Seemingly out of nowhere, Saudi Arabia pumped USD3.5 billion into Uber. In exchange they get to put one of their princess on the board. Why on earth a top oil producing nation suddenly decided to become a Silicon Valley VC?
Let’s rewind a bit a few months. Oil price had declined due to oversupply. OPEC ramped up production to make it unprofitable for shale oil producers to be in business.
The whole scheme backfired when the shale oil producers proved to be resilient and oil price didn’t recover. Slapped to the face, Saudi Arabia suddenly realized that they are addicted to oil and the money it brings. At this rate they wouldn’t be able to sustain their economy in the long run.
Thus the ruling elite scrambled to come up with a turnaround plan to wean off their dependance on oil and find new industries to invest ini while they still have the money. Uber probably seems to be the sexiest startup around so they just pour their money into the yet unprofitable startup.
Meanwhile in Canada a government think thank predicted that oil price will continue to decline further. Even more damning, whatever investment made in oil production today might not be able to bring positive ROI at all.
Is this truly the beginning of the fall of oil? Is just mere overproduction enough to shake a seemingly rock solid industry? Can’t increasing demand in developing nations catch up with the abundant supply?
The recent oil price crash was triggered by 10% oversupply. As such, a 10% reduction in demand should be a mathematical equivalent and lead to another crash. A steady decline in consumption will lead to a permanent price drop.
The key technology that can spark this change is already here and had set everything in motion.
Two words: electric car.
Some might be sceptical because they say ultimately the electricity that used to power electric cars came from a fuel-burning plant anyway. In other words, the exhaust tailpipe simply moved from the cars to the power plant.
Even if that is the case, generator at power plants are much more efficient than individual engines in cars. Power plant generators always run at optimal speed unlike car engines that need to vary its speed. That means electric cars are three times as efficient compared to petrol cars. This is despite the fact that modern cars are 50% more efficient compared to 20 years ago.
Dwelling on this long tailpipe issue any further is missing the point. What’s radical with electric cars is that it no longer relied exclusively on oil. It can be powered by nuclear, oil, gas, hydroelectric, solar and wind. The latter two is especially critical as it changes the whole energy market dynamic.
Oil is a finite resource – it is humanly possible to suck the world dry. Solar and wind on the other hand is powered by the sun which give free energy every single day. What holding us back was the lack of efficient technology to capture energy from the sun.
The other stumbling block was the fact that solar and wind power is intermittent and unpredictable. Thus energy storage is required to smooth out demand during downtimes. Electric car is well positioned to solve this problem enabling solar and wind as a viable alternative to oil.
Being giant batteries on wheels, a fleet of electric cars could store a significant amount of energy during peak production hours and release it during down time. Imagine your car soaking up solar power while you are at the office and pump it back to the grid when you get home.
Electric cars are also trojan horses for the adoption of home batteries. For one, owners would like to store power generated by their home during the day so they can lower their electricity cost.
Number two, they are produced from the same factory that produced car batteries as in the case of Tesla. This drive down the cost due to economies of scale furthering customer adoption of the technology. Nissan takes one step further by recycling old car batteries to be sold as home batteries.
This suite of technology working in concert allow renewable energy to replace oil as a source of cheap and reliable power. Countries such as Britain, Germany and Denmark had already achieved several days of fossil-free days.
By harnessing the the network power, each addition of electric car, solar panel, wind turbine and home batteries will further increase the production capacity of renewable energy and lower the cost. As such the continued adoption of this suite of technology will only mean a permanently lower oil price.
This will be the end of oil as the primary commodity of the world. Instead it will be lumped together with other energy sources. Those who still buy oil will also evaluate other factors such as storage and transport cost; as well as environmental and social impact.
The repercussion of this change will not be mere ripples to other industries and people lives. Expect tidal waves that will engulf the globe soon.