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Things are getting tougher for fossil fuel industries

The Sun Is Setting On Fossil Fuels  http://www.forbes.com/sites/jonmarkman/2016/06/27/the-sun-is-setting-on-fossil-fuels/#25586259588fJon Markman ,

Things are getting a lot tougher for the embattled carbon fuels industry. That’s according to a new Bloomberg research piece predicting a slow, inevitable death for the widespread use of crude oil.

To be sure, fossilized dinosaur goo has been under siege for a while. The politics of climate change coupled with spills, fires, explosions and other self-inflicted wounds have made industry survival challenging. Weak commodity prices have made it all much worse. In the past, the industry has persevered. The difference this time is that competing energy sources are finally starting to make economic sense.

Take solar. Prices for solar panels are plummeting. The cost of solar panels has declined 95% since 2008, and the trend is accelerating. While that makes it very difficult to be in the business of making panels, it’s a dream scenario for large utility businesses building out capacity. That’s exactly what has been happening. There has been more corporate investment in solar in the first quarter of this year than all of the other energy sources combined.

Meanwhile, the math for fossil fuels has been predictable and grim. Prices for coal can’t fall fast enough. There is no demand for new supply. In the developed world, environmentalists have squashed debate. Coal’s share of U.S. electricity production has gone down 17% since 2005. This comes even as companies like General Electric (GE) use Big Data analytics to make the idea of cleaner coal a reality. In the developing world, economic upheaval in China has meant less demand, leaving most producers waiting for India to come on line with new coal-fired power plants. Good luck with that in the current world political climate.

Oil and gas has not fared much better. U.S. oil and gas drilling rig counts sit at a 40-year low as investment grinds to a noisy halt. And, while prices for oil have rebounded from their recent moribund lows, there remains little appetite for new investment because most believe it’s just a matter of time before prices resume their downward trek.

It’s the very same deflation dilemma solar panel makers face, which, if you think about it, is weird because oil doesn’t really compete with most energy types. It’s mostly used for transportation – powering cars, planes and ships.

Bloomberg’s New Energy Outlook suggests the peak of the fossil fuel business will come as early as 2025, just nine years away. That’s the year researchers expect a tipping point as electric cars eat into excess demand for oil and renewables finally kill the growth potential of coal and natural gas. That’s not to suggest these energy sources will go away; they won’t. They’ll just begin a gradual decline that suddenly steepens, like horseback riding shrank dramatically but did not disappear after the automobile went into mass production.

This development should produce a reliable list of winners. I’m not that crazy about solar stocks right now, as the industry is still wracked by the margin-depleting force of commoditization. But there are other plays. Refiners thrive with low feedstock prices, and the future will bring plenty of that. Tesoro and Valero are key operators in the United States. Utilities companies have been aggressive investors in renewables, especially solar and wind. Southern Co. is an all-of-the-above company with scale. And Tesla has a battery technology that will finally allow the cost-effective storage of solar power. Put all these on your watch list.

July 6, 2016 Posted by Christina Macpherson | general | Leave a comment