The Great Energy Transition of Transportation - Futurosity #7

End of summer hiatus. New maps. More future now.

The Futurosity Newsletter is back from its summer vacation. Thank you for waiting.

In order to celebrate the imminent advent of autumn we're introducing a new format that we call Futurosity Observations.

It's simple. In every edition we will depict an ongoing massive shift within different areas of society, and try to do so in a manner that makes it easier to explain and to share. We hope that our way of capturing complex information may be helpful to our community of readers when you yourselves are trying to paint the big picture. So to be clear - do share, remix and use this content if it helps you hold more constructive discussions about possible futures with friends, family, colleagues and strangers on the Internet.

Observation: The great energy transition of all things transportation

BNP Paribas, a renowned asset management firm (and hardly a bunch of tree hugging hippies) just released a report. You should skim through it. The bottom line is this:

We conclude that the economics of oil for gasoline and diesel vehicles versus wind- and solar-powered EVs are now in relentless and irreversible decline, with far-reaching implications for both policymakers and the oil majors.

Boom.

The report makes a few highly interesting points, namely:

  1. If you want to turn raw energy (such as oil, solar, wind, whatever) into actual mobility (as in making vehicles move) it’s between 6-7 times cheaper to use renewable energy (through electric cars) than gasoline to do so. Diesel is a bit more efficient but the pattern is the same.

  2. This does not even go into the environmental benefits or public health improvements that would result from stop burning fossil fuels.

  3. Regardless of the above, the big oil companies have a massive advantage in terms of their ability to produce and deliver vast amounts of energy right now. They’ve had more than a 100 years to build out their infrastructure and renewables just can’t meet the same raw energy demand. Yet.

We created this handy illustration to have in mind, or indeed printed near the proverbial water cooler, when talking about the often politicised and always complex topics of renewable energy, electric cars and whether the Amazon is on fire. Let’s break it down:

As the BNP Paribas reports point out, electric vehicles are just better at turning energy into mobility. On this topic there should be no debate. Pared with the fact that renewable energy is cheaper to produce this means that the rapid electrification of almost all the things that move is inevitable. The fossil fuel industry has had a century without competition, but by the mid-2020s electric cars will be as cheap to buy as their petroleum cousins. And already today these cars are cheaper to run and maintain. That monopoly wall will not stand by 2030.

The report concludes that Big Oil as an industry is facing existential decline. However, its advantage as the dominant producer and distributor of the preferred fuel of the entire global economy is nothing short of gargantuan. Today, tomorrow, next year and then some all belong to the oil companies when it comes to delivering energy in the absolutely vast quantities that the world wants. This is Big Oil’s great opportunity, and its greatest risk.

It’s the industry’s opportunity to transition away from fossil fuels and become harbingers of the new energy paradigm. To write of oil assets that are still in the ground, and deploy their vast capital into building out wind- and solar power across the world. It could happen. It probably won’t, because of the fog.

The business-as-usual fog arises from the fact that the world still depends on oil, and will continue to do so for several more years. Although fewer years than most in the oil industry are willing to believe. So this will allow a convenient untruth to settle over the industry - namely that it’s fine to go on as it has always been done, a little while longer. It can’t, because of the winds.

What the BNP Paribas report does not explain in any meaningful detail is why renewable energy production and electric vehicles have become so cheap, so fast and continue to be ever more so. It is because these technologies are developing at an exponential rate. Check out this awesome presentation (37 minutes, live lecture) by Ramez Naam to learn what that means.

In short, the winds of exponential change means two things. First, it makes the already aggressively disruptive numbers in the report obsolete within just a couple of years. Solar- and wind power will be even more affordable to install and electric vehicles even more efficient. Gasoline and diesel will, at best, be stuck on the same level.

Second, it means that other changes driven by technology disruptions will wreak havoc over the transportation industry in more or less direct ways. Self-driving cars will be a mainstream thing before the end of next decade, and surely that will change who buys what types of vehicles.

And lastly, just like the report, we haven’t even mentioned the public health gains and environmental benefits of switching to an electric fuel economy. Or, indeed, the political wins that may be harnessed from being seen as a leader in this battle during times when Greta Thunberg is demonstrably sailing to North America.

We hope that this illustration may work as a useful and/or somewhat entertaining memento for how to visualise and talk about these complex topics. Should you want it in higher resolution, or just want to chat, do hit reply to this email and we’ll do just that.

It’s great to be back. Looking forward to your feedback. These are and remain the most exciting of times.

-Sebastian & Fredrik

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