There is a famous scene in the Monty Python and the Holy Grail movie where a plague-dead-body collector repeatedly tries to carry off a man who is still alive, while the man continues to insist that he “is not dead yet.” After several such exchanges, the dead-body collector finally clubs the man over the head and then carries the now-dead man away.

This scene is very much analogous to what has been going on with the repeated calls for the soon-imminent demise of the oil and gas industry over the last 50 years. Every couple of years, since at least the 1970s, there have been predictions of the death of oil and gas. These predictions have come in the form of fears about running out of oil (“peak oil”), multiple wars in the Middle East driving up energy prices, and, more recently, concerns about the impact of carbon dioxide-related global warming.

We are currently in a similar wave, where the death of oil and gas is being predicted due to advances in alternative energy technology and the rapid build-out of wind and solar power plants. Along with this, we have seen a small decline in orders for fossil-based power plants—primarily gas turbine combined cycles—and hand-wringing politicians lamenting that power industry leaders have misjudged the future of energy resources.

This stands in sharp contrast to real data, which show that world oil and gas production has increased by more than 30% over the last 20 years and is predicted to increase by at least another 15% over the next ten years. Growth in oil and gas production is primarily driven by urgent energy demand from developing countries, where populations are experiencing a rapid increase in living standards, as well as by the dramatic industrialization of China and India over the last 30 years.

The total increase in oil and gas production over the last 20 years is actually three to four times higher than the world’s entire installed capacity of alternative energy plants combined. Alternative energy sources have indeed encroached on fossil fuel power plants, but the recent decline in power plant orders has little to do with market pressure from these sources. It is merely a market response to a cyclical overbuild of fossil fuel power plants, driven by the availability of low-interest-rate financing over the last 15 years. We have seen this cycle before. Historically, the world market for gas turbine orders doesn’t follow smooth sine waves but rather experiences rapid up-and-down swings.

Oil and gas are not dead yet—and neither are gas turbine power plants. For the foreseeable future, combined cycle power plants will continue to be built at megawatt rates easily exceeding those of alternative energy plants. However, there is always the chance that an over-anxious politician clubs the oil and gas industry over the head, causing its premature demise.

Dr. Klaus Brun
Director, Research & Development at Elliott Group, Ebara Corp