One man in particular, thinks that “the oil industry is toast” and there’s nothing we can do about it. But is he right?
“By 2020 it will cost half as much to store and half as much to produce energy from solar. By 2025 it will cost 1/8th of what it does today. Then what happens to the entire economics of the fossil fuel industry? Toast. We’re 14 years away from being able to get 100% of our energy demand from solar in the United States.”” Vivek Wadhwa
Yes, he said this to a room full of Oil and Gas Executives. Gutsy, I know. And while there were murmurs of disbelief echoing throughout auditorium, there was very little we could argue with over lunch at OTC’s D5: The Next Big Thing conference earlier this year. Sure, his timing may be off by a few years, perhaps even a decade, but there is no arguing with the tremendous actual growth in the adoption of solar.
“this is a map of the energy reserves of our planet. That little one over there is Petroleum, the big one is solar…”
“The cost of solar is dropping ex-po-nen-tially. The price drops 20% every 2 years, as the price drops 20%, the number of installations doubles.” he added and from his articlein the Washington Post “we’re heading into an era of unlimited, clean and almost free energy”.
In some parts of the world, it’s already happening. “California gets 5% of it’s utility grade energy from solar, Germany is 7%.”
“it doesn’t mean we’re going to stop using oil… when growth stops, the markets kill you.”
Just a few days earlier, Atul Arya Senior VP at IHS, gave a key note on the state of the industry. In his talk, he stated that 45 of the 95 Million barrels a day of global oil production is used for transport.
Given that a widening of the supply-demand gap of approximately 2 million barrels a day caused the price of oil to drop by over 50% in the past few years, a mere 10% reduction in transport demand (driven by a transition to electric vehicles and solar) would be catastrophic for the economics of our industry. However, demand reduction is the underlying assumption behind such dooms day predictions. So what’s missing from their argument?
Today there are still 1.2 billion people in the world without electricity and more than 2.7 billion people who still burn solid fuels, such as wood, crop residue and dung, to cook their food. That’s nearly 40% of the worlds population who are living without basic access to energy that we take for granted. In fact our entire lifestyle would not be possible without the abundant availability of energy that has defined the past 100 years. You would not be reading this post on your new iPhone 7 while riding home in an Uber from your weekend trip to New York. Health care, the internet, global transportation, out-of-season fresh produce, you name it and it would not have been possible without oil and gas. The bottom 40% want what we have. And for the foreseeable future, that will only be possible with a growing demand for oil and gas. Let me take a moment to back that claim up with a few quick calculations.
Today, the US consumes 22% of the 470 Exajoules of global energy demand. The US has the highest energy use per capita in the world but a relatively low population density. To test whether solar is a viable option for poorer nations, let’s look at it’s viability in the US. If poorer nations want to catch up with the standard of living in the US, they will need just as much energy so if the US can get it all from solar, perhaps they can to.
In order to generate 103.4 Exajoules of energy to feed the US population’s annual appetite, 37% of all US urban areas will need to be covered by solar panels (assuming today’s panel efficiency is 20%, which is generous). That’s equivalent to every roof, road and impervious surface in the country being covered by solar panels. Possible, but a stretch. So what if the efficiency of panels improves? Well, if panel technology is able to double the capture efficiency of solar panels to 40%, then the US will still need to 18% of all urban areas in order to meet current (and growing) energy demand. At a first glance, it seems reasonable that this could happen. But does that mean our poorer neighbors can do the same?
Unfortunately not. What Solar has going for it in the US is the low population density. The US has 85 people per square mile. That mean’s a lot more space in existing urban areas to generate energy from solar panels. India, by contrast, has 953 people per square mile. That’s more than 10 times the people in urban areas which means 10 times less area per energy hungry person available for solar panels. Even at 100% capture efficiency, India would not have enough urban area to provide for the energy needs of their nation, if it had the same standard of living as the US. In contrast, my home country of Australia, which is leading the world in solar panel adoption, has 8.5 people per square mile. Clearly population density matters enormously when considering the viability of solar and for most of the developing world, their population density is too high for solar to be the sole provider.
Population density by country
One thing the Oil Industry Bears do have right, is that our industry’s market share of global energy supply will decrease. It almost has to. Why? Because the bottom 40% want to catch up with our standard of living. To do this they will need energy and lots of it. In fact, they will need way more than our industry can supply. If other forms of energy can’t fill this gap then large scale conflict will be unavoidable, and no one wants that. But a total market share reduction will be more than offset by tremendous growth in total global energy demand. What we can’t predict, is just how much demand and how that demand will be met. Anyone who says they can is just selling fear to the fearful in dark times.
I am willing to make one prediction though: The oil industry will not be toast by 2030 as some believe it will.