By OWOE Staff: Happy 2021 dear readers and supporters of OWOE. As everyone is aware, 2020 was a most unfortunate series of events, beginning with the release of a virulent pathogen from China which resulted in a wide range of foreseeable acute and long range economic, social and energy consequences. Thus, OWOE staff are working hard to analyze these consequences to provide meaningful insight about energy matters going forward. We plan a variety of interesting updates to our core energy information, tools and blogs this year and perhaps even a contest involving energy self-sufficiency at the local level. Many of the changes happening in the world of energy are the cumulative results of individual changes in consumption resulting from economic turmoil compounded by inept government policies and continuing industry business practices.
OWOE 2020 blog plan. Early in this year, OWOE aims to publish a grand blog overview of energy trends and transitions, similar to, but hopefully better than, the yearly reports issued by the super-majors, the IEA and other organizations with immense research budgets and numerous staff. We will examine and discuss energy demand changes as well as energy supply issues across the broad spectrum of the key energy resources powering the world: coal, oil, gas, nuclear, hydro and renewables. The relationship between access to sustainable energy and economic prosperity as well as CO2 emissions will also be discussed. While the events of 2020 resulted in drops in energy demand across the spectrum, it also resulted in noticeable drops in pollution and CO2 emissions,. The question that many analysts in Wall Street, Houston, Zurich or Moscow are trying to answer is whether such demand drops are now permanent. The short OWOE answer is yes, in certain areas, but not overall. OWOE is also planning to bring new bloggers to the site to continue its tradition of sharing interesting comments and views on a broad range of energy topics and, possibly, to provide video-blogs.
Other blogs will continue to examine energy technologies and how well various states and industries are transitioning (if at all) to more efficient energy technologies and green energy. As we have seen in recent years, politicians have a tendency to proclaim success in green energy transitions, but the data to support such claims and intentions is often murky. OWOE staff will make critical examinations of oil, gas, coal and renewables.
But let's start 2021 by touching on a couple of key issues…
Has the world reached peak oil demand? One thing that OWOE bloggers are proud of is correctly calling the peak for oil demand way ahead of almost every major energy agency and supplier worldwide. When OWOE first cautioned about oil demand drop in a blog in 2019, the next best available report from the large agencies and industry suggested that peak oil demand might occur by 2030. When in March of 2020, OWOE bloggers stated emphatically that the world has hit peak oil demand, soon afterward those agencies, industry and even the Russian government revised their demand forecasts to come close in line with OWOE view: The world has hit peak oil demand. The reasonably sustained rally in oil prices during the latter half of 2020 is not the result of increased oil demand, but rather the result of coordinated supply curtailment and manipulation. Here's the new warning from OWOE bloggers: It is likely that the world will, in the moderate term, have oil demand outstrip supply, but that will only be because the big oil producers have been significantly under-investing in new supply for the last 5 years or so. The world will find itself at a point where oil demand is falling, but supply is falling faster. In such a scenario, oil prices will rise quickly, but as noted before, high oil prices are amongst the biggest stimulus to increasing alternative and renewable energy supply.
Where does the US stand with CO2 emissions? The impact of the Covid-19 pandemic on US economic activity has fueled speculation throughout the year concerning what would happen to CO2 emissions. Indications (and logic) that emissions would be dramatically reduced are now being confirmed as various agencies and organizations that track CO2 emissions have started reporting end-2020 numbers. For example, the Rhodium Group reported that preliminary year-end numbers indicate that greenhouse gas emissions fell by just over 10% from 2019. This is significantly greater than the 6.3% drop seen in 2009, which was driven by the great recession. Figure 1 shows the history of US emissions, with end-2020 levels now below 1990 levels. Of course, expectations are that as economic activity picks up, so will emissions. The big question going forward is how much behavior has been changed fundamentally by the pandemic. One can envision a country where commuting miles remain significantly reduced, people decide they can get by with fewer cars, more businesses switch to remote working which requires less office space, business travel is deemed much less necessary, and people finally realize that they just don't need to buy as much stuff as they did. OWOE suggests re-reading our blog from November 2019 where we speculated that huge emission reductions are possible if baby boomers reined in their spending habits. Maybe 2020 was an early vision of such a new world.
Was 2020 the year EVs turned the corner and began their much-heralded take-over of the automobile market? On March 10, 2020 Telsa manufactured its one-millionth vehicle, hitting a milestone that many EV naysayers and Telsa short-sellers claimed was impossible as recently as 2 years earlier. To follow that up, Tesla manufactured one-half million vehicles, give-or-take a few hundred, in 2020. Fourth quarter production of 179,757 cars was an increase of 71% from last year and 36% year-on-year. It is still relatively small in terms of total number of vehicles sold compared to the major automakers: Volkswagen, the world's largest, sold just under 11 million cars worldwide in 2019 while General Motors, the largest US automaker, had global sales of 7.7 million cars in 2019. But if one considers that both US auto sales and global auto sales will likely be down about 15% this year when the final statistics are released, it's an impressive increase, and shows that EV sales are growing while conventional auto sales are declining. As far as the future…Tesla's exponential growth should continue with the new German factory coming on-line and the (relatively) new Chinese factory continuing to ramp-up production. But the bigger story is the rush of the other auto makers into the EV market. For example, GM plans to launch 30 electric vehicles by 2025, and Hyundai Motor Group is planning to market 23 EV models in the next few years based on a new EV platform built from the ground up. Then throw in the state and country bans on sales of new fossil-fuel driven vehicles - Norway in 2025, California in 2035, Massachusetts in 2035, and many others. And, finally, what could be the death knell…Elon Musk's reference to a $25,000 EV on the market in 3 years.
Big Oil problems. Returning to the issue of looming undersupply, this is a situation that cannot be solved quickly enough by the big oil producers, save perhaps for those with vast supplies easily accessible but disinclined by the high marginal cost of production (shale oil) or political sabotage (oil sands in Canada). One of the key consequences of the oil collapse that began in fall 2014 is that large producers and developers have been cutting experienced staff in droves while at the same time greatly reducing the number of new hires and trainees. To develop a new field from discovery to production offshore, for example, still takes about 10 years in most non-frontier areas of the world, and there are not enough experienced staff to safely and economically execute such new projects in sufficient numbers required to meet the next supply challenges. Oil prices will spike but the impacts will be marginal before oil prices start to collapse again as energy consumers more quickly reduce demand and switch to other energy supplies.
Another consequence of the next oil price boom is that non-industry companies may suddenly appear to throw gobs of money at oil and engineering support companies in hopes of realizing some instant long-term revenue projections. Investors and employees need to be wary of ridiculous buyouts and mergers.
Green Oil – the future or just a fad? Currently, many large oil and gas producers are highlighting all the effort and investment that they are making in renewable and more sustainable energy technologies, something we at OWOE refer to as “green oil”. Most of that is for media consumption as the proportion of money spent on new energy technologies is miniscule compared to the amount of money still being spent on maintaining oil and gas production. There are two consequences of this: a) large energy producers will be supplanted by new firms producing new energy, and b) without real investment from the private sector, new energy technology will continue to be dependent upon large government support.
The experience and expertise of large oil producers that has resulted in cheap oil is missing from renewables, and, consequently, large renewable projects, such as offshore floating wind, will continue to be too expensive for many areas. These costs still need to be driven down. An unfortunate consequence of this lack of real private investment is the situation with a few legacy companies that peddle their solutions much like 19th century snake oil salesmen: Going from town to town to sell their overly expensive product until government subsidies run out, then moving on to the next jurisdiction. However, there is hope, as newer and next generation technologies are entering the field with the aim of being commercially viable without government subsidies. Combining next generation technologies in innovative ways with support from private companies with long range vision will further hasten the adoption of technologies like floating offshore wind energy in more places around the world.
In conclusion: Although 2020 was a difficult year across the board, there have been some positive outcomes for the world of energy and for the world itself. But it will be critical for individuals to help extend such positive outcomes into the future as government actions are often misdirected, driven by ideological or self-serving interests rather than rational goals. Regrettably, government actions can often be metaphorically compared to using sledgehammers to pluck flowers from the debris of civilization. OWOE will do its best to help its readers analyze and understand these interesting and challenging times and topics.