Rapid fossil fuels peak, plateau, and decline already underway

I'm going to be talking to Kingsmill Bond one of my favorite interviewees he's a senior principal in the Strategic analysis and engagement group of the Rocky Mountain Institute which is headquartered in Boulder Colorado but he's going to be speaking to us from the UK so welcome to the interview King's Mill hi welcome good to be back thank you I'm really excited here you have produced you and your team I guess let's credit where credits do you have produced a theory on the peak plateau and demand for fossil fuels in the global Energy System and people right on decline even and decline my mistake sorry sorry I'm going to admit some confirmation bias here right at the beginning because you use s-curves you use a lot of the theory that I first started using back in the mid 80s when I was working on my Master's thesis and have used ever ever since uh and so I'm I'm I'm biased I I think that your theory best reflects what's going on in the global Energy System and in National and sub National Energy Systems as I as I you know I interviewed four or 500 people a year read studies on and on and and your theory reflects that reality so if whether you're watching video or listening to this on the podcast settle in because Kingsmill and I are going to have a very interesting conversation over the next 50 minutes to an hour and Kingsmill before we get into the the meat of your theory how are things at Rocky Mountain Institute because you used to be a carbon tracker and you moved over about a year ago and you're doing some very interesting work there yeah I I think um you know well first of all it's really fun working for RMI I mean I I guess I I sort of should say that but it is uh it's a very inspiring organization um and and it's fun to work with people of great Believers in the energy transition and and the opportunities and of course the the the the other point about RMI of course is we have teams in lots of different locations and with people who focus on lots of different areas so um uh China or India or Africa um uh and and a deep teams across the global South um and then I'm I'm also working with teams looking at electricity and transport um and and hydrogen and again for me of course this is kind of like um it's pretty interesting because if we have the kind of framing in the global narrative and actually you can work with people who are making change happen on the ground and see to what degree um this uh these these ideas apply uh to those sectors and that I think helps to um certain deepen and strengthen the the argument in many ways now are we going to see you in North America occasionally uh yeah no the um the plan is to um working with a finance team to do uh more work with the financial sector um in in the US in particular and and really to to go out to the finance sector next year and go look um this is really not an ESG issue this is a technology shift and it's happening at speed and and you need to to be aware of that and to reflect that in the way you're allocating capital and to agree so some people are doing this but quite a lot aren't and quite a lot I would suggest to kind of behind the curve not recognizing the speed of change that's going on right uh to use the Everett's Rogers terms uh there have been innovators and early adopters and but we still are probably in the early majority stage and we need to get up that curve with so that the late majority and the laggers are advocating or allocating Capital as well to the to the new Energy Technologies well that's great I'm glad to hear that you're going to be in North America with any luck I will catch up to you sometime in 2023 and we'll have a coffee and and get better acquainted so let's get better acquainted with your theory give me a very short overview of that theory and how it how it works so well I mean it's it's kind of you to call it a theory it it's probably a little bit um it's just an observation of the way the change is happening in the energy sector in the same way as it has happened in many other sectors and many other uh countries over time and our our simple observation is that as new technology grows rapidly on uh S curves as you mentioned it it creates this peak Plateau decline framework for the old technologies that is to say the old technology first of all uh reaches a peak of demand that is to say it stops growing um and we're kind of there for for the Energy System we've suggest as a whole um and then it bounces along a plateau for a few years uh because it does take time for uh for the new stuff to to move up and let's go and get big enough to really start displacing um enormous uh systems but but then eventually it gets big enough and and at that point uh you get a very clear um you you very clearly get declined for the the the old old energy technology and that that in a nutshell is the the overall observation and we've been making you're writing a series of reports just demonstrating first of all how how and why it works and why it matters um and then running through how it's been playing out across the oecd and then across the electricity sector Transportation sector and actually one sector and Country after the next well let's talk about the conventional framing briefly because which is I think you know vac love smeal uh is the personification of that particular view which is that energy transitions take many many decades 50 to 75 years uh typically and this one is going to take just as long and my problem with that is that the technologies that are at the heart of the energy transition we're talking wind and solar and Lithium-ion batteries and electric vehicles they've been on the flat part of the escort the very beginning of the s-curve for 20 30 40 years it's it's not like this energy transition sprang into being uh you know in 2020 or 2010. it's been gestating for a long time and I think I I've debated smeal uh you know Fanboys about this and they refused to yield the point but I think this is the fundamental weakness of schmiel's worldview is that the when you're on an s-curve it goes really really really slow for two three four decades and then it's very you have a very disruptive decade I call it the decade of disruption very original as you can tell and and then things it goes really really fast and then it slows down as the technology you know becomes a dominant player in in that particular Marketplace and that's essentially that's the Crux of how you see this playing out yeah I mean that's precisely it but I mean to come back to the the this this framing that energy transitions take decades there is no dispute I think it's really worthwhile saying this very very clearly nobody disputes that it will take a long time to go from burning 14 000 million tons a year of fossil fuels to zero right but that's not the point um the point is you get disruption at the very top of the system when you go from uh growth to decline and and this is kind of the difference between these this this Ivory Tower approach that is being taken by certain academics um and the real world you know it's not like people in the car industry said Gee there's a thousand million conventional cars out there in the world um and and there's only one million electric vehicles let's not bother with the electric vehicle no they were like oh crikey the world's changing really quickly we better retool our business because consumers want electric vehicles and and as a result I mean again without rehearsing the facts too aggressively you know it's fairly obvious that in the last five years almost the entire um car Industries had to retool for the new reality in spite of the fact that almost every car on the road is still the old kind of car and that's exactly the point it's the it's this moment of of of of where you go from from growth to decline or from from from to to the ending of growth that's the key point for financial markets um it's not and just to finish on this it's not as if you know if you're an investor you don't wait um until if you if you're selling 100 widgets a year you don't wait until you're selling 50 before you sell the share right you know you you sell it you try and sell at the very top um or even slightly before the top and that's I guess the difference between the academic approach and the financial Market approach um which is that you know we're focusing on turning points not you know some some some putative end date some decades into the future you make a point in your uh in the pieces that I've the articles that I've I've read uh where you describe this the theory and I'm going to keep calling it a theory because I think it it I know you'll flesh it out over the coming years uh with more analysis but I I think you've got the the makings of a theory here uh tell me why you think this the very size of the fossil fuel system is actually a vulnerability um so so it's the vulnerability because in the same ways as the very size of the dinosaurs I guess was the vulnerability the world changed and because they were so enormous they found it very hard to change with it um and and here we have in analogous situation where you have these uh companies which are absolutely tooled up with hundreds or tens of billions of dollars of Assets in an old system which is quite quickly um being superseded by a a faster moving slower sorry a faster moving a local Superior set of Technologies and they just don't have the skill set to survive in this new world well that's very interesting because I uh as I think I've mentioned to you in in previous interviews I spent five years in the oil and gas industry from 2003 to 2008 and I got to see the you know I was kind of setting up I was helping uh companies in Canada uh I was helping set up distribution networks in the United States and so it was essentially an exercise in new technology adoption sort of the pointy end of it and I I sat across the desk from hundreds of oil and gas Engineers from Midland Texas to Bakersfield California to Gillette Wyoming and all over you know in Canada and Calgary and so on and here's something I learned oil and gas engineers and I think the supplies in the other Industries are utterly amazing when it comes to innovating within their box if you need to fix a problem at a you know a well that's failing for some reason on a regular basis they will come up with a solution they're excellent about no question about that where they fail and this is why this is relevant to your theory is they're really poor at innovating outside the box that's not their area of expertise and they don't do it well and I think that's why yeah you know you're talking about where that vulnerability comes from it that and the size of their organizations and the conservative risk-averse corporate culture and all of that together prevents them from from seeing the threat the existential threat to their business and pivoting to other business models that would enable them to transition to the new technologies and Thrive going forward what do you think about that yeah no this is I mean I guess as we both know what we are describing is something which is seen constantly in many other um Industries and many other technology shifts so you know just to toss out a few examples the you know with the rise of the internet you would have thought possibly that the the old incumbents in um in uh in Media or retail um or or book selling would you know read retool themselves and pivot to this new world that was arising and of course they didn't and they the the great opportunities were seized by companies like like Google or Amazon um which were able or Facebook which were able to uh derive business models which are much more suitable for this new environment similar story when you switch from the Mainframe to the PC um or you know the the overused example horse to come all the rest of it you know incumbents find incredibly hard to shift um to a a new Paradigm you know in large part because they've got all of their talent and skill focused on the old system and they're kind of fiddling around with the new stuff and at the same time people who are expert in the new technologies are devoting 100 of their attention to finding out the best ways to do it and by the time the the kind of the old Industries figure out that actually this is the future it's too late and I'm sorry what I'm saying is absolutely axiomatic you know you see in lots of academic textbooks um engines that move markets by Nan is one um and and then you've got you know the innovators dilemma Christensen off it's exactly what he talks about so this is completely normal the reason why the energy industry has been so slow to figure out what's going on is that they just haven't seen this um you know we basically had a hundred years of what 200 years of continuous growth with fossil fuels 100 Years of continuous growth of of oil and gas and it's it's something new it's really hard to understand yeah I I find that all the time I'm constantly talking to uh folks in the oil and gas industry and their frame of reference simply doesn't uh isn't able to accommodate the fact that their products for the very first time have a competitor in electricity sorry if I may just toss out a few a couple of other stats which always sound quite interesting um you know to look at energy history um I'm not sure I could quite go Toe to Toe without classmate on energy history but I certainly have very different interpretation of it um and and you know these Technologies like um uh coal and and uh and and and then oil and then gas you know they were they transformed our world growing at about five percent a year you know this new stuff solar's still growing after 40 years it's still growing at 25 a year um you know this is why again it's so hard for encumbers to realize what's going on because this speed of growth is absolutely unprecedented if the speed and longevity of growth has never been seen before and that's that's why they find it so hard to to reconcile let's talk about I think this is a good place to segue into a discussion of the s-curve and there are you have three components three parts of it and as I do when I do on this kind of analysis uh either in my columns or or for clients when I'm uh contracted to write papers uh the first one is you call emergence I call gestation but I think it's basically the same thing you know for instance the you know the lithium ion batteries gets developed in the 70s and 80s and it gets introduced in 1991 and then it takes you know now it's at the beginning of the s-curve uh and it takes some time you know it revolutionizes personal uh electronics that sort of thing first until you know Tesla comes along and and sticks it in a in a car and yeah and and you can you know they're wind wind has an example is an example solar is an example on and on and on so this but you you point out in your article the importance of innovation and this is something that again the incumbents don't get is the pace and the scale and the depth of innovation that's going on in the new Energy Technologies it's nothing short of astounding and you know and the amount of capital that's now following into that following that Innovation funding startups and funding the growth of of companies that have you know passed their inflection point and they're growing and they're growing rapidly I I and it's partly rooted in the difference between the old and fossil fuels and the new energy the fossil fuels are a commodity they behave very differently then the new technologies well with the new energy which is the technology and I interviewed Mike Andrade who's been in this business for 30 or 35 years and he points to the fact that once you once energy is a technology then it behaves it has different laws like rights law that govern how fast it will it will grow and that's an absolute game changer yeah well as we both know the the great expert on on this whole debate has been um uh don farmer and his team at the University of Oxford and they've analyzed an enormous depth um a series of different Technologies over the years and to to what degree they were able to get onto learning curves uh right slow um and and uh one of the conclusions was well the number of conclusions one of the conclusions was that it's quite unusual to get onto a a learning because it's quite unusual to for your course to continuously fall over time as as you expand your production but once you do then that learning curve tends to continue um which is I guess the second uh conclusion and and then they say well you know let's just think through the the logic of this assuming the growth continues um which again is is highly likely because the feedback loads between growth and cost um then how low will prices go and you know they then come up with these very very low prices um 10 solar one dollar hydrogen um fifty dollar batteries and all the rest of it you know by by the 2030s and that then in and of itself is cheap enough to radically reshift to change the world but yeah I think um that type of observation is uh very important I think and then in contrast as you say you know for something like fossil fuels which are uh a um a commodity not a technology they just don't get onto these learning curves because even though they're a learning test within the industry you know we get better and better at extracting stuff and further and further offshore that's constantly being offset by um natural decline rates and the fact that we're going to get we go and get the cheapest stuff first and therefore um from their analysis what it's worth fossil fuel is basically a flat the cost of fossil fuels are basically flat flat over a century um and you know it's almost impossible it is impossible for a technology not on a learning curve for to compete with the technology on a learning curve and I kind of think this is this is a conversation marker that you and I are having in 2022 in a decade we won't nobody having this conversation anymore it'll be looking back and be saying how obvious it all was and you know how could we possibly not have seen this um uh coming well I would say that it's obvious now to those who are paying attention to us but not necessarily obvious to everyone yeah yeah I agreed um before we leave the uh the first stage on the s-curve I want to talk about a different type of innovation and that's business model innovation because in some cases uh it's not just about the the technology it's how that gets applied and so you know Tony siba's early work on uh Transportation as a system where you know everybody nobody owns a car because everybody's taking an electric Robo taxi everywhere they go because it's four to ten times cheaper per kilometer travel or I'm seeing now Innovations and things like uh heavy duty or medium duty trucks as a service you know where if you're a fleet manager for a logistics company you know and you want to go electric you hire you contract with one of these companies and they provide you a turnkey operation they provide you the Chargers and the infrastructure to support it they provide you the trucks they even provide in some cases the drivers and and the cost per kilometer or per mile uh for our American listeners and viewers is is either competitive or already lower than the the diesel or gasoline competitors and it's that kind of innovation all up and down the supply chain all up and down the value chain that is I think in the end uh will just spell the death of fossil fuels quicker than we expected yeah look it's very well made I mean the the point very well made for example just two weeks ago I saw um a a European Leasing Company saying that now um the uh the least cost for electric cars in every single um area of demand from a small Castle way through to large cars um is now lower than that of conventional vehicles but you know they're kind of they're bridging this Gap and you know ultimately it's these business model Innovations are just very very clever ways to to to to to bridge some of the um the the the the capital cost gaps which still exist um but yeah I think I think we've seen some we'll see a lot more I mean what will be really interesting now is as they start to expand into the heat industry and the industrial sector where you know you're facing more um recalculaturant uh uh uh or opposition you know business models could be extremely helpful in those areas exactly right and your point uh about moving from the emergence or gestation stage into the mass stage which is the second one on the S curve I call it the uh the disruptive stage uh is that once a Technologies market share gets to 10 I think actually you make the point that it's between five and ten percent is the inflection point and if you think of it as we talk about hockey stick growth so if you think about that inflection point it's the heel of the the blade on the hockey stick and once it passes the heel then it's on the shaft of the hockey stick going up at a very very rapid rate and we are between five and ten percent and higher on all of almost all of them I was going to say all it's a kind of a blanket statement but maybe we can say all of the key Technologies for this energy transition well actually we are and I really want to make a point here which I have to admit you know I in the early years looking at this issue being a little bit lacks about and I see a lot of narcissists not looking at this you've got to distinguish between flows and stocks um when you're looking at uh change taking place on on an S curve and um so that is to say uh the the the the sale of cars if 80 million cars a year is sold that's the flow and then the stock is the the stock of a thousand million cars the point to me is that if you're looking for um evidence of change you only have to look at the flow forget about the stock the stock inevitably once you get 100 of the flow being new technology you know the stock will follow in in between X years later X being between let's say 10 and 30 years so all we have to look at um analytically is what's happening to the stocks um and what's then really interesting is that when you look at the world in those terms solar and wind are much further advanced than people realize that 90 percent of new capacity globally now is solar and wind um and and it it it it we're basically already there actually in the electricity sector and in the in the transportation sectors you know it's on a global level we're going to hit like in 2023 around 20 percent um but again forget about all these arguments about is how long it takes for the for the stock to change as soon as the flow has shifted the stock is it is a kind of question of of inevitability um and and you know the similar story is happening in heat pumps where it's is now approaching 20 percent of sales um so you know it is really extraordinary when you start to look at the flows of these Technologies how quickly they have they pierce through these these inflection points well let's talk about wind and solar for a moment because uh one of the reasons why they're beginning to uh you know they're going to take 90 percent of new generating capacity in the coming years is because there's been a lot of innovation in other areas that enable them to dominate or to take a bigger percentage of of the grid over time and I'm thinking of things like Market design you know if you have like if you look at the United States where there's a lot of trading in between uh you know regions uh Market design had a lot to do with the penetration of of wind and solar you also have storage Innovation so just a few you know a couple weeks ago I interviewed Salient energy which uh is a good example of you know they're coming out with the zinc ion battery for stationary storage 30 percent cheaper than lithium ion and it doesn't explode it's completely it's completely safe and it can you know you can work at the utility scale or a residential scale and then then you've got other things like you know compressed air storage there's so much Innovation going on to that to uh smooth the way for the integration of a higher and higher percentage of Renewables and intermittent Renewables that that that Innovation is only just getting started so never mind the cost it's that other Innovation that becomes the enabler of the Key Energy technology and this is true and but it also has been true in other major technology shifts I mean color to Paris for example talks about um six major uh technology shifts and one of her very cogent observations is that you often get two or three um Innovations in two or three uh separate but linked areas which enable the whole to happen in a steel and Railways for example um and um in in the case of storage it really has been astonishing and it is I think you know both of us would acknowledge a couple of years ago it wasn't really that big a deal people weren't talking about it that much now um you know if I take the BNF numbers and they've upped their storage forecast by 40 this year we're now talking about 20 30 levels of lithium-ion battery storage 10 times higher of new new deployment than it is uh this year so kind of storage is also moving very quickly quickly up at cesco and as an aside since you mentioned committency it's very interesting the latest iea piece which is talking about the various different impediments to change you know they talk about permitting grades and um in the global South and capital the rest of it they never talk about intermittency because actually it's really folks not the um barrier to change that everyone wants you to think it is it's absolutely a soluble problem you know and batteries is one of the many ways you can solve it yeah that's exactly right I mean I interviewed uh uh the CEO of a Power Association in the American Midwest they had it was a collection of 42 rural co-ops and they are at 35 Renewables today they'll be at 70 percent by 2030 and they'll be at 100 sometime during the 2030s and it's over time everyone is figuring out how to do this and the technology gets better which then makes it easier to do it and it the uh I can understand why there's a lag between what's happening on the ground and the public understanding of this because some of these old narratives as you know you and I have written a lot about energy narrative and they they take root and they're really really hard to to uproot to to modify and yeah this is a job I guess well it it isn't in part is is to develop I mean there are new narratives uh and we're talking about a number of them uh and I think over time and not in the in the you know in the next three to five years a lot of those narratives are going to be exploded and we're going to see a much greater public acceptance of things like wind and solar I mean I'm talking about North America now uh where they're just really catching hold well I shouldn't say that I mean California and so on but anyway on to the next I am I'd like to try if I may for the first time a um an analogy because again we play a lot with analogies I guess um but this idea that you need um constant availability of of wind and so on without it there you know they're invalid um it's a little bit like having a salary right and you have a salary and um and then somebody says come along basically somebody comes to you and says you know would you like to do some work in your spare time and you'll earn some money doing that and you do that and then you know you do a bit more and essentially you have you get it more and more work from more and more money from the work you're doing in your spare time and and you know that just means you can actually reduce working five days a week to four to three on your conventional job but it's exactly the same story here um and and you know nobody says well you you can't possibly do that you can't you've got to turn this money down the same thing for us you know we have all these new sources materializing sonar and went every time you put a solar panel up it reduces the amount of gas you use um doesn't matter it doesn't work at night it's completely irrelevant it just uses you're using less gas and it's that which is causing the disruption anyway sorry but yeah it's this kind of um this kind of uh narrative I think that we're seeking to challenge but ultimately actually it people who fail to recognize that the world is changing actually damage their own cause that's I think the other the point that they want to make in in Broad terms here we can have this fight as it were with fossil fuel incumbents when they're never going to necessarily um come around to it but when they start to recognize that actually it's happening for real anyway um and that it's damaging them by not recognizing uh realities it were that that's the moment I think they start to change anyway sorry slightly digress but yeah well I I can add a little bit of uh to that uh argument because I see it in the Alberta oil sands which is Canada's largest source of crude oil and they have the potential for a pivot here into producing feedstock basically they're bitumen for materials production particularly carbon fiber to begin with and then asphalt binder and activated carbon and potentially others as the processes are are developed and they see that right now as a just a little sideline they're modeling for out to Pat way past 2050 to be competitive in a even a 25 million Barrel a day uh Global oil Market that's there's there's a problem right there is that they they can't see the existential threat to their industry and that if they were prudent they would begin that transfer that transition to be talking about it now planning for it now so that when the transition accelerates and we hit up you know Peak the peak for crude oil say around 2030 and then we get on to the peak or the decline curves we'll talk about those in a minute then they've got another option they've got a plan B that actually could put create generate more value for them so since I've introduced the idea of your of your Peaks why don't you tell us how that works well again it's all very very simple math um you know as and as the new grows the old stuff inevitably stops growing and then as the new grow grows even bigger than the old stuff starts to decline I mean to put some numbers around that if Global energy demand in in Broad numbers is 600 exahjoules growing at one percent a year that's about six exejoules um and in the past that was all fossil fuel fossil fuels provided all of that growth um and now solar wind if you you can't release the way that BP does they um they themselves are growing by around six exojoules a year um so they have become large enough to take all of uh the growth therefore there is no growth left for the fossil fuel system which means that by definition um demand has has peaked I mean that's the kind of that's the very broad picture framing but what's really interesting then is and we did a little piece of analysis is um too strong calling those it's just an observation that you know over the last 10 years to get to this happy moment where Renewables are big enough to take all of the growth um you know it's been quite painful and difficult you know electric vehicles have gone from zero to 17 million um and that's been very hard and and required a huge amount of iteration and and so on and so forth but actually over the next decade as they move up the s-curve um it's going to be considerably easier to integrate much greater amounts of growth so you know there is a debate at the moment if EV uh total number of EV in 2030 is going to be 250 or 300 million I don't know but it's going to be an awful lot more than 17. and that's the point um which is you get a massive surge of growth and and therefore if already today in 2022 we're already talking about Renewables basically taking all of the growth in you know as you go on up the decade it becomes even more obvious every single year that there's simply no room left for fossil fuel Technologies to grow okay let's say they hit the peak then they then there's a plateau what happens during the plateau so I I guess I mean a call is a classic example and it hits its peak in 2013 and it's plateaued basically now for about a decade um so so you in financial Market tones you get two D ratings um I would suggest you get a first day rating when you go from from growth to a plateau um and we've already kind of seen that in in various different areas of the fossil fuel system but then I would suggest you get a second derating when you go from the end of the plateau to decline um and and when people actually work out that as it simply will no longer be required and we haven't yet seen that second um that second D rating but yeah there's kind of in financial Market terms of 2D ratings then you get you know during this long Plateau you get this kind of battle between incumbents who say well it's just you know a temporary phenomenon and don't worry and growth is going to come back and it's all going to be fine um versus the the challenging technology is kind of salivating the great Prospect of all the growth they can take um sorry over the market share that they can take um and then continue to grow very rapidly so you do you know you are going to get a a plateau for a number of years um simply again because of the math of the thing okay now there are two peaks that you describe the Matterhorn and the Fuji um could you explain those please well sorry for the slightly cute um framings um but but the Matterhorn Peak is a very spiky Peak you basically go up and then you go down and um you know something like Car Sales would be a classic Matterhorn Peak you know Peaks at 80 million units in 2017 um uh and and you know now uh it's it it's down actually I haven't got the numbers on my fingertips but let's just say it's assume it's 70 and then approaching clearly 60s in sight as electric vehicles start uh growing so that's a classic Matterhorn Peak but oil demand for cars because you still have the 1 000 million cars that's going to kind of plateau for a few years because you still have new cars coming to the system you know more or less outweighed by um old ice cars coming out of the system but it takes a while for the fleet itself to change um and that's why you get a a Mount fuji-like Plateau that is to say it's kind of a flat top um with various different bumps in it and of course I actually a few people have pointed out to me that Fuji has got a big hole in the middle because it causes no volcano but but nevertheless it's um which is you're possibly getting too cute with the um analogies here but anyway the point to me is that it is a a bouncy bumpy top um where until the the stock of the new challenging technology gets big enough um to to uh to mean that you decline um but you know ultimately the point I guess about the Mount Fuji Plateau is that when you do get to the end of it your decline is just as precipitous as it will be on on a matter haunted climb because at that point you're uh your challenging technology is considerably larger so I mean if I if I if I uh make the obsession after the coal sector the coal sector reaches its peak around 2013. to be bouncing along a plateau for a while um and you know this year the Ia says it's going to be basically the same as it was in 20 uh 13. um because of course of of gastrical switching but in the meantime solar wind is now um 12 of the electricity system still growing at 20 a year um you know back in 2013 it was it was let's say um four percent of the electricity system now it's considerably larger and considerably more capacity to do damage um so I would suggest now that the call sector for what it's worth is reaching the end of its plateau and there are a number uh while the the old technology they'll come up the old energy uh commodity is bumping along on the plateau I mean there are a number of reasons for that other than just things like uh you know the stock of the new technology hasn't reached a critical level yet I mean the incumbents begin to push back governments uh sometimes and I see this in Canada all the time you know the government both the federal government and particularly the Alberta Government have become so accustomed to the royalties and the taxes provided by the oil and gas industry that they're rushing to subsidize decarbonization I mean the the oil sands industry has asked for 50 billion dollars to help pay for its decarbonization by 20 by 2050. and and then they're you know sometimes the the incumbent is able to make its product better it increases efficiency or lower its cost I mean I keep hearing from the oiling and gas types that oh no it's you know it's going to be a bumpy transition well duh transitions are not smooth if you go back if you look at the the 2020 1920s and you know the horses to cars and tractors and and trucks that was not smooth these are you don't change something as humongous as the global Energy System smoothly and then of course you have shocks we have the covid-19 pandemic started in 2020 we have the Russia's invasion of Ukraine that were huge shocks to the system and raised energy security concerns and so and price concerns so can you tell us talk explain a little bit about incumbents pushing back and the role of shocks in speeding up the the energy transition yeah so so I mean the way we framed it is that for the energy transition Technologies the southern weight of batteries and um electric vehicles and and heat pumps and so on the the technology uh issues were basically sold 10 or 20 years ago the economics issues have been sold within the last five to ten years and now the only thing maintaining the incumbent system is kind of inertia and um uh strangely enough as you mentioned political support particularly in petrol States um uh so so that so far so good is absolutely um normal and and you know you can you can maintain a system for a while um one of the problems though as an observation is that 90 of people so only 10 of people live in petrol States um and all of the growth in energy demand for what it's worth um is basically coming from India to China and um uh the the the uh other Emerging Markets most of which have very little fossil fuels and therefore inevitably you know they will be embracing these new technologies and therefore if you're a a major fossil fuel exporter you just there's nothing you can do about that you know if you're if you're if you're doing more demands no longer there then there's you know you you you can't force them to to burn stuff um so that's that's I guess the the role of the encumbers and the kind of limited capacity of the incumbents to to withhold uh to stop change ultimately um then when it comes to shocks well the classic observation is that shocks bring forward change you know in this as in any other area you know covid um during both covet and uh Putin's War you've seen a massive um hit to fossil fuel demand but actually solar and wind specifically have carried on growing so that therefore brought the peak uh demand that we're talking about forward by several years um what about the uh the I guess what I'm I'm getting at here is uh when are we going to see the Technologies get up on the s-curve to the point where where the decline is very is is really quite significant and I remember interviewing somebody an economist from wood McKenzie five six years ago and they were saying because they have oil and gas clients all of their running gas clients are very interested in the decline curve will it have a big shoulder will it have a you know will it be rapid small shoulder and it'll be rapid decline is the 2030s is that the decade when we're really going to see this play out and and heading into the 2040s where well coal oil and natural gas will all be clearly in terminal decline so Malcolm I mean you you call this earlier this is the decade of disruption um if you haven't pivoted by the end of this decade it will be too late I think that much is is absolutely clear um we are today um if I take the BNF forecasts in 2022 we'll we will install 270 gigawatts of solar um and about 110 gigawatts of wind that's enough to produce uh uh about 700 600 or 700 terawatt House of electricity which is all the world's electricity demand growth by the end of this decade will be it'll be two or three times as much um and and that point it becomes completely obvious uh that uh the the old system is is in Decline and I think what we can do now again we're coming back to my food observation and the coal industry if if we're writing saying that the coal industry is the end of its Fuji Plateau um and and the oil industry arguably reached the start of its Fuji plateau in 2019 you know by the end of this decade it also got to the end of its Plateau it it it it it doesn't you know financial markets uh will will observe and see how this is happening in one uh technology one country after the next and you know it won't be hard to persuade uh Financial Market actors that the future lies in inevitable decline for for gas as well by that stage let's let's game this out a little bit so if we're looking at the next uh you know three decades it looks like to me that coal is already plateauing as you made the point and and uh decline is is coming fairly uh fairly quickly uh oil is projected to Peak in 2030 and well earlier actually from from our framing but anyway yeah okay fair fair enough I was thinking of Bloomberg nef uh I just interviewed uh David Doherty their head of oil analysis a couple months ago and he thinks 2030 and it is so we're all most everybody's clustered around a little bit before 2030 a little bit after and and then the question Bloomberg actually was surprisingly uh made the point or they argued that the decline in oil consumption will not be as rapid as everyone thinks I think they're going to go down to for Road transportation to like 36 million barrels a day by by 2040 because Aviation uh demand from Aviation and petrochemicals will keep Rising and there's also the argument that the developing world uh will continue to grow and their energy consumption will grow and that'll that'll make up for some of the decline in the in the wealthier countries and then natural gas seems to be the fossil fuel that will perhaps have the the longest life and uh and be part of the energy transition uh you know we hear the arguments around it being a bridge fuel a transition fuel is is that a reasonable take coal now oil in a decade natural gas in a couple of three decades well not really I think it's considerably faster than that um so again if if the way we would say if we take this Framing and it oil Peaks 20 13 plateaus till 20 uh 22. um I I think oil Peaks 2019 plateaus till the middle of this decade and then it's in it's in clear Decline and um the you know we we've heard all very very frequently um these observations about you know Rising demand for Aviation and pet camp which which will allegedly be sufficient to um withstand falling demand in um in uh trucks and cars and um other areas of oil demand but you know that is to argue from the assumption that nothing changes and there's no innovation taking place in the aviation sector there's no innovation um there's no changes taking place uh among policy makers to put more pressure upon these industries to uh to change and I think that's unreasonable um because we are seeing policy uh Innovation we are seeing sorry policy changes we are seeing technology um Innovation so to kind of have a business as usual assumption for a couple of parts of of oil demand whilst the rest of it is being forced to change it seems to me um unrealistic and then this idea that the um you know you've got natural demand growth coming through in the uh Emerging Market is also actually a very false framing because um you know the biggest area of demand is China China is the leading the shift towards electric vehicles you know they've gone from four percent to nineteen percent to the last couple of years of um of of sales and you know actually uh China's looking at 100 EV sales very very clearly by the end of this decade given their kind of their shift of up the S curve um so and any of course is is seeking to follow in the same footsteps southeast Asia as well so it's absolutely I think false framing to assume that the Emerging Markets will will follow the the kind of dying declining Technologies um in in develop markets that was kind of a good idea when the Technologies were expensive now now is the cost of fullness no longer valid and then finally about gas that you know can gas survive for you know considerably longer I guess it kind of depends on price right I mean 40 of gas goes into electricity generation and and there as if you are indeed facing 10 Solar Wind by the end of this decade um and and really cheap batteries it it doesn't seem credible to me that um gas demand would be able to continue to grow and I I recognize it's a much more finely balanced um set of calculations uh for for gas than for the other two but but nevertheless as these Technologies uh continue to grow and continue to undercut the their Ops on price it just becomes um much harder for for growth to materialize okay you and I are in agreement that the energy transition is accelerating rapidly and uh the key Technologies are moving are well past their inflection points other enabling Technologies are either there or past and some are approaching their inflection point I've been making the observation lately that the energy transition has reached the point where it has kick-started an economic transformation a global economic transformation I mean we we need to build new Industries to build these new technologies we need when plants when turbine plants and solar panel plants and we need you know if we're going to build batteries we don't just need critical minerals we need the refining and processing of those minerals into metals and then we have to take the metals and make them into battery components and then turn those into battery packs I mean that that supply chain is not a small thing or an easy thing to to build nevertheless we have to build it and so we're seeing enormous sums of capital go into that industry so would you agree with the basic premise that the energy transition has already kicked off an economic transformation and secondarily uh if that's true then how much time do we have to to make that pivot well um to give you a few numbers from uh the iea Publishers data on this issue once a year and the world energy investment uh publication um the spending on um fossil fuels basically has gone from 1400 billion dollars a year down to about 800 or 900 and in the same uh period depending on uh clean Technologies has gone from about uh 800 to 1400 or 1300 I think you know so there's been a very very clear Capital allocation pivot from fossil 2 Renewables and it's quite funny you talk to Fossil folks they they keep on whining about how it's a lack of investment in fossils which is causing this this energy shot well not really it's just a it's a reallocation to the new stuff and what's caused the shock is Putin's um War but anyway um uh look um um this is indeed kicking off massive uh opportunity and you talk to anyone as you know across the renewable energy supply chain um everything is tight uh we have to indeed build the the batteries and solar panels and for me one of the really interesting developments this year has been the provisions um in the ARA for um uh driving a a build up of basically the Western um well the U.S and Western um supply chain because we really allowed or the West allowed China to steal a march here and to dominate all of these industries and now you know with the invasion of Ukraine and and and there is a recognition this was not terribly smart um politics and and we do need to build our own supply chain I think you and I and many others have been saying this for a while um and now therefore it's great that that's happening um and it's not just in the US and Europe sources seeking to to build and strengthen its own supply chain um it's gonna I mean it's going to be a very um it's a Winner's take-haul environment at the moment everyone's trying to do it everyone's trying to seize the the growth opportunity there are then kind of two debates first of all you know can we do it can we build this stuff quick enough to to keep up with demand um and and then you know the second debate is who's going to win I don't really know who's going to win but in terms of the can we do it um what's absolutely astonishing is if you look at stuff like um uh solar panels This Year we're building 270 gigawatts of solar panels the industry in China's um tuning up to build a thousand gigawatts uh by the end of this decade you know a decade ago we were building um 30. uh you know it's the most extraordinary Story the same thing with um battery flash remember when when Elon Muskego Factory was the first gigafactory now there are like 250 of these things um so given the opportunity people will allocate Capital at enormous scale into growth industries and that's what's happening it's going to be very stressful um and there will be you know bottlenecks and and problems to solve but that's what money is very good at Flowing to solve those bottlenecks and at the current time I've I've uh Bentley Allen from the transition accelerator makes this point he's an expert on Industrial strategy and policy that the these new Supply chains are in flux today they won't be in flux by 2030. they will have hardened because the capital will have been allocated plant will have been built as Supply chains around those plants will will be coming into existence and that what that means is there's no time to Tarry any country like Canada for example that is is very reliant on oil oil and gas is Far and Away the biggest export from Canada it's about 100 billion dollars the next is automobiles at about 65 billion dollars and so we rely on exports of oil and gas to pay for our lifestyle and to generate taxes in revenue and and royalties that support our welfare state support our social programs and if we don't pivot and get into those new Industries and create uh new Supply chains then after 2030 ish we will have lost out because you will become you become like Britain at the end of the 19th century which failed to reinvent itself for the technology shifts that were going on uh yeah it is absolutely no point being an ostrich and denying the the technology shift that's going on and particularly if if you're a major fossil fuel expert I'm like you know we made this argument a few times to uh to fossil fuel exposes actually you guys should be at the Vanguard of the change that's happening because um it's happening anyway you can't stop it and if you have to actually retool and reinvent your economies and actually it's interesting you see very different approaches here and Russia's kind of um has indeed stuck its head in the sand and is trying to produce more coal um last time I talked to the guys um but uh Saudi Arabia of course is has been allocating a lot of capital um to companies like Aqua to build solar um across the world and the noise is definitely thinking very very hard about how how to maintain their lifestyle in a um in a new world so yeah it's got to be done well we've we've talked about what needs to be done uh we've talked a little bit about how it can be done and a little bit about when it needs to be done uh Kingsmill uh I really I appreciate uh your insights here I enjoy our our conversations we'll have you back in 2023 as you continue to work on your theory and flush it out a little bit and uh and particularly you've already written a piece on on changing energy narratives that I I will definitely have you back to talk about that uh in the coming year so Merry Christmas to you and your family and all the best in the coming year fantastic thanks a lot Merry Christmas

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Length: 57min 16sec (3436 seconds)

Published: Fri Dec 23 2022