Who gets to predict the future?


You got my attention, but I’ll ignore this

In a LinkedIn feature last week, John S. Watson, Chevron CEO, made some pronouncements about the future of oil and natural gas that made me cringe. Not surprisingly, as a fossil fuel executive, he predicted that oil and gas would be indispensable for the foreseeable future. Watson ignored climate change in his pronouncements. What else did he ignore?

John Watson—”our product makes life better”

First, NASA noted in the August 30, Guardian that the “planet is warming at a pace not experienced within the past 1,000 years.” NASA reported that the average global temperature peaked at 1.38C above 19th century values. Gavin Schmidt, director of NASA’s Goddard Institute for Space Studies predicted that, after 2015’s record, 2016 will be the warmest year on record.

Transformation of transportation?

Then, Treehugger announced that transportation is now the biggest source of CO2 in the USA—more than the electrical power generation sector. The industrial, residential, and commercial sectors have all managed to drop their rate of emissions. Transportation appears to be the laggard. Let’s see—what fuels transportation in the U.S.A.? What could it have to do with Chevron?

So what else can happen?

Some intriguing predictions appeared in Bloomberg, on June 20, 2016. These predictions appeared in an article discussing electricity generation rather than transportation,  The World Nears Peak Fossil Fuels for Electricity. Here they are for the next 25 (foreseeable future) years.

  1. There will be no Golden Age of Gas due to the rapid growth in renewables.
  2. Renewables attract $7.8 trillion, dwarfing fossil fuel investments.
  3. Electric cars rescue power markets.
  4. Batteries join the grid.
  5. Solar and wind prices plummet.
  6. Capacity factors for renewables improve, making them more attractive.
  7. India replaces China as the fastest-growing polluter.
  8. The switch to renewables continues, but the threat of climate change remains.
They’re not necessarily so

These predictions focus on the electricity sector, but item 3 is significant for transportation also. In transportation, the effects of the electric car will be slower than for electricity, but the electric car can trigger a disruption in the oil markets that will have major implications for fossil fuels.  According to Jalopnik, Bloomberg predicts that the 2020s will be the decade of electric vehicles (EV). Bloomberg bases this prediction on several factors:

  • Battery prices are quickly declining—the price dropped 35 percent in 2015.
  • Falling battery prices mean that EV prices could be comparable to internal combustion engine (ICE) cars within six years.
  • If the price is comparable, EVs could displace oil demand significantly.
  • The displacement of a significant demand for oil could trigger another oil crisis.
  • More than one-third of all cars will be electric by 2040. OPEC insists that figure will be one percent.

Much of this projection is based on a current rate of increase for EV sales of 60 percent (worldwide rate in 2015). The continuation of this 60-percent growth sounds overblown; however, even Bloomberg New Energy Finance (BNEF), with a more methodical approach, predicts that 2028 will produce an “oil-crash benchmark of 2 million barrels.”

Change can be fast

So many predictions are based on the idea that change is linear, but that’s not what’s happened in the past. Most charts showing the acceptance of new products over time are “S” curves, not straight lines rising steadily upward.

s_curveThe first part of the curve shows the slow acceptance of an innovation, but once the alternative no longer makes sense the curve goes almost vertical. This is why the share of the car market by 2040 for EVs could be as high as 25 to 50 percent.



And Watson’s pronouncements?

So John Watson, don’t be so sure about your pronouncements. Bloomberg’s predictions might be somewhat overblown, but think back to Kodak. In 1998, Kodak had 170,000 employees and sold 85 percent of all photo paper worldwide—within just a few years, after failing to switch to digital cameras, Kodak went bankrupt. Reflect and learn.




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