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Renewable Energy vs Petroleum - Has the battle started yet?


A few days ago, one of the users on the Petro Front Professional Networking asked a question that perhaps at one point or the other has always whizzed through the mind of every Oil and Gas professional - Renewables v/s fossil fuels, who is winning the race?

Users who answered the question had different opinions to share. A lot of users quoted the fact that an increasing number of renewable energy projects are being set up, while many Oil and Gas projects particularly in the North Sea are coming to an end of their lives -more so as the Oil and Gas production is not so lucrative anymore for the companies.

Keeping in mind the importance of the question for the professionals employed in the Oil and Gas industry and for the next generation aspirants who hope for a lucrative career in the industry, let us look at the facts and try to derive an unbiased, unapologetic answer for the question.

A news published by Bloomberg revealed that Oil majors like Royal Dutch Shell Plc, Statoil ASA and Eni SpA are getting into offshore wind farms in the North Sea and corresponding regions, involving expenditures worth billions of dollars. They are steering towards taking on leading power suppliers like Dong Energy A/S in power purchase contracts. The Oil companies are moving into this arena largely due to the plummet in oil prices and because the returns from the renewable projects are predictable and regulated by the government controlled electricity prices.

However, if we look at the International Energy Agency's (IEA) latest version of 'World Energy Outlook' , Oil and Natural gas will continue to supply over 50% of the world's energy in 2040.

This means that even if the renewable energy sources - wind and solar witness herculean headway, Oil and Gas will continue to be significant to the energy economies of the globe for many years to come. We also need to consider that the wind and solar energies are integral only in the electricity sector, where electricity amounts to a share of less than 45% in the energy demand of the world. Consequentially, the talks of an energy system based on solar and wind energy are not realistic, since these do not compete by any major share in the global energy economy.

The world's most important fuel today is oil and till date its demand has not been over-shadowed by any other source of energy. Moreover, 6 people out of 7 in the present day reside in undeveloped nations and this implies that the consumption of oil has really only started. Should that we talk about the surge in the use of electric cars then consider this: More than 90,000,000 automobiles were sold in the last fiscal year and merely 1% of them run on fuels other than oil.

On the other end, Natural Gas is globally the fastest growing energy source. For reasons pertaining to preserving the climate and environment, larger consumption of Natural Gas is indispensable. It is because of the inflated use of the Natural Gas in US that the country is headed to fulfilling their carbon dioxide emission reduction targets (set in the Clean Power Plan) around 15 years in advance.

The essence of it all is the fact the Oil and Gas industry is here to stay. The oil and gas prices are cyclical in nature and that's the reason the ratio of the demand and supply works around a historic cycle of around 30 years. The industry has seen downturns even in the past and has emerged ever so stronger out of them. The demand-supply ratio isn't in good shape, but the demand is nevertheless here to stay.