‘Peak Oil’ is Now Demand, not Supply

“The tendency to exaggerate the appeal of renewables is hardly new…. Except that renewables seem to fare poorly in the real world.”

“The much-hyped ‘mass market’ Tesla Model 3 is still appearing only in the more expensive versions, from $50,000 to $85,000, rather than the $35,000 promised sticker price that was promised to appeal to the average consumer, not the luxury car driver.”

Yet another study has appeared warning of peak fossil fuel demand, which is certainly a popular topic with the media as the heavy fire season in the Southwest and hot European summer convince many that global warming is more threatening (and urgent) than it appeared to be last summer.

Unfortunately, this attention is not the result of reasoned analysis so much as the sexiness of the issue—at least in the minds of the public and the media.

A New ‘Malthusian’ Study

Norwegian firm DNV-GL has produced a report titled “ENERGY TRANSITION OUTLOOK 2018: A global and regional forecast to 2050,” which argues that the global switch from fossil fuels is underway and accelerating.

Coal use peaked in 2014, oil demand will hit its highest point in 2023, and natural gas in 2034, the report predicts. Transport energy demand peaks in 2026, and overall energy demand declines after 2035.

But ….

Such expectations of a near-term peak in fossil fuel energy is at odds with current trends with each of the fossil fuels. CO2 emissions rose 1.6% last year, above the 10-year average to that point. Even Germany, with its aggressive and expensive Energeiwende program that has cost the country hundreds of billions of dollars, has rising CO2 emissions! (Spoiler alert:  they replaced that nasty old nuclear power with lignite generation.)

The projections appear to be primarily driven by falling costs for renewable energy (including lithium-ion batteries), where prices for solar panels are expected to drop by 50% from 2016 to 2027, and electric vehicles are predicted to be competitive with internal combustion engines by 2024.  The learning-curve effect appears to dominate these expectations, but this is a questionable assumption.  Subsidies and market cycles, including the present glut of solar panels from China, pollute this data—making long-term trends hard to discern.

Unfortunately, the fuzzy data results in non-experts like former Secretary of State John Kerry telling NPR that “we’re seeing solar energy now competitive with coal.” But even more expert observers argue that the economics increasingly favor renewables. “The economic case for building new coal and gas capacity is crumbling,” as BNEF’s chief of energy economics, Elena Giannakopoulou, told Bloomberg.

The tendency to exaggerate the appeal of renewables is hardly new. At a 1970s anti-nuclear rally, consumer activist Ralph Nader said:

President Carter and Energy Secretary James R. Schlesinger “have deceived the American public” by failing to inform them that energy generated from solar, wind, geothermal and waste wood sources “could easily replace nuclear power.”  Mr. Nader characterized these energy alternatives as safe, competitively priced, and decentralized.  NYT 4/8/79

Except that renewables seem to fare poorly in the real world. In Germany, when government support was reduced, growth in solar power dropped from 50-70% per year to under 10%; Spanish growth went from 60% in 2014 to negligible now; British solar power generation doubled in 2014, but only grew by 10% in 2017.  (All data from BP Statistical Review.) Indeed, one of the major factors behind the recent drop in solar panel prices came from the Chinese decision to reduce subsidies, creating a glut.

The same is observed in the electric vehicle market, although the number of cases of reduced subsidies is much smaller. Hong Kong, Denmark and the U.S. state of Georgia have all seen much lower sales as the result of lower government support for EV sales. The much-hyped “mass market” Tesla Model 3 is still appearing only in the more expensive versions, from $50,000 to $85,000, rather than the $35,000 promised sticker price that was promised to appeal to the average consumer, not the luxury car driver.

Conclusion

Unfortunately, direct comparisons between energy sources is particularly difficult for renewables, given the costs imposed by variability and unpredictability of output, especially as their share of a electricity grid increases. And to say that electric vehicles will be ‘competitive’ with internal combustion engines makes assumptions about the value of convenience to drivers, something EV proponents tend to wave off but which is clearly important.

It is telling that most of these studies anticipate great changes in the future, particularly in the 2020s and beyond.  Given the historic inability to foresee some of the most basic aspects of the energy sector more than a few years into future, studies such as this one should be treated with a large dose of skepticism.

——————

Michael Lynch spent nearly 30 years at MIT as a student and then researcher at the Energy Laboratory and Center for International Studies, working with, among others, noted petroleum economist M. A. Adelman. After spending several years at what is now IHS Global Insight as chief energy economist, Lynch has been president of Strategic Energy and Economic Research, Inc.,

Professor Lynch lectures MBA students at Vienna University. His most recent book is The Peak Oil Scare and the Coming Oil Flood” (Praeger).