By Jude Clemente
May 15, 2017 - "I think that, in the end, these hydrocarbons are a huge resource for humanity. And I don't think we've got any good substitute. People think that all these hydrocarbons are going to be stranded and the whole world's going to change. I think we're going to use every drop of the hydrocarbons, sooner or later" said Berkshire Vice Chairman Charlie Munger.
The "stranded asset" push against the need for more coal, oil, and natural gas investment is impractical and contradicts the advice of the Paris-based International Energy Agency, the energy adviser for the 35-member OECD.
That's because fossil fuels still have no significant substitute. And simply put, the growing energy needs of a mostly undeveloped world are so immense that it's certain that coal, oil, and gas will continue to play a foundational role in the world's energy economy, "for as far as even the most advanced modeling systems can predict."
Although growing in importance but still strictly sources of electricity, favored wind and solar don't compete in the majority of the world's energy economy, an ever-growing complex that expands as our global goal of more economic growth is met.
And their natural intermittency means that wind and solar power even on good days are only available 25-35% of the time. Unfortunately, the faculty of non-dispatachable energy systems like renewables displacing dispatchable sources like coal, oil, and gas is often overstated, and even more unfortunately an overstatement that usually comes from the 17% of the global population that thrive in the richest, most developed, and fossil fuel-reliant nations on Earth (i.e., OECD members).
Wind and solar don't compete in the majority of the world's massive energy complex.
Even in the International Energy Agency World Energy Model's most recent (November 2016) and best case scenario for renewables (450 Scenario), coal, oil, and gas still supply nearly 60% of the world's energy. To be clear: even assuming Herculean gains for renewables, fossil fuels remain irreplaceable.
Coal, oil, and gas will remain the world's primary sources of energy under any foreseeable scenario.
I documented this fact back in November, and in March the International Energy Agency followed suite: "IEA: Huge Oil Price Spike Inevitable." Thanks to drastically sunken prices, "Global crude oil discoveries plunge to record low, and it's gonna get worse."
For example, as the world's most vital fuel, we're going to need all the oil investment that we can get. “Conservative estimates predict that we will need to offset 20 million barrels per day in combined demand growth and natural decline over the next five years."
Over the next 25 years, the International Energy Agency reports that $44 trillion in investment is required in the world's energy supply, 60% of which will need to go to coal, oil, and gas. The Agency puts our energy reality bluntly: "failing to invest in any upstream assets could lead to major problems."
And in any event, any demand reduction that we see in coal, oil, and gas would just help to lower their prices, thereby increasing their attractiveness for usage.
And we environmentalists that want the world's poor to have the save privileged lives that we Westerners enjoy should be cheering more gas in particular, which importantly...actually gains market share in the 450 Scenario! To illustrate, the Carnegie Mellon Power Sector Carbon Index concludes that U.S. power producers have cut CO2 emissions intensity by 24% since 2005, with the researchers crediting more than half of the reduction to using more natural gas.
Massive increases in coal, oil, and gas investments are absolutely mandatory.