Today I learned things that I think every environmentalist and investment manager should know: A coherent argument that we are more or less at Peak Oil. Not the Nineties version, which worried that we might be running out of fossil fuels, but rather that global human petroleum demand is about at its all-time peak and about to start drifting down. Some of the key data points involve electric cars, which I care a lot about, and China, which is always interesting.
The effects are likely not enough to avert the oncoming global-warming disaster, but there are grounds for optimism about reducing its devastation. However, this will very likely tear the guts out of the global petroleum business.
What happened was, I ran across an interesting Twitter thread starting with the bold claim that the internal combustion engine’s future had been killed and that the coming energy transition would pay for itself. It was compelling and I gave it a retweet, noting that people who live in an environmentalist-green bubble (for example, me) need to be skeptical about things that we’d like to be true. And so we should.
(If you buy it: While you can read it on a Kindle, don’t try, the type’s too small. It might be OK on an iPad. Or you can just pop it open in Preview on a Mac or whatever the Windows equivalent is. It’s nicely typeset and illustrated; the print isn’t dense and the 105 pages go by fast.)
The larger stories — of the increasingly-threatening specter of climate change, and the growing viability of renewable energy — aren’t new at all. But there’s one piece of new news: The shocking surge of Electric Vehicles (hereinafter EVs) in China in 2018, concurrent with a decline in overall vehicle sales there. Probably 1.2 million or so EVs were sold, surging to comprise 7% of all sales toward the end of the year. Here are a couple of instructive links: CleanTechnica and Quartz.com.
The argument in Oil Fall spends a lot of time on electric cars, since they are at a point of surprisingly high leverage in the global energy economy.
I’m not going to replicate the Oil Fall narrative, but here’s a quick sort-of outline.
Los Angeles as a case study in EV adoption. It’s not the US leader (that’d be the Bay Area) but it’s got huge leverage.
The politics and economics of renewable energy in California and across the US.
The special leverage of the EV on the energy economy.
The structure of China’s (historically coal-dominated) energy economy.
Why China is crucial to the future price of fossil fuel
The timing of the peak in global oil demand.
Efficiencies and inefficiencies in fossil and renewable energy sources.
The issue of energy storage.
Economic cost of transition to renewables; estimates have been around 2% of GDP, but Macdonald thinks it’ll be closer to zero, or even negative. That’s what Alexandria Ocasio-Cortez and the young US progressives are arguing with their “Green New Deal” proposal.
On the writing · I don’t know much about Macdonald. His resume sounds respectable, and I quote: “He has written for Nature, The Economist Intelligence Unit, The Financial Times of London, The Harvard Business Review, Atlantic Media’s Route Fifty, The Petroleum Economist, and Talking Points Memo.”
The text is well-supplied with numbers and supporting infographics. He is careful to address, for each key point, the objections to his reasoning and alternative scenarios that arise in the case that he’s wrong. I didn’t check his numbers exhaustively, but every one of those that I did try to verify checked out.
The style is that of a professional journalist: Not colorful but extremely clear, readable, and full of named real-world examples illustrating his arguments.
I’m going to dig a little deeper into a couple of points that were new to me and resonated.
On EVs and storage · Anybody who’s a renewable-energy fan needs to have thought a lot about energy storage. The sun only shines during the daytime and sometimes even prevailing winds don’t blow. Macdonald goes deep on the subject, and offered a pretty compelling argument that there are plausible market-driven solutions to meet storage needs.
One part of the argument involves electric cars, and is obvious once you think of it. Planet-wide, we are now building millions per year, and every one is built around a battery ranging in capacity between 20 and 90KWh. Do some multiplication and you get a damn big energy-storage capability, made up of a huge number of independently-owned consumer products. They aren’t terribly fussy what time of day you charge them, they are network-connected, and managing the network to charge them when the capacity is most available feels like a straightforward application of the sort that I work on every day.
On EVs and negawatts · That term “negawatt” was coined way back in 1985 by Amory Lovins, one of the original big energy-policy thinkers. He did the math and showed that the cheapest way to get more power while doing less damage was simply to cut waste. And it’s worked: Our houses are better insulated now, our cars get more mileage, and our appliances run cooler and smarter.
But the global energy-efficiency picture is still terrible. The whole fossil-combustion ecosystem wastes something in the neighborhood of 50% of the available energy. It’s not uniform: For example, a modern natural-gas based generator wastes less. But internal-combustion vehicles waste a lot more, even today the figure is in the 70%-wasted range.
EVs, on the other hand, turn electrons into kilometers at an efficiency well over 90%. Of course, that doesn’t help if you’re using electricity that was generated in a fossil-fueled plant; but traveling in a renewable-fed EV is a rich source of negawatts.
To quote Macdonald: “But, the loss is quite a bit worse with every gallon of petrol poured into an internal combustion engine. Indeed, if your goal was to waste as much energy as possible, you could do no better than to feed gasoline into a billion vehicles, each with their own separate engine, with multiple surfaces from which heat can rise.”
Is oil over? · Of course not, don’t be silly. Everyone agrees that coal is “over” and yet its usage hasn’t plummeted, it’s just been drifting down for a long time, with a temporary spike as China industrialized. Petroleum remains useful in a huge number of industrial chemical processes, and in certain particularly energy-intensive transportation applications, like heavy trucks and probably almost all aviation. We don’t need to stamp out oil to save the planet, just burn less.
My own particular guess is that natural gas is going to be strategic. It’s relatively energy-dense, straightforward to extract and transport, and carbon-light; it feels like a good fit for filling in renewable-energy gaps.
On investing · There’s a trend where “ethical investors” try to steer capital away from the petroleum industries, and I broadly approve, mostly due to fear of climate change. But if Macdonald is right (and he’s pretty convincing) this is also a good way to remove a major source of risk from your portfolio.
Don’t say I didn’t warn you.