While use of renewable energy is on the rise, especially in China, there is still significant debate amongst energy experts whether renewable energy sources will ever be plentiful and profitable enough to replace hydrocarbons.
Oil pumps work at sunset on Wednesday, Sept. 11, 2013, in the desert oil fields of Sakhir, Bahrain. Photo: AP
In recent months, both in Russia and globally, there has been increased talk that the era of hydrocarbons is coming to an end. In such a scenario, oil would cease to play a decisive role in the life of society, and the future will belong to electric vehicles and renewable energy sources.
The strongest advocate of this idea is German Gref, the head of Sberbank and Russia’s former minister of Economic Development. The Oil Era, in his opinion, has only 10 years more to go. However, opponents of this position are noting that such statements have been made more than once before, and they were the loudest during periods of the sudden collapse of oil prices.
The electric vehicle future
The Oil Era, just like the Stone Age, has ended, the head of Sberbank German Gref announced not so long ago. According to the banker’s forecast, if China continues creating alternative energy at the same rate as it is doing now, then that country will consume 45 percent less traditional energy sources. First of all, this applies to coal, which Russia is developing and supplying, as well as to other hydrocarbons.
“We can say that the era of the domination of hydrocarbons is now in the past. The Stone Age did not end because they ran out of stones. Similarly, we can say that the Oil Era is over. It will be around for maybe another 10 years, until the entire infrastructure of electric vehicles becomes fully deployed,” said Gref.
Electricity and transportation consume most of our hydrocarbon raw materials, 18 percent and 56 percent, respectively, noted the head of Sberbank.
“There have been radical changes occurring in both these spheres. In China, by the end of 2016 or the beginning of 2017, about 70 gigawatts of installed capacity will come from the sun,” says Gref. The sun, wind, and bio-energy will together provide about 230 gigawatts of installed capacity, plus 330 gigawatts will come from hydropower. This is a total installed capacity of 560 gigawatts of renewable energy. For comparison, this is two and a half times more than the entire installed capacity of Russia.”
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Perhaps these arguments may seem convincing to some people. However, falling oil prices are the reason behind such conversations. In 2009, and in other periods of declining prices, there were also loud predictions made about a mass transition to electric vehicles and green energy.
However, most experts, including the influential International Energy Agency (IEA), say that the sunset of the Oil and Hydrocarbons Era is still decades away. Although, of course, everyone recognizes that the share of renewable energy will gradually increase. However, in the overall energy balance, this share is still very low, and it is unlikely that the situation will change dramatically and rapidly.
Meeting the sun and wind halfway
Renewable energy sources include solar and wind generation, bioenergy, geothermal energy, and tidal energy. The main problem with all of them is their seasonal character and dependence on nature and weather conditions. Even energy production in hydro power plants depends on the seasons and weather conditions, to say nothing of the wind and the sun. Renewable energy sources can often only be used as a supplement to the base hydrocarbon energy.
In addition, the cost of obtaining renewable energy and power generation from them, is often more expensive than energy generation using traditional methods. Bogdan Zvarych, analyst at Finam Investment Holding, considers that “it is premature to talk about the end of the Hydrocarbon Era.”
“Even though it’s happening at a slower pace, yet nevertheless, oil consumption continues to grow, while the new sources of energy that are being discovered do not provide sufficient profitability to ensure their widespread implementation,” said Zvarych.
“And when the oil prices are extremely low, this profitability declines even more – many of these new energy sources, even when oil prices were above $100 per barrel, required active government support, subsidies and various incentives to be implemented.”
“Maybe in the next 20 years, we will see some major breakthrough in the field of alternative energy, but for now, we can only talk about the preconditions that need to be created for this, but not about a real breakthrough,” adds Zvarych.
Moreover, in view of lower prices being paid for hydrocarbons, we can talk about the strengthening of their position in the world. For the major industrial powers - Germany, China, the U.S. and Japan - cheap raw materials provide a great stimulus for development, as huge investments into energy are not needed, and the money thus saved can be used in the real sector.
In such situations, where traditional resources are cheap, a boom of renewable energy is unlikely to happen, considers Alexander Pasechnik, Deputy General Director of the National Energy Security Foundation.
“Today there is no incentive to switch to renewable energy sources,” says Pasechnik. “It is clear that technology will evolve, and renewable energy sources will occupy their share, due to environmental doctrines and technical progress. This share will grow, but at a very slow pace.”
As for China, here we can say that lately Beijing is really among the leaders when it comes to investments into “green” energy. However, all forecasts published by Chinese research institutes and the IEA maintain that the main fuel in China, for at least another two decades, will be coal.
“I have not seen any predictions that say otherwise. Of course, the growth rate of renewable energy in China is the largest in the world, but coal plants remain the basis of the current economy. Energy consumption in China is not decreasing, but on the contrary, continues to increase. Last year, China bought and used oil at a record level,” Sergey Pikin, director of the Energy Development Fund, told Russia Direct.
It is too early to expect a revolutionary change in the technological wave – from hydrocarbons to renewable energy sources, says Pasechnik.
“On the other hand, the cheapness of hydrocarbons today will only lead to their greater consumption. This is what all the leading energy consulting groups expect. In particular, the IEA promises a growth in demand for oil by the end of the year, which will eat up the surplus that exists in the market today. The oil market will, sooner or later, return to its balance, the price decline phase will be followed by a recovery phase,” he says.
In the best-case scenario, in 20 years, alternative energy will account for approximately 20-30 percent of all energy consumed in the world, says Nader Mahinpey, head of the research group of the Department of Chemical and Petroleum Industry at the Schulich School of Engineering at the University of Calgary in Canada.
At the same time, alternative sources of energy will never be able to replace traditional sources by 100 percent, he concludes. Therefore, hydrocarbons will remain in demand for many years to come.
How long will world oil reserves last?
It is clearly premature to talk about the exhaustion of oil resources. Scientists agree that world oil reserves today stand at around 400 billion tons, or slightly less than 3 trillion barrels. This number includes both explored and unexplored reserves.
How many years will such a quantity of oil last? Here scientists differ in their views, as their forecasts contain various rates of consumption of the “black gold” and of the development of new deposits. Some claim there is enough for 50 years, while others believe that the oil will last for another 150 years, if not more. Therefore, as a starting point, we can take the figure of 100 years, during which humanity is unlikely to face a fuel crisis.
With regard to oil reserves in Russia, according to various reports from publicly available sources, this figure ranges from 20 to 80 years. Not long ago, Russia’s minister of Natural Resources and Ecology, Sergey Donskoy, said that oil production in Russia, at the current level, would last for 30-40 years.
“And the reserves of unconventional oil – the Bazhenov Formation in Western Siberia, the Volga-Urals Domanik, and the like – many times extend the energy security of Russia, not to mention the Arctic shelf,” the minister added.
The existing resource base of oil and condensate, and its rate of reproduction, allows us confidently to predict stable annual production levels in the coming decade in the range of 515-525 million tons, says Donskoy.
However, the price of oil on the global market, in today’s conditions, is impossible to predict. Moreover, oil prices have an influence on the volumes of geological exploration, with a significant lag of 1-2 years.
“Given high levels of funding for exploration, we will be able maintain our lead for the next 50-100 years,” said the minister.
Mikhail Dmitriev, former Deputy Minister of Economic Development under Mr. Gref and current president of the New Economic Growth Partnership, also considers that the sunset of the Oil Era is still very far away.
“During the next 10 years – and it is the most distant horizon of economic policy, which can be logically discussed – oil will remain the most important resource, and its consumption will continue to grow. For example, we should not expect that China and India, during this period, would switch to using only electric vehicles. After all, these are very expensive cars, designed for very wealthy customers,” says Dmitriev.
The expert is convinced that in the next 10-15 years, oil and gas will remain the backbone of Russian exports. “And accordingly, they will remain the main source of foreign exchange inflows into the country, which will be sufficient to finance all Russian import requirements,” he added.