Recently, I gave a presentation on the future of energy to an audience of about 250 oil and gas professionals. Halfway through, I asked the carbon crowd to, "Raise your hand if you have driven an electric vehicle."
It took me less than five seconds to squint and visually sift out the elevated hands.
Five adventuresome people, or about 2 percent of the audience acknowledged that they had taken a ride on a lithium horse.
"Isn't that a bit disconcerting?" I asked. "By now all of you in the room should be aware that new-age electric vehicles represent the first meaningful threat to your monopoly in powering the transportation market."
I went on to ask, "Don't you think you should at least go to a Tesla, Nissan or BMW dealership and test drive the looming adversary?"
Silence.
I wasn't surprised by the results of my straw poll. Hear-nothing, see-nothing attitudes are common within entrenched industries that have long forgotten how to fight for market share.
Over 150 years ago, early oil companies sold "rock oil" for kerosene lanterns, duking it out in the market to light homes and factories. The incumbent competitors were coal-gas, whale oil and candle companies. It was a full-on market share battle between lighting systems. And by the 20th century, all of them were losing out to Edison's incandescent bulb (powered by coal-fired electricity).
By the numbers, lighting lanterns was a small market compared to what was emerging: Turning gears and wheels with internal combustion engines. That mega-market kick started in 1908 with Ford's Model T; since then it's been an invincible business for the oil industry.
In trying to explain the low results of my audience poll, I wondered about the long-term effects of five or six generations of petroleum workers cycling into, and retiring from a century-long, monopolistic transportation paradigm. Had that evolution softened the industry's competitive edge?
Whatever the reasons, it's hard to excuse such competitive apathy, but my dissertation wasn't finished. Related: $25 Trillion Investment Needed To Meet Future Oil Demand
The funny thing is that I went on to tell the audience that I ask the same type of question to people in the business of renewable energy and electric vehicles. For example, to executives sporting green stripes I ask, "When was the last time you visited a modern oilfield, taking stock of the new automated drilling and completion technologies?"
Predictably, I've only met one person in the business of clean-tech who has bothered to get serious intel on the competition they are trying to displace. It seems this group must have a gene that makes them think that their business is going to be a proverbial "slam dunk," that they will be able to decarbonize the world with no commercial resistance. It's a dangerous mindset, given that consumption numbers show that rapid demise of fossil fuels is not much more than academic conjecture at this point.
The bounce in the footsteps of the purveyors of new energy is justifiable. Today's solar panels, for example, generate electrons at about half of the cost of five years ago. Gains in battery technologies - energy density, power density and cost reduction - are even more impressive. Growth rates have been exponential, without much resistance to-date.
Yet, as a color commentator of change, I also know that over the course of the same five years the breakeven cost of an oil well in places like Texas has been cut in half and it's "rig productivity" has increased by nearly ten-fold. And it's not just about more horsepower and better drill bits. Big data, optimization, Internet-of-things and machine learning are rejuvenating a hitherto fossilized industry. Business school profs call this competitive response, "raising the barriers to entry." Experts are consistent in their views: there is much more innovation to come from upstream oil fields all the way to downstream engines. Related: Saudi Arabia To Spend $50 Billion On Massive Solar Push
I think by now we all know the Henry Ford story and how the "horseless carriage" was relegated to museums. But let's be intellectually honest: The old nag in the stable had about as much chance to compete against a Model T as a slide rule could against a digital calculator. Or a paper map against a GPS chip; or a phone booth against an iPhone. In all these cases, the new product steamrolled over a weak incumbent.
The oil industry and its downstream peers are largely in broad denial about existential competitive threats. But it's a mistake to believe that the commercial utility of today's petroleum systems are as competitively weak as a slide rule or a tired-out horse pulling wooden wheels. Business leaders championing new energy systems need to remove their own dark blinders of denial; trillions of dollars of petroleum infrastructure and the peripheral interests of combustion-based mobility are not going to relinquish their markets without fighting back with their own innovation. In fact, they have just begun.
This is one of the most dramatic moments I've experienced in my 35-year career studying all energy systems. The technological change is breath-taking; the investment potential is staggering; and on top of it all, the business psychology is intriguing.
"Get to know your competition," I suggested to my audience. "This is going to be one of the most exciting business duels in history; two giant energy systems will be competing for the hearts and wheels of the people."
By Peter Tertzakian for Oilprice.com
More Top Reads From Oilprice.com:
Peter is an economist, investment strategist, author and public speaker on issues vital to the future of energy. He has clocked over 30 years of… More
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Comments
The fact that crude, various grades of crude, ethane, methane, butane, propane, etc. are all separate markets is another issue. What is fact is that the world added near 5 billion humans in the last century and also pulled about that many out of poverty and into a life that was not thinkable a few 100 years ago. That is the legacy of transportation based on combustion engines.
Do you really think electric cars will be powered by wind and solar? Maybe if the world sheds those 5 billion. Have you visited a lithium mine? Would tesla even be around if the iPhone didn't bring down the cost of lithium batteries? Has that battery tech peaked? Regarding oil, are the Saudis western fields in decline? These are some questions you should address.
Electric cars do not represent a value proposition for the U.S. Let alone most of the world with a subpar and unsecured grid.
The question is, when do we find ourselves looking at long-term systemic change?
Bringing in petroleum is at once harder and easier -- easier because we see that it has become harder, so we mobilize. Our U.S. domestic oil looks increasingly "tough." Hard, more expensive oil to bring in includes tight-rock (petroleum source-rock formations) and deep-water. The cost of bringing this oil to market is much higher than for oil naturally held captive in underground reservoirs.
Meanwhile, the cost of renewable energy is falling, and more efficient energy consumption is becoming mainstream -- a normal part of being cost-competitive.
I'd like to think that the key for imagining the future is to identify what we, ideally, should do. Maybe we can actually do a good chunk of what's likely needed if we think things through. Energy that we burn is mostly where we are today. The benefits are many. But clean energy is probably what's coming.
This will be an interesting battle to follow for sure.
Where the electricity comes from to power the EV’s does not really matter.
What is for sure is that it will not come from oil as oil is not competitive for electricity production. Even the Saudis have concluded on this one.
If we can get EV’s with a range of 250-300 miles for a cost of less than $30k it will be very difficult for ICE to compete. I think we may see years of exponential EV growth coming to get EVs to a very high market share.
EU is planning for 100% emission free cars in 2050 and OPEC / Exxon plans for and need this number to be less than 10%... One of them are clearly wrong.
I am of course speaking of the Gigafactory which will house capacity to produce 150 GWh/year of batteries. Over the next 30 years this is enough to replace 10 B barrels of oil. Do your own math. Initially Tesla and Panasonic thought the Gigafactory would house 50 GWh/year capacity, but they figured out how to triple the manufacturing density. They are on a path to $100/kWh battery packs by 2020 at 150 GWh capacity. 1 kWh can easily replace 2.5 barrels of gasoline and avoid the cost and maintenance of an internal combustion engine. And at $100/kWh this cost can be fully absorbed the cost of health vehicle making an EV no more expensive to buy than a comparable gas car.
Whether this is enough to compete with advances in drilling technology, consider this. The E&P industry should not waste money replacing reserves with anything that costs more than $1.5/b to find. Why? Because Tesla and other battermakers can replace these reserves with Gigafactories at below that cost. So you need to replace 35B barrels this year. Fine. Let's build out 500 GWh of gigafactory capacity at a cost of $50B. That's a drop in the bucket compared with the $350B the oil industry would spend just looking for oil.
The industry sits on about 50 years of reserves. What is that 1.75 trillion barrel reserve really worth? $17.5T? It could be replaced fully replaced with about $500B investment in Gigafactories. So you might just want to pump as fast as you can and not waste a dime looking for replacements. Fifty years of reserves, that's a really long time measured in technological change. Lithium ion batteries and silicon solar panels probably won't even exist in 50 years, but will be superceded by even better technologies.
To move any object, work must be performed. Energy must be available. Solar/wind, under the present technology, will never supply enough energy to power the world's vehicle fleet to any great degree. The following was taken from Wikipedia. If you want to skip it, at least read the final sentence.
The work done by a constant force of magnitude F on a point that moves a displacement (not distance) s in the direction of the force is the product
W=Fs.
For example, if a force of 10 newtons (F = 10 N) acts along a point that travels 2 metres (s = 2 m), then it does the work W = (10 N)(2 m) = 20 N m = 20 J. This is approximately the work done lifting a 1 kg weight from ground to over a person's head against the force of gravity. Notice that the work is doubled either by lifting twice the weight the same distance or by lifting the same weight twice the distance.
Work is closely related to energy. The work-energy principle states that an increase in the kinetic energy of a rigid body is caused by an equal amount of positive work done on the body by the resultant force acting on that body. Conversely, a decrease in kinetic energy is caused by an equal amount of negative work done by the resultant force.
From Newton's second law, it can be shown that work on a free (no fields), rigid (no internal degrees of freedom) body, is equal to the change in kinetic energy of the velocity and rotation of that body,
W=Delta KE.
The work of forces generated by a potential function is known as potential energy and the forces are said to be conservative. Therefore, work on an object that is merely displaced in a conservative force field, without change in velocity or rotation, is equal to minus the change of potential energy of the object,
W=-Delta PE.
These formulas demonstrate that work is the energy associated with the action of a force, so work subsequently possesses the physical dimensions, and units, of energy.
The work/energy principles discussed here are identical to Electric work/energy principles.
But you do need to drive it to understand it.
The risk is what 20 years of volume production will enable in price performance.
And electric drive with a fossil fuel power source on standby is an option that allows a simple engine highly optimized for one speed and load, a strategy BMW is trying. Gone are the traditional complex power train that must overcome the poor low speed torque problems of IC engines.
This use of electric drive in freight hauling will come and offer improved efficiency which in the high quantities for oil priced at the margin can have outsized impact on profits.
Just a thought
A BTU is a BTU, no... That's a fuel burning concept.
Electricity is available and now cars exist which can meet
My particular edge case... OH NO IT CAN'T work look at this edge case.
Guess what, it doesn't have to. It just has to work for enough people to build installed base and production volume. If it supplants just a percent or 2 that's enough to fund improvements. Then even more purchase and on and on...
It can't work because is hasn't worked, ignoring every case it does work for.
Well, that should be clear... It is working. It just needs refinement and increased production.
Some random discourse on Newtons Law's... No attachment to actual issues discussed.
In 2010 I moved into a new home built to include rooftop solar PV, in Las Vegas, where electric bills average a couple hundred a month, mostly for summer air conditioning. I pay less than $20/mo. for household electric.
For another $12K I doubled the PV array size, then traded my Mercedes for a Volt, saving $2400 more a year in gasoline, and in the case of the old Mercedfes, another $5K a year in maintenance. Under Volt's three year warranty, my maintainance costs are zero, plus, the car has not needed any. It is very reliable.
The combination of rooftop solar plus eV ownership has a very strong value proposition and rapid ROI, and my energy costs are shielded against inflation.
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1) Transportation as a service, rather than private vehicle ownership, and
2) Potentially much lower energy demand for transportation.
Transportation as a service will mean that people who just need a single-seat car can actually ride in a single-car. (How many of those are on the road today?) And it means that instances where car/van pooling are advantageous can be easily recognized. It will also mean that electric vehicle "range anxiety" will be eliminated, because every electric vehicle provided as a service will have enough charge to get the person to his or her destination.