Oil's alternatives still thrived as crude prices fell and Opec's deal is likelier to help than hinder them
On the face of it, a rise in oil prices - and the associated increase in exploration and production activity that should follow—is probably a blow to alternative forms of energy, at least on the margins. A more sustainable oil industry and beefier investments in oil and gas projects could even draw investment away from renewables or, say, electric-vehicle (EV) development.
But don't overestimate this. The shift from fossil fuels to alternative energy has already built enough momentum in some sectors to resist much of a fightback from a re-emboldened oil industry. What Opec, Donald Trump, the Chinese government or anyone else does is largely just noise. Green energy has the wind behind it whether the oil price sticks at $60 a barrel or hits triple digits.
No one is yet worrying about oil's future in the petrochemicals sector. But transport and power look much more vulnerable. It used to be that oil executives could wearily point the treehuggers in the direction of renewable's intermittency or EVs' lack of range. So rapid has the progress been on both those fronts in the past few years, though, that within a decade neither critique will hold much water. Falling renewables costs mean subsidies are increasingly less necessary too.
Recent figures seem to bely this trend-new investment in clean energy globally fell 18% last year to $287.5bn, according to Bloomberg New Energy Finance (BNEF). But not for lack of interest. A fall in equipment prices was a major reason. Indeed, a record 70 gigawatts of solar-power capacity was added in 2016, compared with 56GW in 2015; and while new wind capacity fell to 56.5GW in 2016, from a record 63GW in 2015, last year's total was still the second-highest figure ever. Investment in offshore wind, which remains costly, did hit a record of $25.8bn in 2016.
$50bn - amount Saudi Arabia plans to spend on green energy by 2030
Sharp falls in clean-energy investment in China (down 26% from a record 2015) and Japan (down 43%) reflect market cooling there. But one reason is these countries needed to absorb the new capacity added earlier. In January, China said it plans to spend over $360bn on renewable power by 2020. It also wants a 5m-strong fleet of plug-in cars on its roads by then. It already makes more EVs than any other country.
And while the oil market was fixated on Opec's deal-making last year, the rest of the energy world was tuned into the US' battery business. The start of mass production of batteries at Tesla's $5bn Gigafactory, in the Nevada desert in January, neatly symbolises the contrasting attitudes. One part of the energy business—oil—was pinning hopes on an ageing cartel to raise prices and restore some mojo. Another—batteries—was ramping up capacity with an eye on fast-paced technological change. The Gigafactory plans to double the world's production capacity for lithium-ion batteries by next year.
Some of those batteries will back up solar and wind generation both for homeowners and industry. Others will power Tesla's new $35,000 Model 3 electric car, which the company hopes will become its T-Model Ford: a mass-market offering. Tesla wants to produce 0.5m of them by 2018.
It's not just Tesla. Companies from Beijing to Munich are hopping on the clean energy bus. Lower costs, longer ranges, a green image and the thrill of the new could persuade consumers to make a rapid switch away from the internal combustion engine to EVs, regardless of how carefully Opec hones its oil price policy. And if the group inadvertently engineers a price spike, all the better for oil's alternatives.
Despite the hope for higher crude prices since the Opec deal, big international oil firms aren't exactly sticking to the script. Shell, BP, Total and Statoil have been bolstering their clean-energy investments and commitments. Some, like Shell and Total, are deliberately tilting their fossil fuels portfolios away from oil towards cleaner gas.
Even Riyadh, orchestrator of the Opec deal, is plotting its own beyond-oil strategy. Saudi Arabia's oil minister, Khalid al-Falih, has just said the kingdom plans to sink up to $50bn into wind and solar projects by 2030, as well as investing in gas. Saudi Arabia has also been removing subsidies on petrol and electricity. All of it is part of the kingdom's Vision 2030, which aims to diversify the economy away from oil dependence.
The oil industry is nothing if not a survivor. But it's notable that this Opec deal hasn't quite garnered the glee of past ones. Two years of weak oil prices brought some demand growth back-but didn't do enough to stop green energy's advance. Firmer prices now will only be a boost to oil's alternatives.
This article is part of a report series on Opec. Next article: Draining the swamp