The Surprising Dual Winners of the Energy Transition – OPEC and the New Technologies: Shale, Solar And Wind

  

There are a lot of new arrivals at the low-end of the energy cost-curve – but OPEC may yet adapt.

Summary

US shale and global solar / wind energy technologies are now competing strongly with the traditional oil and gas industry: these new technologies continue to grow in size and their costs are declining quickly due to scalability and learning effects.

The new players are also dispersed, decentralized and respond to market forces and pricing rather than any coordinated policies

This intense competition will force OPEC and other major national oil companies to rapidly change to compete on price rather than cost-plus market control.

A surprising outcome of this may be that OPEC along with the new energy technologies emerge as the dual winners of the energy transition.

Polar opposites in many respects, these two blocs have similarities in terms of self-organised decision-making, technological scalability and vast reservoirs of energy to rely on.

These are qualities that international energy companies, for all their financial and engineering heft, chronically lack – as likely losers, they will need to quickly develop exit and harvesting strategies.

Although unwelcome news inside the offices of many international oil firms, this is likely a good result for global energy consumers, and potentially a stable political outcome as both winners adjust to the new energy reality.

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The Other Side of The Equation: Oil Growth now Depends on Consumer Choice more than Industry Demand

Car as Device, Gasoline as Consumer Good

Reviewing US gasoline consumption in detail reveals the emergence of a deeper trend for crude oil demand: it’s future growth depends increasingly on its capability as a consumer good, not as an industrial commodity.

In its major markets – the US, EU and China – crude oil’s major growth component, motor gasoline, now has to compete with non-gasoline technologies in its core market, road transportation.

OPEC and other oil producers may still calculate consumer demand for gasoline is a given – but that is no longer a safe assumption. They need to consider how to compete as providers of a consumer product, rather than act as suppliers of an irreplaceable commodity.

Oil demand may soon start to be dominated by choosy individual consumers, rather than more predictable industrial buyers.

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The Sun Will Always Shine, the Wind Will Always Blow

Active Energy Management via Solar And Wind Technology

“Wind and solar PV capacity has grown very rapidly in many countries.. By the end of 2015, these technologies had reached double-digit shares of annual electricity generation in ten countries..in all cases without compromising the reliability of electricity supply. “

IEA, Getting Wind and Sun Onto the Grid, 2017

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Short the (Expensive) Horses: The numbers behind fossil fuel’s decline

For all the strengths of the incumbent thermal fossil fuel system, mainly its energy density and transportability, it is not an inherently scalable technology – and it is vulnerable to one that is.

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China’s Electric Conversion – The Energy Transition is Accelerating

China is taking a leadership role in solar and wind deployment for electricity generation: this will accelerate the global energy transition from the thermal system. By 2020 solar and wind could supply over 50% of China’s marginal electricity demand, and non-fossil fuels all 100% of it. 

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