If you’d like to understand better how the introduction of electric vehicles will affect the oil market at the margin, then you should read Oil Fall, a three part series that explains how wind and solar power will jailbreak the powergrid, and find their way into global transportation.
Part Two, China Sudden Stop, is now released and picks up the storyline from part one, California ICE, as China now prepares to kill oil growth in the same manner it killed coal growth, five years ago. China’s domestic war on pollution has already yielded tremendous results and now the country is pressing forward with a plan to divert all future transport growth to electric vehicles. Combined with China’s leadership position in the construction of new wind and new solar, a formula has now been set in motion, raising the risk that peak oil demand will soon arrive.
From the introductory, first chapter:
Electricity is the new oil and no country makes more electricity than China. Having optimized its manufacturing base over three decades to churn out exportable products, China produces and consumes more power than the US individually, more power than North America combined, and even more power than all of Europe. How China generates this electricity, however, is both a problem and an opportunity. Built on a massive, installed base of coal-fired capacity, China’s powergrid is currently undergoing a revolutionary transition towards wind and solar power. The shift––a response to the public’s anger over extreme levels air pollution––largely began its trajectory as a policy response, but now, as in the rest of the world, is gaining momentum as favorable costs and construction timelines to erect new wind and solar begin to crowd out all other forms of new power generation.
China’s ability to effect policy-driven change in its industrial economy, even when constrained by global economic forces, is a capability that’s been put into action several times now. And yet, the world keeps missing this particular China lesson. For example, few if any predicted that China would industrialize so quickly late last century; or, that the country would do so using coal. After 25 years of such policies, China pivoted, after 2010, and started to turn its back on coal. In both cases, analysts made a classic forecasting mistake, calling for a continuation of present conditions, and thereby missing a big turn. Here’s why that matters: in the same way few thought China would have the means, or the intent, to halt coal growth after two decades of soaring coal consumption, few analysts today believe China has the means or intent to halt the growth of its oil consumption.
But China, as it turns out, is in pursuit of the same formula for systemic change now unfolding in California. The country is putting millions of new EV on the road at a time when a soaring build-out of new wind and new solar is generating new and large volumes of clean electricity. This new electricity is looking for a customer base, and, has started to find one in the burgeoning market for electric vehicles. Indeed, there is every reason to believe this new fleet of electrics now coursing through China in a great wave will drive round after round of new generation from wind and solar––a symbiotic relationship of support. Batteries, wind, and solar are already working together to smooth the pathway for soaring demand as costs continue to fall, thus amplifying the trend of systemic change. The future of oil consumption growth in China is now at risk.
As highlighted in part one, Oil Fall, California ICE, the analytical target of this series is not, however, to pick the point in time when China’s oil consumption will fall into outright decline. Rather, China Sudden Stop explains how relatively easy it will be for that country of 1.3 billion people to halt the growth of its oil consumption. Using a term from international economics, sudden stop, part two of the Oil Fall series calls upon the history of energy transition itself to argue that China is rapidly nearing a time when, as in the developed world, its oil consumption growth will convert to an extended flatline, oscillating from year to year, but no longer growing.
Oil Fall is a three part series that will publish over the course of 2018. © All rights reserved by the author and TerraJoule Publishing. Fair use of quotes from Oil Fall are permitted, with citation of Oil Fall as the source, and the author’s name, Gregor Macdonald.
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Oil Fall: Part Two, China Sudden Stop