From the Editors - Age of Oil Ending?
Oil prices plunging to a five year low
sparked a wave of downsizing in an industry desperate to rid itself of
stranded assets; meanwhile renewable energy markets are booming with ‘100 %
renewables’ on the climate action plan, and civil society grassroots movements
are winning major campaigns to divest mega-investments from fossil fuels and
leave oil in the ground
The fall from grace
The dramatic fall in oil prices of nearly
60 % since June 2014 to a five-year low has fueled speculations on its causes
and economic consequences. Superficially, the causes for tumbling oil prices
are oversupply and decreased demand. The US’ ‘fracking boom’ has greatly
reduced its oil imports, while the Organization of Petroleum Exporting
Countries (OPEC) has steadfastly refused to decrease production, resulting in a
glut in supply. At the same time, the global economic downturn, especially the
slowed growth in China’s economy, has substantially reduced the demand for oil.
The reality is
more complicated, as pointed out in an article posted on Foresight Investor.
Until 1973, the oil prices were controlled by the importing countries and kept
as low as $2.50 to $3.50 a barrel (~$10 to $15 in today’s money). However,
OPEC’s embargo on Western countries in 1973 caused prices to skyrocket. OPEC
increased production, and prices eventually settled down to ~$35 a barrel,
fluctuating around that level for almost thirty years.
After 2000, the
low-cost high-yielding oilfields became depleted, and oil had to be extracted
from less economical fields, thereby putting off investment at a time when the
growth in emerging markets, especially China, was pushing up demand for oil. As
a result, oil prices soared to over $140 a barrel just before the credit crunch
During the credit
crunch, oil price plunged from $140 in June 2008 to $44 in February 2009, but
soon recovered to ~$110 a barrel and stayed around there until June 2014. The
high price made previously uneconomic oilfields profitable and the US output
grew about 50 % in the past five years to 13.5 million barrels a day as supply
was collapsing in Nigeria, Syria, Libya, Sudan and Iran. However, production
from those countries has recently recovered to some extent, with the largest
increase in Libya. This sudden surge in supply caused oil prices to drop, and
continue dropping when OPEC decided it would not cut back its supply to raise
The article went on to spell
out the economic consequences for different countries, the ‘biggest winners’
being those dependent on imported oil, the ‘biggest losers’ being producers
that depend on oil for their economy. But it may have underestimated the impacts
from more profound changes in the global energy landscape within the past
“Ending the oil age”
“Ending the oil age” is the title of an
article published in the December 2014 issue of the New Internationalist.
It begins with Rockefeller Foundation’s historic announcement timed to coincide
with the worldwide marches for climate action In September 2014 that it was
going to divest from fossil fuels; following in the footsteps of the World
Council of Churches, the British Medical Association and Stanford University.
Unlike the other organizations, however, Rockefeller’s fortune of $860 million
was made onoil. “The Rockefeller story is also the story of the rise and
fall of the first ‘oil major’. Standard Oil, founded by John D Rockefeller in
1870, soon came to control the burgeoning US oil
industry, from extraction to refining to transportation toretail.” The
unprecedented monopoly was “so despised” that the US
government eventually broke it up, giving birth to Exxon, Mobil, and Chevron,
break-up created the Rockefeller millions.” The article continues. “A century
later, those millions are being used to make a dramatic point: we are
witnessing the beginning of the end of the oilage.”
To back up her thesis, the
author Jess Worth pointed out that today, most available oil is either in
“politically dysfunctional” regions such as the Middle East and Nigeria, or in
places and forms that are uneconomical and risky to extract: tar sands, oil
shale, ultra-deepwater, the Arctic. The big oil companies have been investing
heavily and pinning their hopes on those marginal reserves. Goldman Sachs
warned investors that the technical risks of new oil projects have risen “to
never before seen levels”, and the investments needed to get new sources of oil
flowing has “gone through the roof.”
It is no wonder
that companies are shelving major oil projects. In 2014, Statoil’s
multi-billion dollar ‘Corner’ development was put on hold, as was Total and
Suncor’s $11-billion Joslyn project, and Shell’s massive Pierre River mine
plans. Shell has spent $5 billion so far trying without success to drill in
the inhospitable Arctic. Total said it won’t even try.
Also notable is the US’
‘fracking boom’ based on a wild over-estimate of gas and oil reserves that were
economical to extract when oil prices exceeded $100 a barrel, as revealed by
new scientific studies (see US 'Fracking
Boom' a "Fallacy", New Studies Reveal, SiS 65). Now that
the oil prices have plummeted with little hope of returning to previous levels
soon, those reserves have become even less economical to extract. BHP Billiton,
the world’s largest miner by market capitalization and had invested heavily in
the US fracking boom, announced it is cutting shale oil production and reducing
the number of onshore rigs in the US by 40 %.
Further signs of distress in
the oil industry have come to light. US oil services company Baker Hughes
announced a cut of 7 000 jobs in the first quarter of 2015, saying that oil
drilling is falling faster in North America than in the rest of the world, and
warning of “challenging” conditions ahead. Haliburton, the rival oil service
company that agreed a takeover of Baker Hughes in November 2014, also
highlighted a sharp slowdown in activity. Its chief executive Dave Lesar said
spending by oil companies (its customers) had on average dropped by 25-30 % as
the result of the plunging oil prices.
In Europe, the oil and gas
giant Total plans to cut capital spending by 10 % in 2015 and to hasten
disposal of billions of dollars in assets to cut costs. In an interview given
to Financial Times, the new chief executive Patrick Pouyanne said that
he will make deeper and swifter cuts to this year’s spending, including
exploration and development in the UK’s North Sea, Canada’s oil sands, and
mature fields in west African states such as Gabon and Congo.
Total is the
latest of the oil majors to signal further cuts to shore up cash flow and
protect dividends. ConocoPhillips has earlier announced 20 % reduction in
capital spending for 2015, while BP has taken $1 billion restructuring charge
to pay for job losses, including 200 staff employed in its North Sea business.
The majors have made clear they will pass on the cuts to oil service companies
including groups such as Schlumberger, which had announced plans to cut 9 000
jobs a week earlier.
Some commentators have been quick to note
that the effects of falling oil prices on the renewable energy market will be
minimal because unlike in the past, the global energy landscape has changed
considerably in the 21st century. In the 1980s and 1990s, the then
newly developing solar, wind, and geothermal markets in California collapsed as
North America suddenly found itself with a glut of cheap oil and natural gas.
Today, diesel and other petroleum-based fuels account for only 5 % of global electricity generation compared to 25 % in 1973.
Diesel is even less relevant in the US power markets, making up only 1 %
To dispel any remaining
doubt, the International Renewable Energy Agency (IRENA)’s new report shows
that the cost of generating renewable energy is
now equal to or below the cost of fossil fuels in many parts of the world.
It says that renewables should remain competitive even if oil prices were to
remain low for a while, and history has shown that period of low oil prices
tend to be transitory. In contrast, the prices of renewables are on a downward
trajectory. Large-scale solar photovoltaic cost has dropped about 70 % since
2008. The cost of utility-scale solar projects
to produce power is about $0.08/kWh with no financial support, and in some
places like the Middle East as low as $0.06/kWh. In comparison, the cost of
fossil fuel power is between $0.07 and 0.19/kWh when environmental and health
costs are factored in.
The report, launched during
IRENA’s fifth Assembly in Abu Dhabi, places special emphasis on bringing power
to the 1.3 billion people worldwide that still do not have access. For them,
renewables are the cheapest option. This applies also to islands and other
isolated regions that rely on diesel. At the launch, IRENA and the Abu Dhabi
Fund for Development announced $57 million in loans to five renewable energy
projects in developing countries.
Director General of IRENA Adnan Z. Amin said: “Renewable energy
projects across the globe are now matching or outperforming fossil fuels,
particularly when accounting for externalities like local pollution,
environmental damage and ill health. The game has changed; the plummeting price
of renewables is creating a historic opportunity to build a clean, sustainable
energy system and avert catastrophic climate change in an affordable way.”
interconnected energy landscape has evolved beyond the point where the price of
oil determines the fate of clean energy,” said minister of state Sultan
al-Jaber, who also chairs Masdar, Abu Dhabi’s renewable energy company.
Speaking at the World Future
Energy Summit opening ceremony in Abu Dhabi, Jaber said the globally
investments in clean energy have increased by 16 % during the past 12 months,
amounting to $310 billion; while the projected capacity of wind turbines and
solar energy panels increased by 26 % during the same period, producing 100 GW.
“Renewable energy has shifted
“from an expensive alternative to a competitive technology” said Jaber. “This
growth has been driven by the sharp decline in cost and steady rise in
He called for seizing the
opportunity of falling oil prices to cut fuel subsidies that cost the world
$550 billion in 2013 (which is more than four times the subsidies to
In March 2014, Abu Dhabi
opened the world’s largest concentrated solar power plant, which has the
capacity to provide electricity to 20 000 homes.
Severing old ties to fossil fuels &
investing in renewables
The UAE ranks 7th in world’s oil
reserves. For some time now, it has been trying to build an oil-free future in
the desert and is currently a major player in clean technologies, funding
large-scale renewable energy projects around the world, and investing millions
in fundamental research in partnership with with Massachusetts Institute of
Technology (MIT) in energy, water, microelectronics, advanced materials and transportation
At the Future of Energy
Summit, the UAE leaders announced a partnership with Denmark and with Vestas
Wind in particular, to tackle energy poverty in the developing world. The Wind
for Prosperity project offers carbon-free electricity to those mostly using
very expensive diesel generators. Bader Al Lamki, the director of Masdar Clean
Energy, told Guardian journalist Andrew Winston that “conventional forms
of energy are going to decline.” Al Lamki runs a couple of funds investing
hundreds of millions in some of the largest utility scale solar and wind
projects in the world, as well as water desalination, energy storage, and
UAE built Masdar
City, a demonstration and research facility, to showcase how clean oil-free technologies
could work in practice. UAE partnered with MIT to build a graduate degree
programme and research facility to patent and leverage new technologies.
As Winston points
out, there’s a surprisingly long list of countries that get over half their electricity
from renewables already, although most are using hydropower. A smaller group is
going for the new renewables like solar, wind, and geothermal: Germany has been
leading the move towards 100 % renewables by 2050 (see below). Kenya is
planning to get half its electricity from solar by 2016. Morocco is aiming for
42% green energies by 2020. And Saudi Arabia, with the second largest oil
reserve in the world, is investing over $100 bn in a solar future.
Targeting 100 % renewables by 2050
It was indeed Germany that led the move
towards 100 % renewable energies since the beginning of the present century,
with numerous innovative policies such as feed-in tariffs and distributed
generation, all of which we highlighted in a comprehensive green energies report
published in 2009 (see Green
Energies - 100% Renewable by 2050). In the wake of the Fukushima nuclear
meltdown, Germany was the first country opting to phase out nuclear power, and
its great energy transformation, ‘Energiewende’ is underway with strong social
and political support and numerous economic benefits. Part of this radical
transformation involves distributed grid energy storage, now widely recognized
as an asset with the mainstreaming of distributed renewable energy sources (see
Grid Energy Storage Comes of Age with Renewables, SiS 65). Other
countries including the US are following suite, and energy storage technologies
are rapidly advancing.
‘100% renewable energy’ is now actively promoted as a climate action
plan, as a growing number of cities, regions and even countries around the
world have already proven it can be achieved. Denmark was the first major
economy to announce it was going 100 % renewable by 2050. That involves not
only electricity, but also transport. There shall be no burning fossil fuel.
Other examples given on the
German Energiewende website include the following.
In Germany, 74 regions and municipalities have already
reached 100% renewable energy targets. One of them, Rhein-Hunsrück District with about 100 000
inhabitants, has begun producing more than 100 % of its electricity needs since
early 2012. By early 2014, Rhein-Hunsrück produced over 230 % of its total
electricity needs and exporting the surplus to the regional and national grid,
or re-directing it into local transport, hydrogen or methane production. The district has therefore converted previous
energy import costs into regional jobs and earnings. Within 15 years,
Rhein-Hunsrück District`s CO2 emissions were reduced by 9.5 tonnes,
and the cost savings amount to €2 million.
nuclear dominated France, Perpignan Méditerranée is setting itself up as a role
model in the energy transition, aiming to be the first urban area in Europe to
meet all its electricity needs in local projects. Currently, 75% of the
region’s electricity needs are already met by renewable energy. The approach is
to reinvigorate the local economy, agriculture and tourism in an inland part of
the region called Catalonian Ecopark.
In the United States, the city of Greensburg, Kansas, powers
all local homes and businesses with 100 % renewable energy 100 % of the time. Greensburg has gone from “tragedy to triumph”.
On 4 May 2007, a tornado destroyed 95 % of the town. The community, with a
strong leader Mayor Bob Dixon, turned disaster into an opportunity and created
a vision to rebuild Greensburg as a sustainable community. Building efficiency
combined with local wind power, small solar installations, and biogas, are the
cornerstones of their master plan, and a diverse group of experts gathered to
turn their vision into reality.
Civil society movements that hasten the
end of oil
There are significant campaigns afoot to
hasten the end of oil.
The CAR initiative
largest coalition of 70 investors, the Carbon Asset Risk (CAR) Initiative
Investor Signatories worth $3 trillion call on world’s 45 largest oil &
gas, coal and electric power companies to assess risks under climate action and
‘business as usual’ scenarios.
The investors mostly based in
the US and Europe sent letters to the fossil fuel companies requesting detailed
responses before their annual shareholder meetings in early 2014. Investor
signatories include the largest public pension funds, the New York State and
New York City Comptrollers, F&C Asset Management and Widows Investment
“We would like to understand
[the company’s] reserve exposure to the risks associated with current and
probable future policies for reducing greenhouse gas emissions by 80 percent by
2050,” the investors wrote in their letter to oil and gas companies. “We would
also like to understand what options there are for [the company] to manage these
risks by, for example, reducing the carbon intensity of its assets, divesting
its most carbon intensive assets, diversifying its business by investing in
lower carbon energy sources or returning capital to shareholders.”
The CAR initiative
was coordinated by Ceres and Carbon Tracker Initiative. Ceres is a nonprofit
organization “mobilizing business and investor leadership on climate change,
water scarcity and other sustainability challenges.” The Carbon Tracker
initiative is a non-profit company that aims to align the capital markets with
efforts to tackle climate change. It has demonstrated that current capital
expenditure plans in the energy sector are incompatible with delivering
emissions reductions to improve air quality and prevent climate change. As
shown in its 2013 report, in 2012 alone, the 200 largest publicly traded fossil
fuel companies collectively spent an estimated $674 billion on finding and
developing new reserves, some of which may never be used. In comparison, the
amount spend on investments in renewables in 2012 was $281 billion. This
highlights the opportunity to redirect this capital, rather than it being
wasted on high carbon assets that could become stranded.
“Demandfor coal has
been falling in key markets. Climate policy and economic changes inAsia
mean thistrendcould soon become permanent. Analyststell
usthat demandfor oil could weakentoo before long,” said Craig
Mackenzie, Head of Sustainability at Scottish Widows Investment Partnership,
one of Europe’s largest asset management companies, and signatory to the CAR
initiative. “Companies must planproperly for therisk
offalling demand bystress-testingnew investments to minimize
the risk our clients’ capital is wasted on non-performing projects.”
already being written down due to increasing competition between energy
sources, air quality standards being introduced to reduce health impacts, and
measures to reduce carbon pollution combining to change the energy landscape,”
said James Leaton, Research Director at Carbon Tracker. “Avoiding high cost,
high carbon projects which are failing to deliver a return on capital will
improve shareholder returns.”
The divestment movement
The divestment movement has taken the world
by storm in the last 18 months. Students, churchgoers
and local residents are asking universities, churches, city councils and states
to cut their financial ties with the fossil fuelindustry. As a result,
181 institutions around the world have pledged to divest more than $50 billion.
The campaign has enlisted high profile champions such as Desmond Tutu, UN climate chief Christina Figueres, and
Grassroot opposition campaigns
There are numerous grassroots campaigns
opposing the exploitation of fossils fuels.
The Keystone XL
pipeline is intended to bring tar sands oil from Northern Alberta in Canada all
the way down south to Texas to be exported to new markets. It has been targeted
by a campaign that succeeded in delaying approval for six years, thanks to a
powerful coalition of Indigenous communities, landowners, grassroots activists
and environmental NGOs covering the entire route.
Northern Gateway pipeline to take tar sands oil across British Columbia has
been similarly opposed and delayed for years. It has now been approved in
theory, but a massive coalition of First Nations and residents have sworn to
stop it from being built. The lack of available export routes is a major reason
cited by Statoil, Total, and Shell for shelving their tar sands projects, and
it is also causing unease among investors.
At the same time,
actions taken by communities of just a few hundred people living in the heart
of Alberta’s tar sands zone could also put a stop to the world’s largest
industrial project. Both the Athabasca Chipewyan First Nation and the Beaver
Lake Cree have initiated legal challenges that if successful could call into
question the approval of all tar-sands projects.
The campaign to
‘leave the oil in the soil’ started in Latin America, where for years
Indigenous communities have battled against oil extraction in the Amazon. The
proposal to leave oil under Ecuador’s Yasuní national park unexploited received
international financialsupport. It was turned into a carbon trading
scheme when the government decided to take it forward, and then abandoned in
2013 by President Correa. But the grassroots movement lives on, the ‘Yasunidos’
are mobilizing hundreds of thousands of Ecuadorians, and working with other
frontline communities all over the Amazon to leave the oil underground and to
stop the assault on the world’s largest intact rainforest.
A campaign to stop
oil drilling in the Arctic is in progress, with Greenpeace the most visible
player in direct actions to block rigs drilling in the icy seas. Thirty
Greenpeace activists were imprisoned in Russia. Years of dogged legal
challenges to every phase of the approval process by Alaskan Native groups and
NGOs have also been crucial in preventing Shell from getting a drop of oil out
of the Arctic.
To find out how
you can get involved in hastening the end of the oil age, go to: http://newint.org/features/2014/11/01/extended-oil-keynote/.
Fully referenced versions of all the
articles including this editorial are available on ISIS members website: http://www.i-sis.org.uk/sismembers.php