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Future Of Energy
The volatility around the price of oil and gas, and coal, is a result of uncertainty around the future of fossil fuels as a part of our lives in the future to come.
Photo Credit : Reuters
Oil and gas as a business is for risk takers and you need deep pockets to begin with. After a lot of capital ploughed, you may still not strike the natural resources, resulting in major write-offs. Greenfield projects are cheaper to acquire and work on than discovered fields which will come at a higher cost. A producing field would be profit making in most cases and can be highly profitable for an investor but farming in comes at a significantly higher price. Gas is a cleaner source of energy than oil.
The volatility around the price of oil and gas, and coal, is a result of uncertainty around the future of fossil fuels as a part of our lives in the future to come. There is no doing away with them for some time, but we will see a decrease in usage gradually, causing their prices to stay stable with less volatility. For lower volatility, there needs to be a clearer picture about the future of hydrocarbons and their indispensability. The lobby against climate change has the power to overtake and counter-defend against any opposition. Common sense says we have to look after our planet and that’s what governments will do. With increase in research on electric vehicles, we will see a gradual decline in prices of petrol and diesel. Oil and gas prices will fall too as a result. Power plants and manufacturing industries are also looking at things differently in terms of their carbon footprints and moving to carbon efficient technologies.
Oil companies, in early 2000s, were topping Fortune 500 lists, but the industry was still high risk, high return. This optimism about fossil fuels was to do with extremely high hydrocarbons based vehicles, factories, power plants etc. Gradually, there came about climate change awareness, when global weather started experiencing changes and volatility. In 2016, US encouraged climate change measures, and with EU's support, their actions changed the landscape of oil and gas to a large degree globally. Sources of energy started moving to green, renewable sources. Solar panels are the talked about thing now and so are hydrogen vehicles!
On November 4, 2016, The Paris Agreement was signed between nations to counter the effects of climate change, a harsh reality of our times. The key mission of The Paris Agreement, is as follows:
"The Paris Agreement central aim is to strengthen the global response to the threat of climate change by keeping a global temperature rise this century well below 2 degrees Celsius above pre-industrial levels and to pursue efforts to limit the temperature increase even further to 1.5 degrees Celsius."
Research and development for future requirements of energy is focussed on renewable sources as that is incentivised. There are carbon subsidies available in most countries. We see electronic cars on roads now, nuclear powered power plants are lighting up cities and people want to save Earth at any cost, from pollution and intoxication. This is the right attitude, as subsequent generation's chances of living in a healthy planet is possible just this way.
Divisive forces in geopolitics around oil and gas, now, too have become invisible. The future is clean, green energy and people need to adapt to it and move in that direction. By no means are we there yet with certainty but we need to be. It's still going to take a decade at least till we don't have fossil fuel based vehicles on the roads but it is going to happen. Oil and gas lobby, some would argue, would be strong just like the powerful tobacco lobby, but it is about utility this time.
Cash rich hydrocarbon based economies have started investing in other sources of growth, to secure their future. Everyone has realised that if mankind has to survive for eternity, our environment needs to be preserved. Plants give out all of fresh oxygen that we breathe. There are artificial ways to induce and reduce rainfall that could be used for afforestation of vast desert areas. Planting more trees is surely a way forward but cutting carbon emissions and aiming for net zero emissions are the new targets.
As a part of their sustainability drive, companies and nations are signatories to many targets including net zero emissions. In such a scenario, we have more than enough natural resources available to us as their extraction would become lesser. This secures our planet of energy sufficiency and will have a negative impact on the prices. Gradually the EV infrastructure will be rolled out in all countries, with which we will have less dependency on petrol and diesel. Companies have started assuring they buy products with a green appeal as well.
Disclaimer: The views expressed in the article above are those of the authors' and do not necessarily represent or reflect the views of this publishing house. Unless otherwise noted, the author is writing in his/her personal capacity. They are not intended and should not be thought to represent official ideas, attitudes, or policies of any agency or institution.
The author is Managing Director of Enso Group. He resides in Mumbai. He holds an undergraduate degree in business from Carnegie Mellon University and a postgraduate diploma in global business from Oxford University.More From The Author >>