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Energy Transitions – The New Paradigm Coming

Global Energy Sources

Every energy stakeholder is familiar with the cumulative energy demand of the world showing the absolute domination of fossil sources (Fig. 1). From an historical perspective the global energy demand has only gone up to reach an all-time record of 151,549 TWh in 2016.

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Fig. 1: Global Energy Demand – Source: Our World in Data

Wood demand, the Historical Fuel since Fire was Invented, has peaked

The same data used to display the energy demand by individual sources (Fig. 2) highlights that traditional biofuels – essentially consisting of wood – and used by human societies since fire was invented in prehistoric times some 1.7 million to 200,000 years ago (depending on the sources) may finally have peaked at the turn of the 21st century. It is also interesting to observe that coal became the main energy source when taking over from traditional biofuels at the turn of the 20th century, then to be itself displaced from its leadership role when oil became dominant in the mid 1960ies.

Global Energy Demand by Source

Fig. 2: Global Energy Demand by Source

Fossil Energy Crushing Energy Demand

A closer look also highlights that coal usage, which was the dominant energy source from the time of the industrial revolution, appears to be receding from its peak demand in 2014. This is in contrast with the continuous increase in oil use and with the rapid growth of natural gas playing catch up with its fossil peers. The pairing of hydraulic fracking with horizontal drilling that started a massive increase of natural gas production, only ten years back and essentially in the USA, is one of the main reasons for the global shrinking use of coal for energy worldwide, another one being China attempting to reign into massive hazardous air pollution, the trend to coal replacement being accelerated by its physical properties making it a poorer source of energy compared with oil, gas and presumably renewable sources of energy as well.

Fossil Energy Transitions

The observations above now make clear that global energy demand progresses via a series of successive energy transitions. Re-engineering the cumulative global energy demand from Fig. 1 as highlighted in Fig. 3 now shows the succession of bumps occurring at every transition period, from wood to coal, from coal to oil, and now apparently with something else in the making that we are going to explain.

Energy paradigm conundrum

Fig. 3: Energy paradigm conundrum

Following the oil embargo in 1973 something unique happened as total energy demand practically stalled in 1974 but to rapidly resume its growth, then it actually declined after the oil price peak in 1980 but to recover and resume growth only three years later. These are very rare events running against the continuous energy demand growth since the dawn of civilization and its acceleration over the last few centuries. Now these peaks and troughs of energy demand during the chaotic decade from 1973 to 1983 have the look of yet another energy transition, a major shift in energy demand.

But crude oil still is by far the predominant source of primary energy to the world and nothing seems to be able to derail oil demand from its growth trajectory, right? From an absolute perspective this is correct, but from a relative viewpoint, the situation now looks different.

Energy Demand from Crude Oil has Peaked, Relatively Speaking

It is remarkable to observe (Fig. 4) that coal actually peaked as early as 1913 at a relative demand of ca. 55% and approximately 50 years before being dethroned by crude oil when both relative shares of the total energy demand crossed at 33%. In its turn crude oil appears to have peaked significantly lower than coal in relative demand terms, which happened 44 years ago in 1973, precisely the year of the oil embargo, and has since then declined from its 43.9% peak relative demand to exactly 33.9% by 2016 corresponding to an actual 23% reduction in market share. Notably, it took 50 years for the crude oil market share to move down to the exact same level as when it took over market share leadership from coal.

Fig. 4: Relative Energy Demand

Oil demand growth over the last ten years has averaged a meager 1.5%, which is all but healthy and there is little chance to see anything else in the future than oil market share resuming its trend lower.

Energy Transitions are Accelerating

Each individual energy paradigm can actually be tracked from the time of its first commercial used to the time of its peak relative demand.

Thus it is possible to envision that wood became traded early in the history of human civilization as soon as the division of labor and tasks specialization set in, probably several tens of thousands of years ago at least and it remained practically the exclusive source of energy until coal started to be used commercially, which can be tracked back to the year 1750. Relative energy demand from coal peaked in its turn around 1913 (Fig. 4). Crude oil became exploited commercially for energy for the first time in 1856 before peaking in relative terms in 1973 as we have seen.

Therefore the duration of the individual and successive energy paradigms are so far:

  • Traditional biofuels, mostly wood: hundreds of thousands of years to 1750
  • Coal: 163 years, from 1750 to 1913
  • Oil: 117 years, from 1856 to 1973

Exponential Trends

An obvious conclusion is that the lifetime of an individual energy paradigm is getting shorter with each new iteration, which is a typical characteristic of “exponential” growth trends, each individual ‘S’-curve adding up to the next one to shape the long term exponential curve.

Exponential trend

Fig. 5: S-Curves and Exponential Trend

Since we are now guessing that the next energy transition has already started, so what does come next?

The Next Energy Champion

If crude oil is going to be challenged then only energy sources still growing in relative terms should then be considered to potentially become the next energy champion.

Nuclear energy is probably a false challenger that never exceeded 2.33% of the world demand for primary energy and continuously lost energy market share over the ensuing years. It has also been declining in absolute value from 2006 on with an historical peak demand of 2806 TWh and there is thus little hope for it to ever play any significant role in the energy landscape. Let us call it a failed innovation and a paradigm victim that has not been able to reinvent itself.

Natural gas has regained strength recently as already mentioned growing from 29,9000 to 37,300 TWh from 2006 to 2016 or an average growth rate of 2.25% over the last 10-year period, which is stronger than the crude oil growth but still far from typical of an accelerating trend and certainly not enough to close the gap with the 51,400 TWh of energy produced from crude oil. Although from a sheer size viewpoint additional natural gas capacities are massively impacting the energy landscape, but its market growth is barely incremental as the result of progressive process improvements and technological optimization.

Energy Mining

A fresh perspective to compare energy sources is to reorder them in separate groups. For example gas and oil are similar fossil energy resources originally inseparable from each other since drilling technology provided for both. It is only with the recent fracking technology developments that natural gas became drilled on its own but to compete as a cleaner alternative with both crude oil and coal. Summing up oil and gas market shares reveals that relative energy demand from drilling wells has peaked in 1978 at 60.9% of the total demand (Fig. 6).

Relative Oil and Gas Demand

Fig. 6: Relative Demand of Energy from Oil and Gas

Adding nuclear energy to coal, oil and gas amounts to summing up the main fossil energy sources that have been mined commercially from the earth crust over the last two and half centuries, other minor and non-renewable energy sources not being considered at this point (such as earth’s core or geothermal energy).

Energy Harvesting

On the other side the main source of renewable energy naturally consists of solar power, while most other forms of renewable energy such as wind, hydropower or biofuels are weaker derivatives resulting from solar irradiation and sometimes from its combination with gravitational energy such as in the case of wave energy. Let us therefore assume that all biofuels and renewables belong to the group of energy that can be harvested from the earth surface, either slightly above or below it as the result of incoming sunlight.

Displayed in this way (Fig. 7) it now appears that what followed the oil paradigm post-1973 is a desperate attempt of the mined energy group to maintain its leadership. Cumulatively, coal + oil + gas + nuclear energy may have reached an all-time peak in terms of relative demand in 2013 at 89.99%. With moderate growth rates for oil and gas and declining rates for coal and nuclear energy the probability is very thin that this group may any time soon go higher than the 90% mark below which it has stalled very narrowly over the last ten years.

Energy Minding or Harvesting

Fig. 7: Energy Mining vs. Energy Harvesting

On the opposite it is observed that the ‘harvested energy’ group (all renewables incl. traditional biofuels), after coming down from an historical market share of practically 100% seems to be now plateauing just above 10%. But we have seen already that traditional biofuels (essentially wood) is on a declining trend. So remove biomass to only consider technology driven renewable energy sources such as solar, wind, hydro-power, geothermal energy (actually not a renewable source but included in this group) and waste, then the trend higher is now jumping out.

Something Brewing Below The Surface

Let us now go back to our relative energy demand graph (Fig. 4) for individual components but now plotted semi-logarithmically (Fig. 8), which allows to visualize emerging sources of energy with a still very low market share and more specifically solar and wind energy sources.

Relative Energy Demand Semilog

Fig 8: Relative Energy Demand – Semi-logarithmic plot

Exponential growth is initially deceptive

The specificity of this type of plot is that it expands the Y-axis and exponential growth trends on a linear scale (left plot in Fig.. 9) are converted into a linear plot on a semi-log scale (right plot in Fig. 9).

LinearVsSemilog

Fig. 9: Linear vs. Semi-logarithmic Plot

For exponential trends (Fig. 5) the core of the individual S-Curves or else the straight part of the hockey stick is a straight line typical of technology transitions with the new technology doubling in size over repeated intervals of similar durations, e.g. going from 0.1% to 1%, then from 1% to 10% and finally from 10% to 100% in similar time intervals. This is the reason why an exponential technology is initially deceptive until it reaches 1% (of sales or market share) before becoming disruptive when ‘unexpectedly’ jumping above 1% at lightning speed. This is also the reason why the 1% threshold is typically seen as a tipping point since from the time it is reached the new exponential technology is half way through displacing the incumbent as it takes typically no more time to grow from 0 to 1% then it takes to grow from 1% to 100%.

The Tipping Point of Solar and Wind

It is now clear that neither solar nor wind have yet reached that 1% threshold since in 2016 they stand respectively at 0.22% and 0.63% of the total energy demand.  But now let’s take them together (Fig. 10). It is remarkable to observe that not only the combination of both is growing almost perfectly exponentially with an R-squared coefficient of correlation of 0.9964 but also that it is coming ‘dangerously’ close to the 1% energy demand threshold (0.853% in 2016).

Relative Solar and Wind Energy Demand

Fig. 10: Relative Demand of Energy from Solar and Wind

Taking a closer look we observe that the combined solar + wind energy relative demand was 0.003% in 1990, 0.03% in 2000 and close to 0.3% in 2010, meaning their combined market share of the primary energy market is multiplied 10 times every 10 years. If this trend continues at the same pace then solar and wind energy should become the major source of energy well before 2040.

The Coming Energy Singularity

As we have seen above (Fig. 7) the ‘Energy Mining Paradigm’ may have peaked in relative terms in 2013 whereas solar and wind became commercially ‘significant’ for the first time in 1993, which may mark the day the ‘Energy Harvesting Paradigm’ was born.

We may be entering into the new era of the ‘solar singularity‘ (or possibly the ‘clean energy’ singularity if wind and other renewables are included), which is defined as the point where solar energy becomes so cheap in a majority of countries around the world that it is established as the default new power source.

This is probably happening right now due to the stunning drops in the cost of wind and solar energy that have already become the cheapest options in many parts of the world for electric power generation even when compared with the gas-powered combined cycle power plants and it remains to be seen how will energy storage with electric batteries contribute to the new energy paradigm.

From this perspective the question mark in Fig. 3 can now be elucidated with the proposal of a new information-enabled and technology-driven Clean Energy paradigm coming (Fig. 11), meaning that not only the global energy demand of the world will continue growing but the next cycle should as well accelerate even faster and higher in the coming decades.

Energy paradigm

Fig. 11: The New Clean Energy Paradigm

A Planet with a Population of 9 Billion by 2040

An interesting fact is that energy consumption also relates to the size of the population, which is predicted to reach 9 billion around the year 2040 as can be illustrated by combining data from Our World in Data and the UN Department of Economic and Social Affairs (fig. 12).

World Population

Fig. 12: Historical and predicted World Population Growth to Reach 40 Billion in 2040

Energy Supply to the World by 2040

The relationship between global energy demand and the world population shows an astonishing nearby linear although with chaotic fluctuations above and below the trendline over the last 200 years, with any major price peak resulting in a lowering of the demand growth rate and every price low preceding an acceleration of the demand.

From the 1920ies to 2010 the global demand rose from 20,000 to 140,000 TWh whereas the world population grew from 2 to 7 billion, meaning that for every billion of population an average of 24,000 TWh were added.  If History is a guide and the Energy Singularity becomes realized then we should expect the average energy demand of the World to reach approximately 190,000 TWh when the population count of 9 billion is reached in 2040.

EnergyDemand3

Fig. 13: World Energy Demand Estimate in 2040

Conclusion

With wind and solar energy now becoming so much cheaper with no end in sight for their cost reduction trend the stage is set for the next major energy demand upswing.  Traditional energy sources such as oil and gas may continue to grow in absolute terms over the next few year but will become increasingly competitive and producer margins will rapidly disappear.  Coal and nuclear demand reduction has already set in and they are thus condemned to rapid abandonment. Traditional biomass will be used less and less thus putting an end to hazardous wood burning that is plaguing the poorest populations with no access to modern energy sources. Energy will become abundant and virtually free within the next two decades and complementary efficiency improvements throughout all sectors will accelerate the trend towards more consumption, not  less. There will be serious long term consequences for investors to consider that will be explained in our forthcoming investigations and as we shall see later on as well more and more energy will become diverted to the ultimate growth market, the digital economy.

 

 

 

 

 

 

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