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New Energy Finance: Will Strong Oil & Gas Support Renewable Energy Transition?

In a recently released VIP Comment, Michael Liebreich, Chairman of the Advisory Board, and Charles Blanchard, Lead Natural Gas Analyst for Bloomberg New Energy Finance, present the provocative and insightful argument that the burgeoning oil market will ultimately support, rather than hinder, the transition to renewable energy.

The comment says that several “heuristics” have dominated the thinking among energy forecasters. According to Liebreich and Blanchard, the world has continued to rely on these heuristics despite ample evidence that they are simply not accurate, because it is easier to rely on heuristics than to engage in decision making processes involving deeper analysis of the facts. The three outdated heuristics are:

  1. Renewable energy is expensive.
  2. Renewable power becomes more expensive to integrate as penetration goes up.
  3. Fossil fuel costs are destined to increase over time.

They then propose the following “new heuristics”, which they say energy sector leaders will be “wise” to assume true:

  1. The world will not run out of oil and gas.
  2. Though they may increase over time, the cost to extract oil and gas will never increase to the extent that it chokes off its own demand.
  3. The end of the transition to clean energy will not be characterized by high oil and gas prices but low ones.
  4. For the final heuristic, the article reads, “There are only two ways for clean energy to win. Either demand for ample, cheap fossil fuels is choked off by legislation, driving up costs at the point of use via taxes, carbon prices or regulation – call it the Paris COP21 plan. Or else clean energy competes with fossil in the market and beats it on price, service, resilience and performance. Demand-choking legislation versus the animal spirits of innovation. I know which one I think is going to win.”

Here at R.W. Lyall, we constantly seek to keep our finger on the pulse of the global energy market, which is so important to the future of our world. We encourage you to invest a few minutes in learning more about this incredibly significant topic.