The EV Transition: The Quick and The Dead


The transition from the internal combustion engine (ICE) to EVs is now more post-event rationale than prediction.

Roadkill

A new Economist leader – Roadkill – outlines the inevitability and accelerating pace of the switch to electric vehicles (EVs), suggesting the era of the dominant ICE is now effectively over.

We agree.

This blog adheres to the hypothesis that the EV transition will follow a typical new technology S curve, not simple linear growth. And it believes most analysts are still under-estimating how quickly the EV transition is taking place.

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Energy’s Demand Shock, and The Acceleration of the Fossil Fuel Transition


GLOBAL ENERGY DEMAND GROWTH: 2006-07 vs 2015-16

Oil, gas and coal prices have fallen up to 50% over the past three years, yet according to BP’s latest Statistical Review, total energy demand growth has collapsed 45% at the same time.

The average annual energy demand increase of 1.8% pa over the past ten years has fallen to just 1% pa  in the past three.

Weak energy  prices are often attributed to supply-side issues, but a fall in global demand is now a far greater factor. 

And it has wider implications.

This fall in demand coincides with the rise of new energy technologies – wind, solar and electric power-trains – allowing them to seize increasing shares of remaining incremental growth.

Ten years ago fossil fuels generated 95% of the energy demand increase; last year they provided just 35%.

The incumbent energy industry is now forced into a fierce competition for limited new demand, but it remains focused on a high growth agenda – attempting to force prices up and investing in more expensive production.

In contrast, the costs of new energy technologies are dropping rapidly, speeding up their deployment.

The slowdown in global demand is accelerating the energy transition as fossil fuels become less competitive in a market with lower-cost energy options. 

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So Big it’s Invisible

Global energy demand is so big, it’s almost invisible.

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May/June Newsletter

 

The May / June Newsletter has been added in the newsletter page  – see here

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The One Equation that Describes the EV Revolution – that No-one Uses

Note – on the basis that each equation loses 50% of readers, I’ll assume only the hard-core readership remain.

EVs and other new energy technologies such as PV solar are disruptive.

But incumbent auto and oil companies, and industry analysts assume they will follow non-disruptive, simple growth curves. 

They won’t.

It’s time to model disruption, and confront reality.

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The Mathematics of Disruption

Electric Vehicles (EVs*), like their gasoline predecessors, are a disruptive technology.

By 2020 or thereabouts, they are forecast to become cheaper than conventional internal combustion engines (ICE), and offer running and maintenance costs 90% lower. At this point, there could be a mass exodus from gasoline cars to electrified ones.

All disruptive technologies, in nature and economics, follow a prescribed pattern of growth. It’s commonly called the S curve due to the shape of expansion: slow incubation, sudden lift-off and break-neck growth, and a final mature plateau phase.

The examples are numerous:

S curves are based on two governing principles: rates of growth change quickly over time as demand or resources develop, but there is an upper limit to expansion as the resources get eaten up. So, disruptive populations or products start out small, explode in size, then level off as resources or demand are depleted.

The fearsome equation above – a Logistic Function – contains all these moving parts and so generates an S curve, with take-off point, dynamic rate change and upper limit; a disruptive piece of mathematics in its own right.

You would therefore expect forecasters of EV demand (or PV solar) to use S curve mathematics to try and pinpoint the time of lift-off, and the duration of the explosive, volatile phase of growth.

Not so.

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OPEC’s Terrible Choice:  Its Next Cut Could be a Permanent One.

OPEC seems in control of the oil world, but in fact it is terribly constrained.

A review of OPEC’s previous production cuts reveals that:

–  it cannot sustain a market share strategy
–  it takes the lead in output cuts when demand declines, but it cannot assume non-OPEC will follow
–  it is unable to influence demand, only respond to it

OPEC’s cuts have typically worked when underlying consumption has been strong, and non-OPEC production slow to respond.

But things change; as global demand enters structural decline, and non-OPEC production grows, diversifies and quickens, this leads to a stark conclusion: OPEC’s  latest cut may need to be permanent; a long-term production cap, with all of the consequences for its economies and assets.

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