That the oil age shall not be over because of the exiguity of oil just as the stone-age didn’t end due to the shortage of stones is a phrase which is being used as an opening line, of late, for many of the editorials and articles sprinkled along the vast expanses of World Wide Web. The recent seismic shifts in Saudi Arabia’s policy and the hanging of boots by the octogenarian oil minister, Ali Al-Naimi, are signs of a future that bodes uncertainty for oil market. Algeria felt the tremors and its oil minister was replaced. In other developments, rig count has risen dramatically and the air has started to become heavy with future supply concerns owing to the cut in E&P projects and the sanguine expectation of a surge in demand.
This ‘uncertainty and amendments’ in the oil market when married with the proliferation of technology begets the child of “new energy era” punctuated with bio-fuels, electrical cars and new government regulations.
The oil crisis now seems to unfold and investors and markets are now looking, with squinting eyes, into the future and they can see an olio of energy catering the needs of the world. This article will focus on three things: How electrical vehicles are going to affect (or not) the consumption of the one of the biggest consumers of oil i.e. transport sector, then we’ll delve into the ifs and buts of alternative energy and its global share in the upcoming decades while studying the policy support these new energies will get due to climate change issues.
Major oil companies like Shell, BP and Chevron have released their Energy Outlooks for the future and after perusing them in detail one can be sure that most of the oil firms do not see electrical vehicles (hereinafter EVs) jeopardizing their market share. BP’s recent Energy Outlook for 2035 says that non-oil transport will grow “just 5 percent” per year for the next 20 years. “Outlook for Energy: A view to 2040” published by ExxonMobil sees the share for EVs only to be 4 percent after 20 years. Chevron also reciprocates the same thoughts. There are few things, however, to consider. First of all the growth of EVs is inevitable but the time span it will take to penetrate the market is the main question. Also, the rate at which people adapt to these new cars is another question. EVs may be successful in the US or West but the inherent difference of mindsets in Middle East and the very compatibility of these vehicles with the infrastructure and roads is another issue. As of now, load-shedding, crass roads and wanton traffic mark the fate of EVs in negative. It is also important to recall here that the eastern side of the world is host to two of the biggest countries by population — China and India. Moreover, speed is yet another issue. Purchasing power, too, is very pertinent. Tesla’s new model was able to lure thousands of advance bookings but the total cost of this car is $325,000 which when translated into, say PKR or IR, amounts to a figure which is yonder the income of an average household. As transport counts for almost 50 percent of global oil consumption any development in this sector is certainly going to change the face of oil industry. According to the IEO 2016 of EIA the non-OECD nations are going to overtake OECD and by 2040; it is expected to account for 61% of global transportation energy consumption. In these countries, which comprise 80% of the world’s population, energy demand is also expected to increase.
Before taking a plunge into the sea of different substitutes to crude oil, it is better to have a coup d’oeil at its current consumption by different sectors of economy. Transport and power generation are the biggest sectors which consume most of the oil. In a report entitled “Oil market to 2030 — Implications for Investment and Policy,” the researchers point out that the global share of bio-fuels will reach to almost 18 percent by 2030. Oil companies should, then, venture to diversify their operations in the wake of a changing energy scenario but the current deficit in their cash due to the falling oil prices may impede such a development. Again, there are many constraints; the first one being the need to change oil companies’ gargantuan setups in order to diversify themselves. They will need to divert Capex (capital expenditure) from the conventional drilling and exploration activity (which is worryingly down already) and channel them to buy new machinery. Recently, in an interview with CNBC, the former CEO of Shell, Mr John Hofmeister, said, “We are certainly going to have ICE-driven cars in 2050,” in an answer to question pointing out the prevalence of other means of energy. Referring to a study carried under the Fuel Freedom Foundation, he further said that he sees “roughly the same number of ICE-driven cars in US” after 30 or 40 years. There’s going to be a combination. 30-40 million people will shift to other bio-fuels but keeping in account the growth of population their share will be a small chunk. “In the first half of this century, I don’t see gasoline going anywhere” he stressed. Again referencing to IEO 2016, ‘petroleum and other liquid fuels are the dominant source of transportation although their share drops from 96 percent to 88 percent by 2040 — an abatement that suggests a very insignificant difference.
Climate Change and Policy Support
The Paris Climate Deal, the first of its kind, documents some measures the implementation of which seems, practically and economically, a far-fetched idea. The air is thick with talks of reducing carbon emissions (also of pollution) and paring down the temperature of the earth by 2ºC. It is ironic to see the establishment of Arctic Investment Protocol — which allows companies to explore oil in the Arctic while adhering to rules preventing the natural habitat and environment of that region — just after the COP 21 was held. This also shows the seriousness and influence the deal commands in the posterity. Recently, a fracking permit in UK has also been approved — another development insinuating the significance of climate change and environment. The possibility of Fukushima- and Chernobyl-like disasters puts the future of nuclear energy (non-carbon energy) into a precarious position as countries like France, Germany and Switzerland are shying away from operating nuclear reactors.
On the other hand the CPP, Clean Power Plan rule, introduced by US Environmental Protection Energy (EPA) caters for the rubric of policy support mentioned above. It aims to reduce GHG (greenhouse gas) and coal-related emissions. Investors are also becoming cognizant of the effects of climate change as the recent vote in ExxonMobil and Chevron on “whether or not to require shares of the respective companies to disclose their risks to shareholders,” manifests. However, the result was negative but 41pc of Chevron investors and 38pc of Exxon showed support for such a vote.
To conclude, it is safe to assume that petroleum shall continue to run the world’s factory. But as it (the world) becomes “smart,” I would not be surprised to see bio-fuels, EV and other eco-friendly energy mix take over this ‘crude’ one.