How technology is killing Uganda’s Oil dreams

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There’s a quiet crisis going on in Uganda. Things aren’t looking so good for our oil dreams. In the last 6 months the global price of crude oil has plummeted by close to 50%. Consequently, the estimated value of  Uganda’s recoverable oil reserves has also fallen by over $70 billion. True to form however, pump prices in Uganda only ever seem to respond to increases in global prices and have barely moved. Many other nations are in trouble because of this. Venezuela with the worlds largest proven oil reserves requires crude oil to be above 100$ a barrel to balance its budget. Uganda’s problem is that it might not be able to produce oil profitably if global prices keep falling. Even worse for Uganda is that since we haven’t started producing oil yet, inertia is against us as investors have less incentive to invest in new areas.

The fall in the price of oil is mainly due to a price war between the US and OPEC. However, technology might also have a significant role to play in this price war. Particularly interesting is that it’s not necessarily technology on the market today that could be driving global oil prices down, it’s technology that might be as far as 10 years from the market. Consider what happens when an oil producer realises that the technology to replace oil is 15 years away from doing so. The oil producer will ramp up production to sell as much oil as possible in those 15 years so he isn’t left holding oil that no one wants. In this scenario the few countries that can meet world demand at the lowest cost of production will likely be the only ones exporting oil. The likes of Venezuela (and Uganda?) that require oil to be above 100$ a barrel will be unable to make money from their reserves. It might also mean that oil might never be profitable for Uganda to export unless we can pull off the miracle of having one of the most cost effective production processes.

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Is there any evidence out there that shows technology is close to making oil obsolete? Let’s have a look at the last 2 years in renewable and alternative energy news. Note that most of the news linked to below is from just the last 8 months.

Renewables

In the next 10 years Germany intends to produce 40-45% of its electricity from renewable sources. Wind power in the Nordic and Baltic states is set to significantly drive down the demand for fossil fuel based energy sources. There are solar energy breakthroughs and innovations coming through at a faster pace than ever with more than 1 breakthrough a month on average the last 6 months. One study by Deutsche Bank predicts that solar energy will be competitive with fossil fuels by 2016. Yet another financial advisory firm actually says solar and wind have already reached parity(pdf) with fossil fuels.

Electric Vehicles (EVs)

Back in June, Tesla open sourced all its patents. This is significant because it means that other car manufacturers can use Tesla developed technologies to build their own EVs without fear of patent infringement suits or costly licensing fees. With tesla patents out there for the taking, it’s no wonder other manufacturers are considering building hybrid and all electric vehicles as well. Tesla itself plans to be producing half a million cars a year by 2020.

All this means there is a chance demand for internal combustion engines might start to fall as more and more people buy electric. Currently, more than half of crude oil refinery products ends up in internal combustion engines.

However, falling oil prices typically negatively affect the electric vehicle market. Cheap oil means less of a reason to go electric, due to this Tesla stock has fallen close to 20% since mid November.

Batteries

Compared to the electric car industry, advances in battery technology are relatively immune to drops in global oil prices. This is because modern demand for electronic gadgets (think tablets and smartphones) is more than enough to drive innovation in batteries since these devices largely ran on Lithium Ion battteries.

Currently, electric batteries just don’t have the energy density of oil products, so petrol driven cars still have more range than their all electric counterparts. This is set to change soon due to what’s happening in the world of batteries. Here’s a quick list of battery news mostly from the last 8 months.

Nanyang Technological University (NTU) in Singapore has developed a lithium ion battery that can be recharged to 70% capacity in just 2 minutes. The battery also has a lifetime thats up to 20 times longer than that of current Lithium ion batteries. It gets even better, the manufacturing process for this battery is compatible with that of current batteries. It also replaces the graphite anode with the cheaper titanium dioxide. Don’t be too surprised if Tesla includes this in it’s Giga factory.

Another notable breakthroughs came from a Stanford University team with a design that could triple the capacity of existing lithium ion batteries.

Tesla is targeting to reduce the cost of EV batteries by 30% with its Giga Factory by 2020. Fuel and maintenance costs for EV batteries and motors are already much lower than for combustions engines. Some analysts believe that if tesla surpases its 30% target and the cost of batteries drops to around 100$/KWh, then EVs will be cost competitive with combustion engine vehicles. With recent and future breakthroughs in battery technology, it is entirely plausible that Tesla will significantly surpass 30%. 5 years is a very long time in technology.

Fusion

There’s been significant developments in nuclear fusion as an alternative energy source this year. From the controversial Energy Catalyser of Andrea Rossi that many say is just too good to be true; to LPP fusion’s focus fusion and Lockheed Martin’s Compact Fusion. All of these are to be more compact and orders of magnitude less costly than the 20 billion dollar ITER that most believed would be the first to reliable fusion power. Lockheed Martin in particular is promising market readiness as in soon as a decade.

Fission

Regular nuclear fission isn’t standing still either. Leslie Dewan’s transatomic power is designing a Molten salt reactor that consumes nuclear waste. TerraPower a company Bill Gates has invested in, is developing a travelling wave reactor that needs to be refuelled only once every 30 to 40 years and reduces nuclear waste by consuming depleted Uranium. Toshiba’s 4S  reactor is a small reactor that is inherently safe and also doesn’t require refuelling for up to 30 years. Other companies such as NuScale Power, Gen4Energy and Babcock &Wilcox are also working on the next generation of safe, modular reactors. Some of which are small enough to fit on a truck.

With modular nuclear surpassing the energy density of petroleum by several orders of magnitude, certain remote areas in the developing world might already find nuclear the cheaper energy option if they knew to look into it.

The bottomline here is that when you consider technology the relevance of oil has a finite lifespan that might much be shorter than the lifespan of global reserves. If renewables have already reached parity with oil, then we can be sure that oil is unlikely to fully recover from the drops of the last 6 months and our government had better have a good plan B.

photo:wikimedia

  • Angello, some research you have done for this article. Renewables are certainly picking mainstream interest and will most likely replace fossil fossils as the new energy sources of tomorrow.

    However, we can’t predict yet when these energy alternatives (fussion, fission) will become commoditized well enough to run your TV, smartphone or your car. It might take more than our lifetime to realize the first phase of these technologies.

    But you make a good point that any country that solely wants to bank its future on oil is without a doubt doomed.

    • Angello Obel

      Actually we can predict and in a sense we don’t have to because Fission is already commoditised and on the market. Every nuclear power plant thus far uses it. US nuclear submarines and aircraft carriers use it and have been using it for decades that was the first phase. We are already past the 1st phase. Toshiba’s 4s reactor was ready 5years ago, they are already building their 2nd generation. Fusion is the only thing that isn’t on the market and even then we can predict when it will be ready. Lockheed Martin says they’ll crack it in less than 10

  • Jemimah

    Am an advocator for alternative energy and their future is indeed bright. There is a limit though, for example take batteries; how many lithium reserves exist to make that a reality for the whole world when we all go with EVs. Nuclear; how many countries have the capacity and resources to run a plant. PV prices are falling making it favorable for mostly rooftop installation but are the grids ready for that, solar on a large scale works great but countries prefer to invest in thermal stations.ie the inertia to move to new technology is large(for all the numerous reasons)
    I definitely agree that countries dependent on oil should start thinking of life after oil. But countries like ours in exploration still have time to share in the pie. My concern is where the processing is going to be done, how we get the final product and if the country as a whole will benefit and not just a few characters

    • Angello Obel

      Lithium is abundant, there is enough in Bolivia alone for 4.8billion EVs. Lithium is only going to get cheaper and more available. Modular nuclear reactors are more like batteries, install and forget. They are less complicated to run than running a hydro power plant.on solar you’ve got it wrong, solar is booming in grids more than it is on rooftops because grid installations are more efficient and productive. Outside of small economies like Uganda, thermal is avoided. Its expensive and inefficient and hated by environmentalists.
      The problem is with global demand forecasts for oil being cut and analysts saying oil prices are not going to recover, it might just not be profitable for Uganda, a landlocked country with lousy infrastructure to produce oil profitably below say 80$ a barrel.

    • Angello Obel

      Lithium is abundant, there is enough in Bolivia alone for 4.8billion EVs. Lithium is only going to get cheaper and more available. Modular nuclear reactors are more like batteries, install and forget. They are less complicated to run than running a hydro power plant.on solar you’ve got it wrong, solar is booming in grids more than it is on rooftops. Outside of small economies like Uganda, thermal is avoided. Its expensive and inefficient and hated by environmentalists.
      The problem is with global demand forecasts for oil being cut and analysts saying oil prices are not going to recover, it might just not be profitable for Uganda, a landlocked country with lousy infrastructure to produce oil profitably below say 80$ a barrel.

      • Jemimah

        I agree. But instead of Uganda having to export the oil for processing, what if everything was done at home. East Africa for the next 50years or more will still be having a majority of petro vehicles a need we can meet within.
        When you think of battery technology, think of other applications like storage for electronics (we have new phones, laptops and other devices coming up every year), storage for renewables that are intermittent then of course EVs. The number of people driving EVs is lower than the use by these other technologies, maybe a time will come when they will be as popular. So the source of lithium should be large enough to meet these needs sustainably. Am not aware of how many lithium reserves exist, but can we really speculate that if all the new battery technology matured today, we will have enough to go around?
        Most of the rooftop installations like in the US and Europe are grid connected, the challenge is always to balance the intermittent renewables being added to the grid by individuals and ensuring the load is met without having surges on the network, this is what prompted all the buzz on smart grid. Larger installations need a means of storage.
        Yes thermal power plants have all the disadvantages you listed, it would be a challenge to have people running these plants especially with the promising oil to stop. Let alone convincing the politicians to invest in a whole new capital intensive renewable alternative. Not that its impossible.
        The way I see this energy scenario is, whatever a country has, they should capitalize on that and develop but also be open to embracing new technology not at the cost of the economy and welfare of its citizens

        • Angello Obel

          The thing with lithium is that like many metals, it is infinitely recyclable. so while it is non renewable, it is also non depletable. If oil prices are too low, it doesn’t matter whether we process locally or export crude, we still won’t make a profit. Less efficient wells shutdown when the price goes down. For instance if it costs UG, 60$ to produce a barrel then we can’t afford to mine oil at current prices

          • Gitonga Wanjiku

            If we shift to Lithium it becomes the new oil…..and its cost wont be as cheap as we think, if everyone wants a piece of what you have, the cost will go up. I think and believe we are going to have a oil for a long time, its the cheapest way to drive economies, am yet to see that in another ‘fuel’. Batteries do not have the same flexibility as oil, and requires supporting infrastructure. So we in the developing countries will have to live with oil. In the first world its possible. Imagine the cars in my village running on batteries, where do we even charge? If we can’t even meet industrial demand for electricity? And new technologies take time to be mainstream, and as a matter of fact are very expensive. So unless we have a cheap way of producing energy, fossil fuels are going to be a part of our future no matter how ‘dirty’ they are. My take is, lets try to have technologies that reduce emissions and improve the efficiency of existing plants, like coal fired plants.

          • Angello Obel

            Important differences between lithium and oil. When after 20 years(with the breakthrough mentioned here) you are done with your lithium Ion battery, you can recycle it and keep using the same thing. I would argue that oil requires more infrastructure than electricity and batteries. You can charge a battery from many sources of electricity for instance solar panels in a remote village or even using fuel cells. Thing is electricity is already cheaper than fuel. Lithium Ion batteries are already mainstream and they are only getting better and cheaper(check out the gigafactory)

          • @gitongawanjiku:disqus there are always leaps in Tech after every century or so. Who would have imagined that a mobile phone would be a utility even in the most rural parts of Africa? Going by your reasoning, we wouldn’t imagine that happen since we didn’t have landline telelphones even in most urban homes.

          • Gitonga Wanjiku

            Don’t forget the first car was electric, batteries have been there for a long time and they are the main bottleneck in the commercialization of EV vehicles…as a matter of fact Tesla can’t even meet the demand of it consumers in terms of batteries….what happens if over the 20 m cars produced globally go EV? Its a big leap that I don’t anticipate to see soon. But to come to your technological leap, its because the supporting infrastructure I believe was cost effective for private investors, and how much energy do you need to charge a phone? and to charge a car? Their power requirements and ratings are way too different. The other issue is, I think renewable energy such as wind and PV are over rated, but hydro and geothermal make sense. The latter gives you large quantities of energy, but the fore, are well suited for smaller loads. Am yet to see a country industrialize on PV and wind energy, and don’t say Germany because they are importing from the EU to meet their demand. So to be realistic, unless energy is cheap the dream of industrialization is just but a mirage.