Will Alternative Power Impact the Prices of Oil and Gas in the Future?
The unprecedented attempt to change from petroleum-based to electric vehicle transportation will increase the demand for battery raw materials such as Lithium and Cobalt.
Today, humans' primary energy source is oil, and it's been that way for decades. Advances in production and manufacturing in the early 1900s spurred on the need for oil, natural gas, and coal to drive transportation and manufacturing. Alternative energy sources have recently emerged compared to the decades-long use of oil and gas. Still, declining costs in storing alternative energy sources could eventually erode the demand for oil and gas and put downward pressure on prices. The move to a carbon-neutral environment has risen to the highest levels of government. As part of President Biden's goals in the United States, he plans that all new vehicle sales be electric vehicles by 2030. China plans to change to 40% electric vehicles by 2030. Europe plans on zero emissions in their vehicles by 2035.
The unprecedented attempt to change from petroleum-based to electric vehicle transportation will increase the demand for battery raw materials such as Lithium and Cobalt and away from petroleum-based energy sources such as gasoline and diesel.
Most of the alternative energy sources are focused on electricity. Solar, Wind and hydropower are at the top of the list regarding electricity capture. There are other measures, such as geothermal and biomass, and nuclear. The most common way to store electricity is in batteries. Batteries are used in a variety of applications, from powering small electronic devices to providing backup power for large-scale systems. The most common type of battery for vehicles is a Lithium Ion battery.
How Much Does it Cost to Produce Electricity by Solar and Wind
One of the critical issues the world faces regarding a transition to zero emissions is the cost of producing electricity via solar and Wind, the two most common ways to make alternative energy. The price to make electricity from Wind, which is unsure, on average, has declined to $0.033 per kilowatt hour. The cost remains above $0.075 per kilowatt hour for offshore wind electricity generation. Solar power, called photovoltaic (PV), has declined to just below 0.05 per kilowatt hour.
The cost to produce electricity from carbon-based products such as natural gas is becoming more expensive relative to alternative methods such as natural gas, which costs approximately 6.5 cents per Kilowatt hour.
Despite being one of the cheapest, one of the biggest issues with Wind electricity is the cost to install and finding a community willing to deal with the eye soar of having a windmill in their community. People love the idea of less expensive electricity if the production is not in their backyard. The utility-scale wind turbine used to generate electromagnetic electricity costs between $1.3-2.2 million, and the installation cost is between $3 and $4 million.
What is Electromagnetic Electricity?
To make electromagnetic electricity, you need to use a turbine. Generators use magnets and coils of wire to create a magnetic field that induces an electric current. The current is then sent through a transformer to increase the voltage and sent to a power grid. As the turbine turns, the magnetic field creates a polar force that is then captured by the coils. To turn the turbine, you need to use Wind or water for alternative energy sources, natural gas or coal using traditional sources.
How is Solar Power Made?
Solar power is made by capturing the energy from the sun's rays and converting it into electricity. This process is done through photovoltaic (PV) cells made of semiconductor materials like silicon. When sunlight hits the PV cells, the energy is converted into direct current (DC) electricity. This DC electricity is then restored into alternating current (AC) electricity used in homes and businesses.
Storage of Alternative Energy
In the past decade, alternative energy prices have declined as new processes such as solar and Wind energy have become more pervasive. One of the more important aspects of alternative energy is the storage. While storing liquids such as oil and natural gas is easier, it's more difficult to keep electricity without a specific method, such as a battery.
Electricity storage can be accomplished in several ways. Pumped hydroelectric is one of the most common. Electric is used to pump water up to a supply, and then the water is released through a turbine creating electromagnetic electricity. In this instance, you need a reservoir and a system to run a turbine. There are several other types of strategies, including compressed air and flywheels, but the rechargeable battery is the easiest to move from one location to another. Lithium-ion batteries are The most common type of battery used in electric vehicles.
Lithium-ion batteries combine a cathode, an anode, and an electrolyte. The cathode is typically made of a lithium-containing material, while the anode is generally graphite. The electrolyte is a liquid or gel-like substance that allows ions to move between the anode and cathode. The components are then placed in a pouch or can and sealed. The pouch or can is placed in a larger container and connected to a circuit board. The circuit board is then connected to a charger, which is used to charge the battery.
How will Transportation to New Zero Emissions Impact Oil?
In 2023 less than 1% of the vehicles on the road are electric vehicles in the United States. There are nearly 250 million vehicles, and according to the White House, 50% will be Evs by 2030. If only 1% are EVs, 99% run on petroleum. Nearly 125 million vehicles will need to switch to EVs in the next seven years, which means that demand for gasoline and diesel will likely decline as there will be less need from about half the vehicles currently on the road.
How has Trading Been Impacted?
The global focus on demand does not seem to have impacted crude oil or natural gas trading. While conceptually, there does not seem to be capital pouring into refiners who alter oil into gasoline and diesel, these products' prices continue to focus on supply constraints and the supply and demand for petroleum. Futures and CFD trading of oil have remained steady.
Traders have focused on OPEC+ production, which Saudi Arabia altered slightly in June 2023. Much of the focus has been on rising interest rates. For example, the Federal Reserve has increased short-term borrowing rates by 5% during the past 18 months. The rise of borrowing rates has reduced economic activity and therefore has stifled some petroleum demand. When consumers have less money in their pockets, they are less likely to spend on road trips which helps to reduce driving demand.
While trading in oil and gas products such as CFDs and futures contracts remains robust, the demand for battery raw material futures and CFDs is still in its infancy. The open interest in the Chicago Mercantile Exchange Lithium Hydroxide Contract is less than 1,700 contracts, showing that the market has yet to move on from Gasoline, Natural gas, and Diesel fuel. This figure compares to nearly two million in open interest for the WTI crude oil futures contract traded on the NYMEX futures exchange.
Open interest is the total number of outstanding contracts that market participants hold at the end of the day. It is a crucial metric for gauging the liquidity of a market and the level of participation in it. Open interest is calculated by taking the total number of contracts that have been bought and sold, subtracting the number of contracts that have been closed out, and adding any new contracts that have been opened.
The Bottom Line
The upshot is that eventually, it's likely that new alternative energy sources will erode the demand for petroleum and natural gas. Suppose the push for zero emissions in the United States continues. In that case, more than 125 million new Evs will be on the road by 2030, eliminating that many petroleum-based cars that run on gasoline or diesel fuel. China is well ahead of the United States in its effort to move toward Evs. As this notion propagates throughout the globe, the demand for gasoline and diesel fuel will eventually decline. The petroleum markets have yet to be impacted by the move toward alternative energy.
The focus remains on providing inexpensive storage of electricity. While some ideas include pushing water with electricity into reservoirs, batteries are the only realistic concept for storing electricity. As battery chemistry becomes more efficient and less expensive, there will be greater demand for electricity in manufacturing as well as transportation.
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