A new analysis from French investment bank Kepler Chevreux compares the energy produced by wind and solar to that of oil, specifically as they are deployed in light and commercial vehicles. According to the bank’s calculations, $100 billion worth of investments in these renewables will produce much more energy than the same investment in oil. This could contribute to the demise of the oil era, as recently predicted by Dennis Gartman.
“If we are right, the implications would be momentous,” writes Mark Lewis, a Kepler Chevreux analyst. “It would mean that the oil industry faces the risk of stranded assets not only under a scenario of falling oil prices brought about by the structurally lower demand entailed by a future tightening of climate policy, but also under a scenario of rising oil prices brought about by increasingly constrained supply.”
“Stranded assets” is an important term here, and it frequently appears in discussions of climate action policies. At present, Carbon Tracker reports a collective $1.1 trillion in oil sector investments – which include untapped deposits in deep waters, oilsands and the Arctic – that could eventually become worthless. If the cost of mining fossil fuels becomes greater than what those mines actually yield – taking into account transportation fees, spill cleanup and environmental/financial compensation, as well as the growing international initiative to reduce greenhouse gas emissions and invest in clean energies – these assets could no longer be traded at any significant price.
Currently, oil prices have sunk to $80 per barrel (the lowest since June 2012) and Goldman Sachs has forecast $75/bbl by the second quarter of 2015. Lower oil prices make future investments in oil fields more risky, though Mark Lewis estimates that even if oil prices rise again, oil will still fail to produce as much energy as solar and wind.
By 2035, according to Lewis’ calculations, the energy return on capital invested (EROCI) for solar will be double that of oil for the same amount of money. Onshore wind will produce nearly six times the energy of oil.
“Of course, there remain huge infrastructure challenges to be overcome – and paid for – if EVs [electric vehicles] are to realize their potential over the next two decades,” Lewis says. “But our analysis of the net EROCI of oil versus renewables suggests that the balance of competitive advantage will shift decisively in favor of EVs over oil-powered cars over the next two decades.”