The end game for fossil fuels will come from a combination of decarbonization policies and new technologies. The old story about “peak oil”, which convinced politicians around the world that the future was a world of ever higher oil and gas prices, is giving way to a long slow decline in prices, following on from the bursting of the commodity super cycle and in particular the collapse of oil prices in late 2014. The common theme to much of the technical progress is digitalization, facilitating robotics, 3D printing and Artificial Intelligence. What all of these have in common is that they are electric. Manufacturing, services and transport are all going towards an electric future.
This electric future will be driven off new renewable technologies, notably solar, with more and more of the light spectrum captured and with new materials and methods of converting the captured energy into useable electricity. As the fossil fuels lose market share, their prices will fall, and the gap will have to be filled by a rising price of carbon.
As more and more renewables come onto the electricity systems, their zero marginal costs will erode the wholesale markets, and electricity will increasingly be focused on capacity and capacity markets. This is the economics of the internet and broadband, not energy as we have conventionally known it. In turn this will usher in new market designs, lots of new entrants, and great challenges to dominate oil and gas companies and incumbent vertically integrated electric utilities. Further challenges will come as the two features of electricity markets in the twentieth century – a lack of storage and passive demand – are overcome and reversed by batteries, smart meters and big data management systems.
The weaker position for oil is already starting to play out in oil markets, as OPEC and Russia struggle to try to control the fall out. With oil worth more today than it will tomorrow, the incentive to cheat and increase output now is irresistible. Gas has a longer term future, as a bridge between the fossil fuels and electricity, and for heating. It can also cut into the much more polluting coal. But in the end it must decline too, or climate change will prove unstoppable.
Dieter Helm is author of Burn Out – the endgame for fossil fuels, Yale University Press 2017. He is the key note speaker at the Offshore Energy Industry Panel 2017 on Tuesday 10 October from 14.00 to 16.00 hrs at Amsterdam RAI. This guest column was first submitted in Offshore Energy Newsflash edition 36. For more information please visit www.offshore-energy.biz/conference.
The views and opinions expressed in this article are those of the author and do not necessarily reflect the official policy or position of Offshore Energy Today.