major disadvantages:

    1. The EV infrastructure is more or less non existent atm compared to oil infrastructure that has had a century to grow (100000 petrol stations in the US alone vs a few thousand stations for EVs, Tesla has most of the useful ones and those are 1252 in number, about 2 orders of magnitude lower than petrol). Factories that are capable of providing sufficient batteries for EVs on a global scale are also in their infancy.

    2. Renewable energy generation (Solar and Wind) are basically half of the energy generation equation. Without batteries, they are seriously hobbled, allowing fossil fuel demand to remain steady.

    3. Batteries are only now starting to enter affordable price ranges and minimal production capacities for large scale grid storage, it will take some time for a basic, complete energy system (Solar/Wind + Batteries) to be available for a price below oil, less for coal. By 2025, it is likely that batteries + wind combined could be cheaper than coal.

    4. Even with the above, there may be deal breaker seasonal issues in some regions in terms of complete renewable dominance. It's likely that only once longer term storage technologies such as Power to X (hydrogen or gas) are financially feasible in combination with the rest (2030s), will the renewable equation be complete. A system of Solar/Wind + Batteries + Power to X (or some other long term energy storage technology) should be capable of more or less completely replacing fossil fuels.

    The above are major disadvantages at the moment that have hobbled the renewable advance considerably and while we could say that renewables have grown due to subsidies, this is not the whole picture. The reality is that the underlying technologies are solid, if they were not there would have been no improvements whatsoever regardless of cash. They are easily expandable and are in some cases even now more capable than fossil fuel tech (batteries for grid stability services as an example) with many intrinsic as well as external benefits (fossil fuels have predominantly negative externals like wars and pollution as well as climate change, if these could be assessed and applied properly, the cost of fossil fuels would probably be unmanageable, the cost is mostly paid in blood and is therefore not on the books. Blood is cheap to the rich and powerful, that has always been the case and remains so to this day).

    If the above points are met, it is easy to come to the conclusion that renewables will not continue to grow as they have, they will shoot up past fossil fuels within a short time, probably orders of magnitude faster than they have been moving up until now and at the same time demand for fossil fuels will likely plummet. In my opinion, it is perfectly feasible for them to completely overtake fossil fuels in terms of overall capabilities and price sometime in the 30s. As soon as the above is true, entire regions like the EU and maybe even China could choose to ban fossil fuels (and fossil fuel imports) completely as they will no longer be majorly dependent on these. Once that happens, it's only a question of time before large portions of the world follow. The US will be split here, how the situation is handled will decide the future of the country.

    The problem with the fossil fuel industry is that they seem to have calculated a rate of renewable expansion based on current and past events without proper assessment based on technology, the fact is that these technologies cannot currently apply their full power. Once they can, the game will change.

    My advice is that big oil deploys a self disciplined transition before they are placed in a seriously compromising position which could manifest itself within the next 20 - 25 years.
  • John on May 18 2018 said:
    "Over the past decade, the world has spent US$ 3.0 trillion on renewable energy"
    For comparison how much was spent on fossil fuel over the same decade?
  • Lee James on May 18 2018 said:
    I rather believe supporters of business-as-usual in the energy world will focus on primary energy rather than energy that is of actual benefit to an end-user. Thank you, Jhm, for pointing out that it's what's usable to end users, that counts.

    Limiting the discussion to primary energy is a little bit like only focusing only on the many positive outcomes of burning petroleum, and ignoring the social and economic costs that other people pay, even if the cost does not show up on one's books right away. Ignoring effects on health, clean water and the planet inflate the net societal value of burning fuel for power.

    Fact is, most of our NEW electrical power is supplied by renewable energy. The percentage contribution of renewables will continue to grow. If you do a complete accounting of the cost of living, you see that this is the way it needs to be. We really have no other choice if you're looking beyond your nose to tomorrow.

    By the way, the WSJ reported yesterday that cash flow for the U.S. shale industry is still a struggle, even with the higher crude prices. So, we also need to be realistic about what today's barrel of crude actually costs to produce -- a cost that is growing in this age of "tough" oil, and still does not include enough for adequate protection of health and air and water.
  • Randy Verret on May 18 2018 said:
    I can't resist a comment on JHM (above) and his thesis on "primary energy units." Wind & solar ALREADY provide HALF the energy needed for a fully electrified transportation system? Wind & solar ALREADY provide 84% of the energy service coal provides? Speaking of "hot air"...
  • Mike on May 18 2018 said:
    It sounds wonderful to "get off oil" but most people aren't aware that the entire monetary system of the world is hinged on the petro dollar and that's why we go to war, not to get the oil, but to ensure it's traded in dollars. Iran and China and Russia are end running around the dollar for oil and that's why they are public enemy #1 in the media. This is a far bigger problem than moving to renewable energy, because if the dollar becomes what it truly is, a piece of paper, we have a lot bigger problems than oil consumption. This is an extremely complex problem. - this I believe is where bitcoin and cryptocurrencies come into play. I predict we will not see a transition away from oil until we first see a transition away from the petrodollar. In other words, don't hold your breath.
  • Paul Leo Faso on May 18 2018 said:
    You must have missed the recent Beijing Auto Show where the toast of the town were the countless Electric Vehicles being paraded for the "myth" that is about to run you over.
    Sure, every known trick will be used to kill the future, but it's an exercise in futility. When you define "imminent" , start the clock when China sets the specific time for its already announced ending of the internal combustion engine. Then notice the other nations who will follow.
    In the last five years, from every major manufacturer, the roll outs are being displayed as concepts or prototypes. The next five years will see all the players at the shows with production models that will shatter what's left of the oil era.
    Now, there will be the hard core skeptics who will talk range, battery failures, excise gas tax loss of revenues and a whole list of problems already solved. That will no problem for any one who takes the time to read about the near future technology breakthroughs here;
    EVUR - ELECTRIC VEHICLE UNLIMITED RANGE
    Punch- EVUR -into google and see what's coming down the road - sooner rather than later.
  • Chicodoodoo on May 18 2018 said:
    Free energy is and always will be the only solution to the human energy problem. Unfortunately, free energy does not fit into our primitive and enslaving financial system that revolves around selling energy to dependent people. Nikola Tesla knew of our energy predicament over 100 years ago when he said, "We are like people in a boat dying of thirst because we do not know how to scoop up the water from the sides of the boat." Thomas Henry Moray, a student of Tesla, pulled 50,000 watts continuously out of the air in the 1930s, yet his invention was never allowed to reach the market for fear of the disastrous economic disruption it would cause. Stanley Meyer drove his dune buggy across the United States using only water as fuel in the 1980s, yet here again the technology was deliberately buried by the frightened but powerful oil industry. We have already discovered the limitless sea of energy that could render fossil fuels obsolete in a heartbeat, but with rich and powerful sociopaths controlling human society, there will be no possibility of changing things. It will simply not be allowed by the controllers.

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