Can green energy overcome crude oil?

Can green energy overcome crude oil?

07 Oct 2018

The global energy industry could be changing, and fast. After years of global domination, it appears that traditional energy might be losing some of its luster. Is at risk of being dethroned by alternative, so-called ‘green’ energies?

Many countries are changing how they think and act. Germany, for example, is leading the way, with a huge investment in wind, solar and biomass. In 2018, Greece launched a $3.6 billion program for solar and wind projects. Many other countries have already joined the trend. Mexico, Saudi Arabia and Jordan are all investing in solar energy, and what happens when solar capacity grows? That’s right – the price decreases*. According to Bloomberg, since 2009, the price of solar energy fell by more than 60% and in some parts of the world, solar energy is now cheaper than coal. In 2017, the US Energy Department’s National Renewable Energy Lab predicted an additional 20% price decrease by 2020*.

The automotive industry is also transforming. The rise of electric vehicles, most notably GM and Tesla who are both working on so called “affordable” electric vehicles, could have a substantial impact. Many traditional auto companies such as Volkswagen, Renault-Nissan, General Motors, Ford, Daimler and BMW are already investing big cash in electric vehicles**. Even Ferrari’s CEO, Sergio Marchionne, who was for years a vocal skeptic of the electric vehicle industry, has admitted he changed his mind***.

The emissions scandal certainly played a role in such transformation, as well as a variety of regulatory investigations and restrictions. China, the world’s leading emitter of greenhouse gases, has joined the efforts of environmentalists by implementing massive policies to reduce carbon and setting ambitious goals to meet this end.

This is especially important since, according to estimations by IHS Markit, between 30% and 50% of global oil production is used by cars. Some predict that by 2025 there will be around 36 million electric cars on the roads and by 2040, electric vehicles are expected to account for 30% of new car sales****. That’s quite an increase from today’s 1% and could, potentially, affect global demand for crude oil.

But don’t say goodbye to crude oil just yet. The industry that moved the world forwards is still in high demand and so far, at least, it remains an effective and relatively cheap solution. OPEC’s efforts to increase the price of oil – most notably with the 2016 agreement to cap supply – has, to a degree, paid off, as shown by the following chart.

One of this industry’s major advantages – unlike green energies - is that it’s not dependent on weather conditions or daytime. But of course, technological advancements could improve storage capabilities of green energy, making any such advantage irrelevant.
It’s also important to point out that while OPEC and other oil exporting countries all have major interests in maintaining the status quo, there are many industries that could benefit from a shift.

Want some examples? Let’s take a look at a few.
This is what happened to Tesla shares in recent years:

Tesla chart

And this is Gamesa, a Spanish company specializing in wind turbines and wind farms.

Gamesa chart

There is no doubt that crude oil and green energies are now in a major battle. Who will end up gaining the upper hand? Only time will tell, but if you think you have the answer, you can always choose to trade on your prediction.

 

* https://www.bloomberg.com/news/articles/2017-01-03/for-cheapest-power-on-earth-look-skyward-as-coal-falls-to-solar
** https://www.reuters.com/article/us-autos-electric-factbox/factbox-automakers-get-serious-about-electric-cars-idUSKBN1DH28A 
*** https://www.theverge.com/2018/1/16/16897770/ferrari-electric-supercar-suv-marchionne-tesla
**** https://www.cnbc.com/2018/02/28/soon-electric-vehicles-could-cause-an-oil-crisis-.html

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