This article by Giles Parkinson originally appeared in the Australian publication RenewEconomy on September 16, 2014 and can be viewed in its entirety here.
French investment bank Kepler Cheuvreux has produced a fascinating analysis that has dramatic implications for the global oil industry.
It estimates that $100 billion invested in either wind energy or solar energy – and deployed as energy for light and commercial vehicles – will produce significantly more energy than that same $100 billion invested in oil.
The implications, needless to say, are dramatic. It would signal the end of Big Oil, and the demise of an industry that has dominated the global economy and geo-politics, for the last few decades. And the need for it to reshape its business model around renewables, as we discuss here.
“If we are right, the implications would be momentous,” writes Kepler Chevreux analyst Mark Lewis.
“It would mean that the oil industry faces the risk of stranded assets not only under a scenario of falling oil prices brought about by the structurally lower demand entailed by a future tightening of climate policy, but also under a scenario of rising oil prices brought about by increasingly constrained supply. “
The main argument from Lewis is that oil prices could stay so low that it is no longer economic to bring in high cost new oil fields. But even if the oil price does rise, it will not be able to compete with renewables such as solar and wind.
The most striking conclusion is that by using wind or solar to charge electric vehicles, more energy is produced per dollar invested than with oil – in the case of onshore wind, it is four times as much energy for the same amount of money.
So how does Lewis produce his numbers?
He has developed a new concept of the energy return on capital invested (EROCI) for a potential outlay today of $US100bn. He asks how much energy would $US100bn purchase if invested in oil on the one hand, or in solar PV and wind energy on the other?
Table 1 above shows our calculations for the amount of gross and net energy that can be obtained from investing $US100bn in 2014 (i.e. based on current economics). In all cases, the calculations are based on a one-off investment with no reinvestment taken into account.
He defines gross energy as the amount of primary energy available before it is converted into useful energy in final consumption. Net energy, however, is the amount of energy available for final consumption after taking into account energy conversion and energy transmission losses. This includes the energy available for powering oil-fired cars and electric vehicles.
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