BP chief executive Bob Dudley recently issued a dire warning, comparing the current oil bust to the one that devastated the oil and gas industry in the 1980s.
I’ve made similar comparisons between the current price plunge and the ‘80s. The severity of the price decline during the past six months certainly reinforces the notion that we may be seeing the worst oil slump in 30 years.
Other factors, though, occurring on the fringes of the oil market, hint at a different outcome than the 80s, which ended with the US becoming more dependent on cheap oil.
In the US, the world’s biggest energy consumer, gasoline prices are at their lowest in almost five years, and oil production has surged to its highest in three decades.
Yet oil consumption per dollar of gross domestic product is at its lowest in 40 years. Oil consumption and GDP used to move in tandem, but now, GDP is continuing to rise while oil demand has leveled off.
As Bloomberg News noted recently, there’s several reason for this. First, automobiles are more fuel efficient, and more baby boomers are retiring and therefore driving less. Younger people are moving to the cities and using more public transportation.
But there’s one factor that makes this bust different: it isn’t just about oil. That may not offer much comfort to industry executives like Dudley and dozens of others who are focused on cutting expenses, workers and capital budgets.
While the oil markets continue to struggle with oversupply, concerns about climate change are driving innovation in the renewables field. Unlike past oil busts, renewables such as solar power are continuing to expand, during both the run up to last year’s peak in crude prices and during the decline of the past seven months.
In the US annual consumption of renewable energy, based on British thermal units, has almost doubled since 2001.
That didn’t happen during the 1980s. Back then, advances in alternative fuels, which made progress after the oil embargoes of the previous decade, stalled once prices began falling.
In perhaps the best illustration of shifting attitudes about renewables, US President Jimmy Carter famously had 32 solar panels installed on the roof of the White House. Ronald Reagan had them removed in 1986 as oil prices plunged and the U.S. deepened its dependency on oil.
In 2011, President Barack Obama returned solar panels to the White House roof and installed a solar water heater. Obama’s decision mirrored a growing trend of solar installations across the country. The amount of electricity generated from solar power rose by more than 100% last year compared with 2013, and since 2010, almost 10,000 megawatts of new capacity has been installed, enough to power about 3 million homes.
In Europe, IHS predicts that another 8,700 megawatts of wind power and about 10,700 megawatts of solar capacity will be installed this year. A small but growing number of projects are expected to be built without government support.
Many of these advances are still heavily subsidized. In the US, for example, solar and wind power benefit from hefty tax credits, although they are set to begin phasing out in 2017 and may eventually be eliminated.
The economics of the solar industry has changed dramatically in recent years, from falling prices for solar panels to more innovating financing offered by installers. The average installed system price in the US fell by 11% in the third quarter of 2014 from the same quarter a year earlier.
While oil and gas executives may be paying these advances little heed, their counterparts in the utility business are taking notice, recognizing that the increase in rooftop solar has the potential to disrupt their long-standing control over power generation.
Across the US, utilities are rethinking their business models to account for this so-called distributed generation in which every rooftop becomes its own power plant.
None of these advances, of course, pose a serious threat to the dominance of fossil fuels at the moment. They remain, at best, supplemental energy sources, not alternative ones, and they still account for less than 2% of US energy consumption.
The point isn’t that renewables aren’t yet ready for prime time. It’s that the development has continued despite the rise of cheap oil, which in the past has caused support for renewables to fade quickly.
It’s still early. The oil price decline is only about seven months old. If it persists, renewables development could take another step back, just as it did in the ‘80s. But unlike then, concerns about a changing climate are now at the forefront of policy discussions. Those discussion may keep alive the push for cheaper, more reliable alternative fuels.
If so, it will mean the world comes out of this bust with a more diversified energy portfolio, which will make it easier to weather future fluctuations in oil prices.
The persistence of renewables, like the changing driving habits of the millennial generation, shows a changing attitude in world’s view of energy. For executives like Dudley, that may seem insignificant, compared with the worries they face from falling oil prices. But it represents a significant shift from past downturns, and it offers a glimmer of hope that things might be different this time.
Loren Steffy is a managing director with the communications firm 30 Point Strategies. He is a writer at large for Texas Monthly, a contributor to Forbes and the author of Drowning in Oil: BP and the Reckless Pursuit of Profit and The Man Who Thought Like a Ship. Follow him on Twitter: @lsteffy; on Facebook or at lorensteffy.com.