You're listening to Redefining Energy.
Your co hosts.
From Berlin Gerard Reed.
And from London Laurent Today on Redefining Energy, we're going to talk about fossil fuels and whether we're going to actually see peak demand in the next few years or not.
And of course there are furious debates around experts whether we're going to see the consumption stay around one hundred million barier level per day or if we're going to.
Go down exactly. So we decided we bring in an expert someone Listen, I've known a long while. It was like myself. Comes in the equity research background, and what's his name?
His name is Bond, King's Mill Bond.
He's definitely got the coolest name in the industry, doesn't it.
Yes, not only has a great name, but he works at RMI and he publishes exceptional research on the future of energy.
So let's bring him on the show. King's Milk, Welcome to the show.
Thank you for having me. Folks.
Well, I'm going to jump right in. Last month's ex and Mobile release a report saying that basically we're going to continue burning one hundred million buried of oil for the foreseeable future, which, of course Appeck found it very interesting report. But we brought you because you have a bit of a contrarian view on the subject.
I don't think it's especially contrarian to say that incumbents taught their own book, and incumbents expect a future in which they remain extremely profitable. Think about the famous debate about horses and tractors in the nineteen twenty see Horse Association of America regularly put out report telling us that forces were the future and the tractors didn't work. It's the same thing here with excell It's not surprising that exot is telling us that in twenty fifty we'll still
be using a lot of oil. But you have to believe in a lot of very profoundly improbable things if you want to believe their forecosts. Give us the contrarian view, then it's not contrarian at all. I think it's merely a realist view and a reflection of what is happening in the real world, rather than the kind of make believe world of spreadsheets in which fossil fuel incumbents inhabit.
And reality similarly is that you have exponential growth of clean energy technologies which are now large enough to disrupt the current fossil fuel system, and they will push fossil fuel demand into permanent decline by the end of this decade.
That's a big statement. Tell us where does that start and how do we when do we know we've really reached that tipping pointer, because that tipping point is a game changer for the oil industry and also I think clean energy in general.
It's very important to focus on the facts of the case and just to look at the information, the data that's coming out. Year after year, we're seeing the exponential growth of these clean energy technologies of solar and wind and batteries and of course all of the paraphernalia surrounding that system. And then equally, year after year we're seeing peaking demand for one aspect after another of the current
fossil fuel system. So just to give you a couple of examples, So, fossil fuel demand peat in the OECD almost a generation ago in two thousand and seven. Fossil fuel demand peat in the industrial sector a decade ago in twenty fourteen, as the result of the electrication of Chinese industrial sector. Ice car demand peaked in twenty and eighteen. I could go on for a long time, but you're just seeing one absolutely indisputable peak after the next in
the old system as the new stuff comes in. And that's precisely what you would expect in any.
Can I be contrarian to the contrarian square contrarian if I look at the world globally and I'm totally with you on the OECD, only this year will the addition of wind and solar be one hundred percent of the growth of electricity. Why it's because let's name it the global sauce India groing. It's called demand that's for electricity.
And the second thing is, although the EV market is going we're going to do seventeen million evs, so the time it's going to take to move the transportation sector to electric while at the same time jet fuel is going up and chemicals is going up. So are you really confident that we're going to see a significant decline because I'm still on the fence here.
So, Laura, you're putting together a lot of different issues here and hard to address them all in a single comment. But let's stop with electricity. Electricity system, there are full basic pieces when it comes to countries inside electricity demand. So you've got the OECD, you've got China, you've got the Global self, and you've got the Better States. Those are your four pieces inside the system. And we have this SECDP about fifteen years ago, I should say, we
have the China peak in twenty twenty three. Those two regions alone around sixty percent of the total, so we already crossed, as it were, the tipping point. You then have the global self, or actually one third of the global self has also seen peak electricity demand. It's right across Latin America and in various other countries. So you're kind of left with two or one and a half pieces petro states, which is about five percent of the global population, and the rest of the global self, where
in fact there's also growth taking place quite quickly. The one I guess is that the decline in the two biggest pieces of the system OECD in China will outweigh the relatively small amount of growth in the remaining growing parts of the system, and that again is absolutely normal.
You'd see that in many other transition. Then when it comes to your second point, for about the electric vehicle story once more, here you've got to look at what's happening in the world's largest market, which of course is China. As everyone knows, electric vehicles are now fifty percent of total sales in China, and if we continue to extrapolate the S curve, then we're going to be basically near
one hundred percent by the end of this decade. And from China, the low costs and that technology then spreads across the global self, and that means you can of course have what Hues called reverse sedience, that is to say, certain specific countries which hold back against change, but it's not going to slow aback the global tig King.
Can I ask you about I can sort of get my head around peak oil demand. I can ask get my head around peak coal demand. Where I sort of can't get my head around is natural gas. Can you give your sort of thoughts on that and how you see demand for that going forward?
Gas?
The first point to be made, of course here is that all prices are linked, and therefore, as you have this new enormous, cheap energy source of renewables coming into the energy system, it will impact the entire system in ways that we can't necessarily forecast in detail. In twenty twenty four. But one has to realize that very simple economics, when a cheap, giant new energy source comes into a
massive system, everything gets impacted. So then when it comes to gas, the first bottombout gas is that, as you know, basically half of gas is used for electricity generation. In the electricity generation space, the requirement for the gas fulfills for intermittency is relatively small. The requirement for baseload, however, is going to be continuously eroded away by superior, cheaper renewable energy technologies. And this again brings me to something
which is really significant in the debate. We are not arguing about the date of the endgame, or when the endgame happens, or how do you solve the last twenty or even thirty forty percent. We're arguing about a peak and a decline in a system which is eighty percent a primary energy production. That's much easier to podcast as much easier to see that this is happening will happen.
I love what I hear, but also I can see stuff like in the US or in Canada, gas is a two dollars pum and btu which creates a fuel costs omega. What hour a ten dollars, okay, I multiply by three point four, and then I put the energy efficiency of the turbine, so ten dollars promega what our plus is dispatchable. It's going to take a bit of time for solar plus batteries or even when to reach that level. Just to illustrate that the data centers are
really power hungry. They took the big talk about their emission. I think they cook their books, but in reality they just want power wherever it comes from. So on the gas story, as long as it's that chip, it's a tough one to be now, of course, when you're importing it from Russia and cost of fortune, I understand. But there are places where they're just going to continue to use gas as much as they can.
There is no dispute that in the very low cost locations of gas in the United States, or oil in Saudi Arabia or coal in eastern Russia, people will carry on doing this stuff. There is no dispute about that. Good luck to them, and they'll carry on doing it for decades to come. But the marginal change is not happening in those locations. All of the global growth now in primary energy demant is taking place in the Global South, and in those countries, they're not channing and out handering
out prices of two bucks. They're buying an energy at ten and if you're infer multiple is five. In fact, I suspect the real multiple actually is eight. With a level of efficiency in those markets, ten bucks is eighty dollars per mega. What hour you can churn out soda at forty You could put a battery on that and account for the intermittency, and it's going to be sixty. This debate is completely over. Ninety percent of all new electricity capex globally, in eighty percent in the Global South
is now renewables. There's a few little pockets of resistance still to be cleared up, but that's completely irrelevant to the global story. I mean, sorry, I know you don't necessarily disagree with this at all, but it's also really important to say that the existence of continuity of fossil
fuels in various parts of the system doesn't matter. It's all about what's happening at the margin, and what's happening to growth in the growth markets, and what's happening to price at the margin, which counts.
Kingswell, I just want to follow up there on the Global South. My own view is that these countries can really take a big leap ahead of us because we've got an old system and I don't mean just a father fuels. Actually it is a fossil fuel based system. Even the electricity system is fossil fuel based. It's been around for one hundred and twenty years. They can embrace electrification and renewabilization and by doing that they can make a huge leap.
For that is indutedly true. So basically two narratives of the Global South. The first narrative is that the Global Self is a useful way to prop up the dyeing fossil fuel system decline in the wears, but growth in the global selth thin good is for that everything is fine, And that's one narrative that the fossil fuel folks are pushing.
The reality is that the Global Self will ride the clean tech revolution to energy prosperity and to growth, and they will use these new technologies in the same way as they would use any new technology in order to satisfy the legitimate desire of their own citizens for more growth. And what's happening in Africa and in Latin America and South Asian Southeast Asia is you are seeing certain wise government deploying clean energy technologies in order to get energy
to their citizens, which is cheaper. And to be clear, the global South is a net fossil fuel importer, just like Europe and China and India. They don't have a lot of fossil fuels. They've got sixty percent of global population, but twenty percent of fossil fuel production and reserves and seventy percent of global renewable potential. So these folks, of course they're going to embrace renewables now that the prices have fallen. So they're basically two barriers in the way
of change in the global cell. The first barrier, not work can necessarily solved on this podcast, is the fact that some elites make so much money out of fossil fuels that they like to continue to important use them. That's kind of a very specific issue one hundred percent. But the second issue which has been holding back change is capex and the observation that the capital costs of clean tech was higher than the capital costs of deploying fossil fuels. Now, of course, because of the collapse in
clean tech costs, that is no longer the case. So the capital cost if you're building new stuff, the capital costs of solar is broadly comparable with the capital cost of building coal or gas. And of course you have the great benefit for the next thirty years. You don't have to fork out ten dollars per remember to you to buy your energy whatever it is. So what we're seeing, of course, is a tenuous shrinkage in reasons not to
deploy clean energy technologies in the Global South. And if I may give you one further observation of what's happening across the global self, there is this perception that people are not changing. Actually, folks, they are. We're writing in port of this. At the moment, sixty percent of countries in the Global South have already passed the five percent tipping point in solar wind as a share of electricity generation.
Thirty three percent have already seen peak fossil fuel demand. That, as I say, is cross Latin America, in Thailand, in South Africa, in a series of other countries around the world, and in fact, twenty percent Girarda doing exactly what you suggest and have elite frogged. What's going on in the west.
Look, I'm with you on this one one hundred percent. I don't know if it's putticy. I thinking about this pain point. I was in South Africa six months ago and at seven pm you had blackouts everywhere in Cape Town and there were start to disoginerate ours, every shop. You know, they gues, oh you know we're putting putting sola. Next year, were fed up with s com You look at Nigeria, the moment they stop subsidizing oil, it was
a solar alboom. I can foresee next year it's gonna be Egypt because EGIP has been relying on this gas field which is not producing. Now they need to import. Guess what EGYP is super sunny. Plus the demand is for cooling during heat waves. So I can foresee Egyp's going to be a massive, massive, and in a more
sinister but nevertheless interesting negdotal way. The guys who are the biggest solar installer in Lebanon are the Esbola because it is what it is energy security, right yeah yeah, So even for people which you don't want to spend your vacation with, sola is the solution. These are just examples, but I'm with you.
A couple of the observations. Globally, we have about one hundred times as much so little inn potential as fossil fuel extraction today, but in the global South it's four hundred times because they lack fossil fuels, they have a lot of your space. Actually for these countries and for everyone around the world, we have new options at the moment, I think this is what we really want to get across. A lot of them modeling being done by Xon and
other folks in the fossil system. They're modeling the current system. They're not thinking about the new, They're modelling old. And what you want to do is you want to model the suite of possibilities that people across the globalself have in front of them today. So going to be you a householder or a small business, or or a large business, or a utility you can install so lead any level and that can then get you energy where you had
Number four. If I may come also, folks to at this point about political economy and resistance to change, which I guess is ultimately going to become the primary reason why people don't deploy clean tech because they leaks make so much money from the current system. So let's think
for a second about how big resistance is. So if I go back to my framing before, if they're being four parts to the world, the OECD, the Global SEUTH, and the petro region petro regions add the whole lot up to about five percent of global population, about ten percent of energy demod that's kind of a separate bucket. They need to change, but the political resistance to change will be very, very powerful. But within the global South, only five percent of demand is coming from petro states,
places like Equatorial Guinea or Guiana for example. It's five percent of demand. And there's a further six percent of demand which is coming from countries which are major fossil fuel exporters, such as Nigeria. So that's basically about another ten or eleven percent. These are simply going to be the last people to change, but that's not going to
stop changing the system as a whole. And there are a couple of classic analogies which I would love to get across because if very often missed that you don't need to worry too much about endgame problems. Think, for example, about electricity electricity was invented in nineteenth century and then started to get deployed and run nineteen hundred and here
we are in twenty twenty four. We still have ten percent of the global population which doesn't have electricity, But nobody is saying that the fact that ten percent of people don't have electricity means that electricity doesn't work or the electricity is not going to have a major impact upon the world. And equally, if you look at the Internet, thirty three percent of people still don't have internet access, but Internet has nevertheless radically changed the world. And it's
the same thing here solar win. Today's about fifteen percent of global supply. It's going up towards forty to fifty sixty leaders are above fifty percent, and as it does that, it will radically change and disrupt the current system long before you get to any of these endgames.
Kings, Well, I'm hearing a lot of positive news from you. There's one thing that we haven't talked about, which I think is a correlation of all of this, which is carbon emissions. We must be close to global peak emissions.
If you're right, it looks as if we are at the peak of global emissions coincident with peak fossil fuel demand because of the growth, the very rapid growth of these clean energy technologies. If you look, for example, at emissions per person, emissions per person have clearly fallen off the global peak for about five years beyond peak emissions per person. That's a kind of harbinger of the change
to come. And you combine this peak emission series to deep peaking emissions in China and then those two being sufficient to drive decline at a global level. But as you say, Gerard, it's a start. There's always a distinction to be made between the argument we make that there's disruption coming to the fossil fuel system, which is absolutely obvious, versus will we drive emissions down quickly to get to
a certain temperature target where it's still completely moot. And I agree with what the scientists are telling us, and we need to do a lot more to get to what point five degrees or even two degrees than we're currently doing. But that's a different debate to the fact that the current fossil fuel system is going to be disrupted whatever happens.
I don't know about carbon accounting, but what is sure is that although we kind of have a decent idea of what's going out of the tailpipes. There are a lot of problems upstream with the methane. Here. I want to do a shout out with a wonderful woman called Sean Wilson. She's in Texas and she has a special camera and she checks all the gas wells and you know they are spewing methane and after they are not reporting them to to the EPA. So I mean, this
is a real ecoher of ours. And I think there are much more methane emissions that are reported for at those big cups and so on. That's number one. Then this is the all effect about deforestation. I don't know how well it is master or not. The fight continues, in my opinion.
I'd also like to give a shout out to my starn Oscar who is also working to reduce methane emissions in the UK system, and lots of heroes all across the world who seeking to do that and reduce the But Laur, I think you might have gone a little bit above my pay grade in terms of what I actually know much about, which is the change in the energy system that clenty many other pieces and as you say, it's very important that we curtail deforestation and reduce methane losses.
There is one point I would make where there is an intersection with energy, which is the use of biomass to generate electricity is one of the most spectacularly stupid and wasteful ways to pour resources away, and we shouldn't do it because it hardly reduces your carbon emotions. It's incredibly inefficient, and now we have far superior ways of
generating electricity. Getting sunshine or getting electrons via a tree is absolutely crazy way to get electricity in twenty twenty four, and actually stopping the use of biomass to produce electricity would actually free up a lot of space which we could be using for reforestation also, so pree up pressure upon land in many different areas is not of course just pres also biomass for driving, which is another incredibly wasteful use of resources now that we have far superior resources.
So that's where for me the intersection lies, and that's where if we can free up, as I say, this land that needs resources to try and tackle the global warming problem.
From another angle, kings Mid, we took a lot about supply and not really about demand. And I know that RMI is doing a lot of work in energy efficiency, so maybe in conclusion you want to talk a bit about that.
Sure, thank you. Efficiency again is a supremely complex topic, but there is a way pioneered by Nickair at Oxford to simplify an extremely complex debate in its simplest terms. We are currently pouring half of our heat sources, that is to say, col oil, and gas into work uses, that is to say, electricity and driving, and there is an absolutely physical, inevitable two thirds loss of conting heat into work, and this is a huge waste of resource. Now we have a way of converting work into work.
It's called sunshine and solar panels, and that goes straight into work in electricity, goes straight into work in cars, and that is creating a once in a generation opportunity to significantly increase the efficiency of the energy system in the same way as the replacement of biomass with coal or the replacement of coal with oil, the replacement of heat technologies with work technologies in the twenty twenties will significantly increase efficiency, and that efficiency gain will make the
energy transition much easier.
Jings Mila, thank you so much for coming on the show. We'll still won't be invited at Sarah Week, but I don't care.
Great avenue, my friend, great avenue.
Fig Laurel, thank you for art, for the opportunity to state. Thank you.
Well, Joab. It's always a great pleasure to have a conversation with Kingsmith.
Oh yeah, it's great, right, and this listen, it's an experienced analyst. It's been at this far a long long while, and I just love it. Vision and passion right. And also it does have a contrarian view, although he'll tell you it's not contrary, but in the world we live today, I mean, the incumbents have the power, so it is a contrarian view.
One of his main thesis and are really abide by it is that on one hand, you've got the commodities well, and they think arithmetically, and on the other you've got the technological world and they think geometrically, and the pace of innovation the commodities is very low, whereas in the technology world is very fast. And let's be clear, solar batteries, these are technologies. These are not commodities. Not going to be a one for one.
I think that's a very good way. I put that wrong, And actually the thing is you're right to say geometric, but also some of them are exponential, because if I look at what's going on in bat Race, I mean that's exponential. It's the cost reductions we've seen, you know, the scale up in supply and demand. It's just been mind bobbing.
Yeah. In conclusion, and that's really for if you're industry friends. Following sentence, I heard somewhere. I don't know who said it, but it's brilliant. In the present, the pussimist always sounds smarter, but in the long term, optimists are always right.
Who well said. I'm glad I'll be right at some point my life.
Lauren.
Thank you very much for the patcham, but that's a good way of.
Summing it up exactly, So, Joab, we thank King's Mill for coming on the show, and I took to you next week looking.
Forward to it. Thank you for listening to Redefining Energy. Don't forget to read the show and subscribe on Apple Podcasts, Spotify, or the platform of your choice.