// INTERVIEW OP MAAT
Renewable energy is coming to the oil and gas industry as a serious competitor BY JAN JAAP OMVLEE
‘Oil needs long-term break-evens of $ 10-$ 20/bbl to remain competitive in mobility.’ Mark Lewis, Global Head of Sustainability Research at BNP Paribas Asset Management, introduces the concept of the energy return on capital invested (EROCI). Mark Lewis is a man on a mission – and his message is
What is your main message for investors and why?
crystal clear. With 36% of demand for crude oil today
‘For the first time in history, the oil industry has to cope with
accounted for by light-duty vehicles (LDVs) and other vehicle
competition. My message is that change will come much
categories likely to be powered by electricity, and a further
more quickly than most people think. The reason I say that is
5% used for power generation, the oil industry faces an
that we have already lived through it in the European power
unprecedented threat. Renewable electricity, in tandem with
sector. It is significant in what this tells us about the
the growing popularity of electric vehicles, looks set to
disruptive power of renewable energy. If this disruption can
undermine its business model. It represents a competing
happen to the utility sector, it can happen anywhere. The
energy source that 1) has a short-run marginal cost (SRMC)
energy transition is here and it is not something that is
of zero, 2) is much cleaner environmentally, 3) is much
hypothetical or that people should worry about in the future.
easier to transport, and 4) could readily replace up to 40%
In fact, it has already happened in the European power
of global oil demand if it had the necessary scale.
sector where renewable energy has had a devastating impact. What this report says is that renewable energy is
In his ground-breaking BNP Paribas Asset Management
coming to the oil and gas industry as a serious competitor.’
report called ‘Wells, Wires, and Wheels – EROCI and the EROCI (energy return on capital invested). He then assesses
What are the risks that climate change poses to investors?
the energy return on a $ 100 bn outlay on oil and renewables
‘First, there is transition risk. This is a function of policy and
where the energy is being used to power cars and other
technology. When you set targets for renewable energy,
LDVs, asking how much useful energy at the wheels we get.
reducing emission and improving energy efficiency, you are
Tough Road Ahead for Oil’, Lewis introduces the concept of
The report finds that for the same capital outlay today, new wind and solar energy-projects in tandem with battery electric vehicles will produce 6x-7x more useful energy at the wheels than will oil at $ 60/bbl for petrol-powered LDVs, and 3x-4x more than will oil at $ 60/bbl for LDVs running on diesel. Accordingly, the long-term break-even oil price for petrol to remain competitive as a source of mobility should be $ 9-$ 10/bbl, and for diesel, this is $ 17-19/bbl.
Figure 1: Net EROCI* from new renewables projects in tandem with EVs versus oil used for gasoline vehicles for a $100bn outlay (TWh) 2000 1800
1881
1881 1673
1600
1673
1667
1667
1400 1200 1000 800 600
The long-term break-even oil price for petrol to remain competitive as a source of mobility should be $ 9-$ 10/ bbl, and for diesel, this is $ 17-19/bbl. 54
FINANCIAL INVESTIGATOR
NUMMER 6 / 2019
400 200 0
Offshore wind at $1.8bn/GW
Oil at $9/bbl
Onshore Oil at Solar PV at wind at $10/bbl $0.8bn/GW $1.2bn/GW
Oil at $10/bl
270
216
162
Oil at $60/bbl
Oil at $75/bbl
Oil at $100/bbl
Source: BNP Paribas Asset Management estimates. *Net EROCI is the amount of mobility bought for a given capital outlay.