In September 2016, I suggested that the hydrocarbon industry
was crossing an important threshold (“Is the Oil Industry at the Beginning of
the End?", see this blog below this one),
based on Oswald Clint’s predictions of oil demand over the next 20 odd years.
Clint alluded to technological changes
causing a decline in demand for hydrocarbons.
Tony Seba has provided more insight into what these
are and the likely timescales.
I recommend you either get a copy of Seba’s book: Clean
Disruption of Energy & Transportation. 2014 (ISBN: 9780692210536), and/or take a
look at some of his recent presentations on YouTube, for example:
If you believe Seba; it doesn’t look good for the
hydrocarbon industry that we currently know!
Seba predicts that Autonomous Vehicles (AV) will
continue to develop and gain regulatory approval around 2021. In his view, this is the tipping point when
the Internal Combustion Engine (ICE) in land vehicles is “doomed” and that from
2021, to approximately 2030, personal transportation will be totally disrupted
away from conventional ICE cars to Electric (EV) & AVs, which will result in a massive
decline in the car fleet (to 20% of the current global fleet), with
commensurate decline in demand for petrol.
In terms of the oil industry, Seba predicts that, on the assumption that AV’s get regulatory approval
in 2021, oil demand will peak at 100 MMBOPD in 2020 then decline to 70
MMBOPD by 2030.
Any production uneconomic at $25/Bbl will be
stranded (i.e. non-commercial).
Under current (i.e. 2017) costs, up to 70% of Deepwater,
Shale, plus Oil-sands production, would become uneconomic. Everything out of the US Bakken would become
stranded in the next 5 years!
Likewise, refineries and pipelines will become
uneconomic such as the proposed one from Canada to the US, which Donald Trump
appears to want to reinstate.
Seba’s predictions hinge on the take-off of AVs,
EVs and the growth of Transport As A Service (TAAS), whereby people no longer
own personal vehicles; they use AVs on-demand.
This business model is what Uber, Google, Tesla and other companies are
working towards.
Seba’s predictions tie in reasonably with Clints’,
but with the accelerated demise of the oil industry starting in just 4 years’
time! Seba, in his presentations, likes
to show the disruptive effect of the ICE car on the use of horses. The transition was a matter of 10-15 years
and he suggests this duration is quite possible for the demise of the ICE to
AVs (plus TAAS).
There will still be demand for oil & gas;
however, this will be substantially lower than the estimated peak demand;
perhaps dropping to around 20 MMBOPD. This
oil will come from the lowest cost areas, for example, the Middle East and
Russia. The rest of the hydrocarbons; rather
like the existing, huge reserves of coal, will be stranded and have no value.
Seba uses a couple of examples of where successful
businesses and smart executives have completely misunderstood the evolution of
technology and particularly the disruptive elements.
I suggest the majority of independent oil & gas
companies currently fall into this category.
They are predicting demand to continue
growing beyond 100 MMBOPD as developing countries’ populations start buying ICE
vehicles, etc. Seba predicts this won’t
happen; these countries will jump to AVs / TAAS because it is actually cheaper
to do so.
So, beware of investing in an industry that is on
the cusp of being disrupted.
Seba
predicts the beginning of the end of the hydrocarbon era could be in 2021 and
the full contraction (but not complete elimination) by 2030; which is only 13
years away.
Pretty dramatic stuff, but the transition from the horse
to the car was a similar scale of disruption.
Aside from the demise of the oil industry, there’s some
positives from Seba’s predictions, such as:
·
Substantially reduced numbers of vehicles and
therefore pollution.
·
Car manufacturing will contract significantly
reducing the requirement for raw materials and energy.
·
Substantially less parking space required, so more
commercial / housing benefit from land
·
Seba also predicts that primary energy generation
will be disrupted away from the current, inefficient “peaker” central
generation systems, to solar plus battery storage (plus other renewables &
possibly Nuclear). This all helps in the
de-carbonisation process.
Where are the weaknesses in Seba’s predictions?
·
The main uncertainty is when EVs and AVs cross the
exponential-shaped disruption tipping point and take-off.
·
Seba predicts this will be in 2021, plus or minus a
few years.
·
He is in no doubt that it will happen; the
uncertainty is when the acceleration occurs.
In my earlier musings in 2016, I referred to David
MacKay’s excellent review of sustainable energy (Sustainable Energy – Without The Hot Air, 2009-2012 https://www.withouthotair.com ) which
summarises how the UK (and other countries) could realistically transition away
from carbon-based energy.
MacKay alluded
to technology improvement in transport, such as EVs, but the AV and TAAS models
didn’t exist, when he wrote his book.
These appear to be game-changers and, once battery
and AV technology has matured, together with solar plus storage; the old
carbon-based model will be largely disrupted, or to put it another way superseded,
or in other words: Dead.
Potentially in the next 10-15 years!
Thoughts?
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