End of the Oil Age: Not Whether But When

IMF Blog, September 12, 2017

Source details

A transportation revolution driven by electric vehicles (EVs), renewable electricity, and other technologies could transform the oil market in the coming decades.
Quote highlighted: “The stone age came to an end not for a lack of stones, and the oil age will end, but not for a lack of oil.” — Sheikh Zaki Yamani.

A hundred years ago, coal accounted for close to 80 percent of US energy consumption.
Within 20 years, coal’s share fell to one-half.
Within 40 years, coal’s share fell to one-fifth as oil displaced coal as the main energy source.
The displacement occurred despite coal being cheaper than oil, because oil powered motor vehicles—transforming transportation.

Automobiles currently account for about 45 percent of oil consumption in the world.
The year 1917—when Ford first sold a mass-produced, affordable vehicle—was described as a tipping point for motor vehicles.
Electric vehicles may be approaching a similar tipping point: several companies are starting to offer models for about $35,000, roughly the average price of a new motor vehicle in the United States today.
IMF working paper prediction: electric cars could represent 90 percent of the stock of cars in advanced economies and more than half in emerging market economies by 2040.
Other studies predict sizable displacement of motor vehicles by EVs, albeit at a slower pace.

Oil’s share of the market for electricity generation and heating is already less than 20 percent globally.
The cost of producing electricity from solar power has fallen by 80 percent since 2008.
The cost of producing electricity from wind power has fallen by 60 percent since 2008.
Unsubsidized solar and wind energy are already competitive in 30 countries.
The World Economic Forum projects solar and wind will become cheaper than coal and natural gas in more than 60 percent of the world in the next few years.
Even without further technological advances, penetration of renewables will spread as capacity investments already underway are completed.

Over the next 20 years, the spread of renewables and EVs will crowd out the demand for oil substantially.
If climate change concerns intensify, the transformation of the world oil market could be even faster.
Additional technologies that could accelerate displacement include fuel cells, hydrogen-based power generation, ride sharing, and autonomous driving.
Outlook for prices: by 2040 oil will be much cheaper than it is today, and the equivalent of $50 a barrel might seem impossibly high then.
Short-term price direction remains uncertain: “it is hard to say which way oil prices will go next week or next month.”

Many car companies are investing heavily in electric vehicle technologies; example cited: Volvo announced all its models will have electric motors by 2019.
Many oil-exporting countries have launched wide-ranging diversification drives to prepare their economies for cheaper oil, given reliance on oil revenue to finance government programs and generate jobs.
The article recommends readiness for structural change in energy and transportation sectors as a prudent policy response.

Source: End of the Oil Age: Not Whether But When (IMF blog post, September 12, 2017).

WEF_Renewable_Infrastructure_Investment_Handbook
- WEF_Renewable_Infrastructure_Investment_Handbook (Markdown version)
- WEF_Renewable_Infrastructure_Investment_Handbook (PDF)
Executive Summary
- Executive Summary (Markdown version)
- Executive Summary (PDF)
Staff Discussion Note
- Staff Discussion Note (Markdown version)
- Staff Discussion Note (PDF)