Here's why oil's future is grim

Read on the website Vestnik Kavkaza

What do auto manufacturers, utilities and oil companies have in common with Kodak, Blockbuster and Macy's? Their business models are rapidly vanishing under the pressure of technology innovation and societal norms. As CNBC writes in an article "Here's why oil's future is grim", five countries have already announced an end date for the sale of gasoline and diesel cars: Norway (2025), Germany and India (2030), and France and the U.K. (2040). Many others are preparing to follow, proving that electric vehicles are about to go global and follow mass market adoption curves.

While these government bans are welcome, they may not even be necessary. In Europe, total cost of ownership of an electric vehicle (EV) is already similar to most internal combustion engine cars. With rapid improvements in battery technologies, cost of ownership of an EV will soon be significantly lower everywhere.

In fact, traditional cars will not disappear solely due to environmental concerns, but also because electric cars are both cheaper to operate and safer because the position of the motor and battery reduce injury risks from frontal collisions and the probability of the car rolling over. A cheaper, cleaner and safer car will inevitably win over the market. The only question is how long this will take. Incumbent car manufacturers are waking up to the urgency of the transition to electric vehicles. After its near-death experience in the diesel emissions scandal, Volkswagen is now leading this transition, with a battery factory planned and 30 electric models to be released by 2025, representing 2 to 3 million cars per year (20 to 30 percent of its annual unit sales).

Volvo (a Chinese-owned company) recently announced that all its models would have an electric motor by 2019, further signaling the EV shift in China – already the largest electric vehicle market in the world.

Automakers are just one example of an industry that will be forced to reinvent itself as technologies and policies shift the world economy towards a low carbon model. Electric utilities are another. There is practically no industry that has as much to benefit from, and conversely so much to lose from this transition. Only a few years ago, many experts were predicting the demise of the big utility and centralized grid, with distributed solar mounted on rooftops taking over the world. In fact, solar has grown exponentially in recent years, jumping 50 percent from 2015 to 2016 alone. But this has happened largely through utilities building large solar farms, not rooftop solar.

By 2030, renewables will account for half of the world's energy mix, according to Goldman Sachs. Even now, the cost of wind energy, and in many places solar energy, is lower than gas, coal and nuclear. This is true without subsidies.

The auto industry's transition to EVs and the utilities' transition to renewable power are connected. Electric cars will increase the demand for electricity and for grid infrastructure to support charging stations and charging at home. With new approaches to batteries under development, such as solid state batteries, EVs and renewable energy supported by electricity storage are just entering the steep slope of the adoption curve.

These rapid changes will leave the oil and gas industry in crisis. Goldman Sachs recently said oil demand could peak by 2024 – a major departure from traditional analysis that shows oil demand rising to 2040 and beyond. Some companies, such as Total and Norway's Statoil, have seen the writing on the wall and are aiming to become "energy companies", focused on all forms of energy, including solar and wind. Others will continue the failing business model of exploration, drilling and distribution, only to meet the same end as the coal industry.

Many of these changes are already well known, with most decision makers realizing the need to reinvent entire industries. The pace of this reinvention however is problematic. The climate change clock is ticking and the next few years are crucial to ensure earth's temperature does not rise beyond 2 degrees, the goal set at the Paris climate conference. All these technological changes are interconnected and mutually reinforced. These advances hold immense promise for our future, and will shift and create trillions of dollars in wealth. It's time for business leaders, policymakers, consumers and citizens to embrace the promise of new technologies and shake the status quo.