The Bleak Future of Petroleum

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The environmental impact of petroleum has been the subject of a great deal of discussion and  research. Environmental activists have been pushing society to realize the dangers and urge action to reduce or eliminate the use of such fuels.

Today, the majority of the global population is aware of these concerns, and many businesses have emerged or evolved to address these issues. But the latest argument against the future of petroleum consumption is not environmental, but rather economical.

Energy needs of the future

The world GDP is expected to more than double over the next twenty years as emerging economies continue to grow.

With rapid financial growth also comes increasing energy demands. However, energy consumption is expected to grow by just by a third over the current rate. This is because of the rapid growth in the use of renewable energy sources, which is currently at 7% annually.

By 2040, it is expected that a diverse range of energy sources will be in use, and petroleum and other fossil fuels will account for just a quarter of total global energy production.

Compared to current consumption rates, this is a significant change. This change is partially led by increasing the energy efficiency of modern technology, allowing it to operate with less energy.

The other reason for the expected growth in the use of alternate energy sources is the increasing efficiences of renewable  energy systems such as solar and wind. In fact, renewable energy currently accounts for 40% of the increase in energy use.

The electrification of modern transportation and other technology is also making it more convenient to adopt renewable energy.

The way to cheaper energy

In his report titled “Wells, Wires, and Wheels,” BNP Parabas analyst Mark Lewis observes that renewable energy sources are cheaper by a factor of five, even after including the cost of the infrastructure that needs to be set up to support them.

Entrepreneur Jeremy Leggett called the report ‘seismic’ because it demonstrates that wind, solar, and Electric Vehicles (EVs) have a huge capital efficiency over petroleum.

Leggett is a British social entrepreneur and author. He is also a pioneer of solar energy, and very verbal about the future of solar energy.

In the report, Lewis discusses the financial aspect of the inefficiencies inherant in the use of fossil fuels. He points out that a great deal of energy is lost in the transportation and refining of fossil fuels, as well as energy lost through heat in the burning of fossil fuels.

The report goes on to point out that, for the same capital outlay as fossil fuels, new wind and solar-energy projects used in tandem with battery electric vehicles, can produce  as much as 6 or 7 times more useful energy.

According to the report, the petroleum industry is largely thriving on the flow-rate advantage, i.e., vast quantities of oil can be purchased and used more or less instantly, while solar and wind projects deliver the energy more gradually, over their entire lifetime of around 25 years.

The problem of transportation

There is a strong emphasis on the role of EVs in the report. Around 81% of the total oil that is extracted today is used as fuel. This makes transportation one of the major subjects in any discussion about energy.

With major improvements in battery storage and other related areas, EVs have become a viable replacement for vehicles running on gas.

Following the growing popularity of EVs, most of the leading automobile companies have now taken an interest in this tech. And  this is now being extended to other types of transportation. Boeing and JetBlue plan to roll out electric jets by 2022.

Viability of renewable energy

The viability of renewable energy can be understood based on the following factors:

The short-run marginal cost (SRMC)

SRMC describes the cost of producing a small number of additional units of goods or services. It helps us understand how well production is optimized.

Renewables have a low SRMC. Once the required infrastructure is set up, the SRMC is practically zero. Fossil fuels, on the other hand, need to be extracted, refined, and transported in set quantities for the process to be optimal and, therefore, profitable.

Environmental factors

Renewable energy has significantly less impact on the environment than fuels. These environmental concerns are the primary motivators for many innovators in the R&D of renewable energy.

Solar and wind sources are effectively endless, and cause fewer emissions, although the construction of solar and wind infrastructure and battery storage does have an environmental impact.

Ease of transport

Fossil fuel  itself requires a great deal of transportation - from extraction site to refineries, and from refineries to storage depots and the end users. This adds to both the carbon footprint and cost of these fuels. In contrast, many forms of renewable energy can be generated at the source, with very low costs of transport.

When electricity does need to be transported, it can be transported using the existing infrastructure. 

Ease of replacement

Finally, the deciding factor in the shift from non-renewable to renewable sources is how easy it would be to replace the existing dominance of fuels with renewable sources. As highlighted in the report, renewable “could readily replace up to 40% of global oil demand if it had the necessary scale.”

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An oil-free world?

In the 2015 Paris climate agreement, it was decided to take action that would limit global warming to 2 degrees Celsius above pre-Industrial Age levels. While we are far from achieving that goal, we can see that renewables often a path to the future.

It is a positive step to find that a move to renewables also offer a cost savings over the continued use of fossil fuels. This may help reduce the resistance to the use and development of renewable energy, and pave the way for a greener future.