EVs just in time

A very interesting piece from CleanTechnica:

The era of oil is coming to an end, with global oil production set to halve in the next five to six years. To avoid a global economic slump, the transition to 100% renewables worldwide needs to be accelerated. It is feasible and cheaper than the current system, research shows.

2018 was a year of bold ambition and remarkable achievements for renewable energy, according to the International Renewable Energy Agency. Indeed, the production costs of renewables fell to record lows, undercutting the costs of existing coal-fired power plants. Investment in renewables kept rising, with most investment coming from emerging and developing countries. And even in places where politicians try to block the energy transition, for instance in the USA and Australia, numerous private actors, companies, and entire communities increasingly committed to go 100% renewable.

Yet, one important piece of news on the global energy transformation went unnoticed, despite the fact that it came from one of the most influential organizations, the International Energy Agency (IEA). The dramatic message was hidden in a graph on page 159 of the 2018 World Energy Outlook (WEO), the annual edition of the most significant report on global energy developments. 

It shows that with no new investment, global oil production — including all unconventional sources — will drop by 50% by 2025. (Chart above) That means that the global oil supply crunch is likely to happen already in the next five to six years and not in decades, as many fossil fuel companies hope. The global annual oil production is set to decline by approximately six million barrels per day starting in 2020. That means in the coming years the provision of energy related to oil will reduce annually by an amount equal to the total energy demand of Germany in 2014.

Currently, 81% of global energy demand is met by fossil fuels, with a large share of that being oil. Reduction by 50% means that oil will become a luxury resource, and with it, driving and heating in large parts of the world.

Peak oil has been constantly underestimated by media, politics, and companies alike. Energy Watch Group was among the first to warn about it in 2008 in its study finding that the global oil supply is likely to dramatically decrease by 2020.

Instead of offering solutions in line with the Paris Climate Agreement, the IEA recommends “continued investment in oil and gas supply” in line with its policy, constantly overestimating the growth potential of fossil fuels (see the EWG analyses of the IEAs misleading scenarios on Energy Watch Group website).

New investments would be needed due to declining availability of oil at current price levels. But, the immense inv44estments, undertaken since the early 2000s to find new oilfields, have been unsuccessful (Second chart above). On the contrary, the number of oil discoveries have fallen to a historic low. 

By 2014, the oil industry started to roll back investments and rebought their own shares on a large scale. Ever since, the industry has been unwilling to scale up investments again.

The expected expansion of unconventional oil production in the USA will not be able to close the growing gap. Furthermore, within the last years, over six billion US dollars were divested from the fossil fuel energy industry. With an increasing number of investment funds, banks, countries, and companies divesting from fossil fuels, this number is expected to further grow within the next years.

The global community has all the tools at hand to prevent this economic crash and to tackle dangerous climate change at the same time: the transition to 100% renewable energy. However, the current pace of deployment of renewable energies is by far insufficient to compensate for the drop in expected oil supply. The growth of renewable energy sources worldwide provided about 70 million tonnes of oil equivalent (MTOE) in 2017, which is only 22% of the expected oil gap. To close the gap and to stop dependence on fossil fuels, the transition to 100% renewable energy should significantly accelerate.

[Read more here]

Some comments:

1. The IEA has consistently and repeatedly underestimated the growth in renewables.  Whether this represents bias or just incompetence, I don't know.  This underestimation continues with their forecasts of EV take-up, as can be seen in the first chart above.  By 2026, EVs  will make up some 50% of total car & light truck sales, if current growth rates continue.  Those growth rates will continue, because large EVs will reach cost parity by 2022, and small ones by 2025.  So demand will fall much faster than the IEA predicts. 
2. Unconventional oil (i.e., fracking) is likely to tail off fast.  US fracking companies make profits according to their accounts, but they are massively cash negative.  Investors are declining to fund further exploration.
3. I had thought that the decline in demand would lead to falling oil prices, which might reduce the growth in EV demand.  In fact, given the likely decline in supply, the oil price might actually rise, making EVs even more attractive.
4. Whatever they say in public, oil company executives and institutional investors know that demand is likely to decline, which is why they have moved from "explore at all costs" to cash generation and share buy-backs.  Which means that the oil supply situation is not going to change, even if they were to suddenly become better at finding workable (i.e. economic) fields.
5. According to Aramco's data, released as part of their partial flotation, Saudi Arabia's oil fields will last at least another 30 years, and it can produce its oil at a marginal cost of $3 per barrel.  The other Middle Eastern fields also have low marginal costs and long (though not as long as Saudi's) lives.   According to the analysis above, these producers will continue to benefit from oil even as EV demand explodes, because production in the other more expensive producers will run out long before 30 years.
6. EVs have come along just in time to prevent/mitigate economic catastrophe, even if you ignore the global warming and environmental consequences of burning oil.  Their roll-out is essential not just to stop global warming but to plug the oil supply gap.