Renewable energy stifled by surging oil wealth

Renewable energy development is slowing down and has become beset with uncertainty because of abundant oil and gas supply and new massive conventional hydrocarbon discoveries, Saudi Aramco has said.

As a result, several global renewable energy developers have stopped their activities after going bankrupt and more firms in this field could follow suit, the world’s largest oil producing company said.

Addressing a conference in Riyadh this week, Khalid Al Falih, President and CEO of the state-owned Saudi Aramco, cited huge oil and gas findings in Canada and other areas and said this should prompt developers of renewable energy sources to put brakes on their operations.

He said that only a few years ago, much of the global energy debate was based on the premise of acute resource scarcity and its economic and political ramifications.  Policy and investment choices have therefore largely been framed against a backdrop of constrained oil and gas resources and a need to transition with deliberate speed to one or more alternatives, he added Today, he said, talk of oil and gas scarcity has disappeared from both the energy press and the general media, to be replaced by news of increasingly plentiful supplies.  In addition to abundant conventional petroleum reserves, vast resources of unconventional hydrocarbons have now been targeted for development around the world, and can be produced feasibly and economically.

Falih said such changes are underscored by the massive new hydrocarbon resources, adding that unconventional gas in place around the world are estimated at around 35,000 trillion cubic feet, compared to currently proven conventional gas reserves of 6,400 TCF.

“The flip side of that coin is the second new reality underscoring the need for greater pragmatism in our energy discussions: the faltering pace of renewables and other alternatives…just a few years ago, the assertion was that the costs of renewables would decline rapidly as their technical performance improved, making them economic without the need for subsidies,” he said.

“As it turns out, progress has been slow, in part because of continued technical difficulties, and in part because of the much more favorable economics of proven energy sources which compete directly with many modern renewables. “ Falih said that when the economics of hydrocarbon sources shift, this impacts the fortunes of alternatives, so as prices for natural gas in the US halved with the advent of shale gas supplies, the comparative economics of alternative renewables weakened significantly.

“This could easily have been foreseen, and in fact at Saudi Aramco we voiced concern a few years ago over the formation of ‘green bubbles’,” he said.

“At the time we noted that overly optimistic targets and accelerated development plans for renewables would end up hurting those very industries if they were unable to deliver.  And as we know, once investors and the public lose confidence in a sector, it is very difficult to attract additional capital and regain popular support.  We have recently witnessed the bankruptcies of some notable companies in the renewable energy sector around the world, and unfortunately there may be further failures to come.”

Falih said the contraction in that sector should not come as a great shock, recalling government policies which helped direct private sector investments toward what he described as a “hydrogen economy” which has not panned out.  Then the world witnessed what the “biofuels bonanza,” which siphoned off taxpayer monies into subsidies for an unsustainable energy source.

Then it was thought that cellulosic biofuels—which could be produced without diverting food crops from the family table to the fuel tank—would quickly become economically competitive with established sources, he said.

He said forecasts of biofuels production are now much less bullish, and even the more realistic production targets are being pushed farther into the future.

There have also been changes in the situation of nuclear energy, which can play an important role in meeting the world’s rapidly rising electric power demand.

Unfortunately, Falih said,  its prospects have taken a serious hit due to the Fukushima incident, associated with the tragic earthquake in Japan.

“In short, given the technical, economic, environmental and consumer acceptance barriers which must still be overcome, the significant adoption of various alternative fuels and new technologies at a global scale still seems some way off.  Furthermore, government attempts to ‘pick winners’ among alternatives—even before the contenders are in the starting gate—have proven ineffectual, and in my opinion counterproductive,” he said.

“What is certain is that there is a great deal of uncertainty which surrounds the future of various renewable sources and alternative technologies—particularly in light of the new abundance of oil and gas resources…..that is not to say that we should turn our backs on renewables—rather, the opposite is true.  In fact, we are investing in them at Saudi Aramco, with a particular emphasis on solar. “ Falih said Saudi Aramco, which controls over a fifth of the world’s proven oil reserves, believes that alternatives can and will make a greater contribution to global energy supplies than they do at present.

“We welcome that growth.  But the expansion of renewables and alternative energy technologies should be rational and gradual, and tied to their economic, environmental and technical performance…that is one reason I place such emphasis on the exciting developments in conventional and unconventional oil and gas, and the fact that these sources will play a much bigger role in meeting global demand for a much longer time than many once believed,” he said.

“In my opinion, this new reality is just what we need for the realistic development and deployment of renewables.  Because of these additional oil and gas resources, the world now has the time it needs to develop alternatives in a pragmatic and sustainable fashion, rather than rushing headlong toward an unproven and more expensive energy mix—and that is a cause for optimism.”

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