Originally published on Forbes.com on April 13, 2021

The snowball has begun to roll, and renewable energies like wind and solar are increasing rapidly. It’s hard not to notice if you are challenged to pass one of those giant wind turbine blades being trucked along the highway.

In President Biden’s proposed budget, just out, he has inserted a big chunk of money aimed at arresting climate change and including spurs for renewable energy. For example, the Energy Department would increase by about 10% overall, but with $8 billion (an increase of 27%) directed at a new generation of electric vehicles, nuclear reactors, and other alternatives to burning fossil fuels. 

The cost of solar and wind generators has come down a lot in the past decade, and the price of batteries for storing electricity has been halved in the past couple of years.

The case for renewables to replace fossil energies to reduce greenhouse gases (GHG) in the atmosphere has received a lot of attention, with a goal to avoid the worst effects of global warming.

It’s not hard to see that renewables will increase over time, and that fossil energies will decrease. The coal industry has been forced to accept this. But the oil and gas industry, which has been particularly successful in their shale revolution the last 20 years, is reluctant. And understandably so, because they see profits falling and jobs going away.

This decline in oil and gas production – will it be slow or rapid? A gradual adjustment or a painful disruption? Some answers come by putting numbers on the US greening of electricity and transportation, two of the largest users of oil and gas. The analysis is simplified but still insightful.   

Let’s begin with fossil fuel consumption in the US in the year 2018. Figure 1 compares this against renewables and nuclear.  The approach is to look at goals for renewable increases (called greening) and convert these to fossil fuel decreases based on a zero-sum metric in Figure 1. For simplification, the growth of world population and need for extra energy is not considered, even though this could be substantial through 2040, the timeline considered here.

Figure 1. US energy consumption by source and sector. Source: IEA.

Greening of electricity.

In the US, gathering data for the greening of electricity is a challenge because every state in the US is different in where they are at and where they want to be by 2050.

But the US as a whole has a new end-point: 100% carbon-free electricity by 2035, as proposed by President Biden (Figure 2). Nuclear is regarded as a renewable energy here.

Figure 2. Percent of US electricity that is carbon-free. Source: Washington Post.

Note the start point of the figure is 38% which comes from renewables plus nuclear sources. The nuclear portion is debatable, but its sizeable and including it will surely help Figure 2 to reach its 100% goal.

If the US electricity is to be carbon-free by 2035, then all 23 quads of electricity generated by coal and natural gas in Figure 1 must go away. They will have to be replaced by renewables like wind and solar because nuclear probably won’t expand much in the US. So these other renewables will have to increase from 8 quads now to 31 quads in 2035. This is an increase by 4 times which seems like an enormous goal, and one has to wonder how practical it is.

The demise of coal-fired power plants under this scenario is not unrealistic, as many of them have already gone away or have an end-of-life date before 2035.

But the theoretical demise of gas-fired power plants would be a major hit. Natural gas consumption would have to drop from 31 quads to 21 quads – a dramatic drop of 32% over 15 years.

This 32% doesn’t consider natural gas changes in other sectors such as industrial, residential and commercial, but their consumption is likely to fall also. For example, several cities in California are considering bans, or have deployed bans, on natural gas use in new buildings. This would make the drop even greater than 32%.

Greening of transport

The transport sector works off oil, primarily, and it’s time to go there to study future changes in the transport industry.

Cars and trucks are going green at a rapid rate in some countries. Norway leads the pack with over 50% of electric vehicles in new car sales (Figure 3). The US lags seriously. Australia also lags – perplexing because one of seven states, South Australia, is a world leader in electricity generation from renewables, and some other states are not far behind.

Volkswagen recently announced its dive into electrified vehicles (EV). The basic SRV, called ID.4, will be priced at $40,000 and have a range of 250 miles. Their target is a million EV sales in 2021. Apparently they even plan to build their own charging stations across the US. 

Figure 3. Projected uptake of electric vehicles as a percentage of sales, by country. Source: AUSTRALIAN GOVERNMENT, DEPARTMENT OF INFRASTRUCTURE, TRANSPORT, REGIONAL DEVELOPMENT AND COMMUNICATIONS.

In the US, cars have started going electrical, but plug-ins are less than 2% of all US cars on the road and widespread adoption will be dubious if charging stations are not built quickly enough.

Figure 1 shows that oil usage in US transportation is 26 quads in 2018. Figure 3 predicts that new sales of electric vehicles will be 50% by 2040. If, say, this means a third of all vehicles on the road are electric by 2040, then 26 quads of transportation petroleum (oil) will have declined by 9 quads.

Since total petroleum usage is 37 quads in Figure 1, this 9-quad decline implies a 24% decline in production of oil in the US by 2040. But if industrial usage of petroleum also falls, as expected, the number would be greater than 24%.

Renewables other than nuclear would have to increase by 9 quads to replace this petroleum decline by 2040. Along with having to replace gas and coal power plant energies by 23 quads, the total amount of new renewables would need to be 32 quads to replace the fossil energy reductions in these two sectors. Renewables would have to increase from 8 quads now to 40 quads by 2040. 

This would be an increase by 5 times which is such a massive number that it adds doubt to the goal of replacing all power plants by renewable electricity by 2035.

Glide path for oil and gas production.

So, as a rough estimate, the numbers suggest a 32% drop in natural gas by 2035 and a 24% drop in crude oil production by 2040. The natural gas drop is based on a federal government goal, which will likely require a carbon-pricing mechanism to succeed. The drop in crude oil is based on a comprehensive modeling study of the uptake of electric vehicles by 2040.

A glide path is a picturesque way of describing a gradual transition to lower oil and gas production. The most common landing strip is the date of 2050, which has generally been adopted as the goal for net-zero emissions of GHG.

But in this article the glide path has an altitude drop of 32% by 2035 for natural gas, and an altitude drop of 24% by 2040 for crude oil.

These percentages are likely to be lower limits. So when oil and gas companies talk about their recovery from the pandemic and associated oil price plunges, and wells that were shut-in in 2020, their reasoning is to keep profits and job numbers stable.

Such reasoning is in conflict with the simple supply and demand picture presented above. In the US, if demand falls in electrical and transport sectors, then supply is likely to follow in the form of cuts to oil and gas production.

This picture finds support when the federal government raises climate change to a “crisis” stature and a new groundswell for climate action appears amongst the US population. It might be wise for oil and gas companies to adopt a proactive stance and see what changes could be made in their business, as uncomfortable as that might be.

The simplest way forward might be for oil and gas companies to diversify into renewable energies.

Bp has done this by committing to be 40% invested in renewables by 2030. Total has done this through a $2.5 billion buy-in of Adani Green Energy. ExxonMobil has set up a new company called ExxonMobil Low Carbon Solutions that initially will promote carbon capture and storage. And Occidental are building a huge wall of fans to capture CO2 from the air and then bury it underground.

The snowball is gathering speed.