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 an alive man 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 of the soon imminent demise of the oil & gas industry over the last 50 years.  Every couple of years, since at least the 1970th, there have been predictions of the death of oil & gas. This has come in the form of the fear of just running out of oil (peak oil), multiple wars in the middle-east driving up energy prices, and certainly the concerns about the impact of carbon dioxide-related global warming.  We are currently in a similar wave where the death of oil & gas is being predicted due to the advances in alternative energy technology and the fast build-out of wind and solar power plants.  Along with this, we have seen a small decline in orders of fossil-based power plants – primarily gas turbines combined cycles, and hand-wringing politicians lamenting power industry leaders over their supposed misguidance of future energy resources.

This stands in sharp contrast with real numbers that show that world oil & 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. Growths in oil & gas production are primarily driven by urgent energy demand from developing country populations that are experiencing a rapid increase in living standards as well as the dramatic industrialization of China and India over the last 30 years. The total increase of oil & gas produced over the last 20 years is actually 3-4 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 alternative energy sources.  It is merely a market response to a cyclic over-built 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 don’t follow smooth sine waves but rather experience 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 be continued to be built at MW rates easily exceeding those of alternative energy plants.  However, there is always the chance that an over-anxious politician clubs the oil & gas industry over the head to cause its premature demise.

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