A little Israeli startup created one of several shock-waves through the energy industry. Started in 2012, StoreDot, who’s tagline is, ‘The Future of Charging’, was named number one of the top 100 disruptors in 2017 and raised over $145 million to date. According to City A.M., “The ranking, chosen by executives from top tech companies, including Uber and Google”. Which makes their selection even more impressive, since they were chosen by industry experts. Investors not only include VCs and tech giants, others include major corporations such as Daimler, Samsung (3 of 6 rounds), and more importantly for this discussion, British Petroleum (BP).

So, why does BP and other oil companies exhibit increased interest in alternative energy technologies recently? A combination of factors is forcing oil giants to think long-term and view the path towards alternative energy sources as inevitable.  However, what most don’t talk about is the need alternative energy startups have for the established energy companies’ deep coffers and business operations experience to lift these companies from potential to mass adoption.

Interrelated Industries Are Moving Towards Alternatives.

Every automaker has an electrification plan.  These plans are so publicized that even suppliers of the automotive industry hear the clarion call.   3M noticed the transformation and is offering technologies to push innovation in the automotive industry.  

3M’s mission is expressed as such, 

“Today’s automotive industry is in a period of rapid change—and it’s all because of technology. 3M’s Automotive Electrification program is aimed at enabling the transformation of mobility in the future. Automotive Electrification is a priority growth platform for 3M, focusing on helping our customers accelerate innovation in batteries, displays, automation, smart transportation infrastructure and more. Our multidisciplinary team combines 3M talent from our Corporate Research labs and our Industrial, Electronics & Energy and Safety & Graphics business groups”.

The primary factor holding back adoption are electric grid infrastructure, such as charging stations.  However, resources are going into electrical load and distribution at a faster rate than new oil and gas pipeline infrastructure.  Municipalities are viewing the expansion of the electrical grid as an opportunity for creative technology advances and infusion of capital for R&D.  Thus, government at every level is seeking to partner with the private sector who can deliver solutions.  For most auto consumers, costs and performance demands are the primary drivers that must be met for adoption of alternative power/fuel sources.  As stated in Texas Instruments’ description of its EV Charging Station HMI Module,

“One of the largest obstacles EVs have to overcome before wide-scale adoption is range anxiety, where consumers are concerned about switching from fast fueling combustion engines to slow charging battery packs. This fear has begun to subside with the advent of fast DC chargers, reducing charging times from multiple hours to less than one. Due to these changes, demand for fast chargers is growing, and TI’s portfolio of high voltage, high power parts are ready for the high-speed charging challenge. In many high-power chargers modular power supplies are used, allowing for quick repairs, design flexibility, and high efficiencies. The charging station requires accurate monitoring at multiple points of power conversion for proper regulation, protection, and delivery to the EV. With the monitoring comes increased fault handling and increased insight into any errors that may arise”.

This and many other innovations help build infrastructure at the base level for municipalities to manage and gain profit over the long-term.

LEED building standards are forcing energy suppliers to heat and electrify buildings using various energy sources other than petroleum-based distillate fuels.  Solutions for the intermittent Kilowatts for solar and wind power are addressing load balance changes.

Scneider Electric is powering Data Centers and residential homes just as the familiar Tesla PowerWalls/PowerPacks. These energy capture sources will enable less peak demand from utilities as battery technologies enable businesses and individuals to power their own excess energy consumption.

Governments Forcing The Issue.

Although a freeze on the ever increasing EPA’s 1970’s born Corporate Average Fuel Economy (CAFE) standards passed, the emission controls’ flywheel already gained an unstoppable momentum and will not freeze OEM’s meeting one of their largest US market’s standard, California. Instead of producing multiple vehicle for various regions of the US, they would much rather just develop towards the more stringent standard. At this point, PR and Marketing towards “cleaner” standards are now vogue, so multiple incentives are aligned even if government corporate subsides and welfare towards wealthy individuals in the form of electric car tax credits is eliminated.

The green lobby were able to buy enough time to allow the technology to advance to a near par level for cost of production for all electric vs internal combustible engines. Now, the OEMs must focus on style and safety for their plug-in and hybrid vehicles, just as their vanguard champion, Tesla. Now, Zero Emissions Vehicles (ZEV) is the new golden standard forced upon dealerships two provinces in Canada already rolled out, Quebec and British Columbia.  Cities in California are sure to follow this over-reaching government mandate.

Projections for electric car adoption always follow a linear curve for adoption of new technologies instead of an exponential curve. Unless, oil & gas executives track innovations in alternative energies, they may not realize how fast the transition from gasoline to other electric sources may occur even without the help of meddling governments.

Below is an example Ramez Naam uses often in his public talks about the difference between EIA’s projected battery price decline (yellow) vs what Tesla actually accomplished (red star).

 

Power Delivery

For all electric sedans, the high-bar to clear was 400 miles per charge. We are not there yet, but Tesla is inching forward with a 355 mile range for the 100D Model S. The closest range outside the Tesla brand is the Chevy Bolt at 238 miles.

Not only are consumers looking for range, but we want performance power, such as going 0 to 60 in 2.5 seconds. We’ve seen the Tesla  in Ludicrous Mode accelerate beyond any super car, no matter the horse power. See example video here.  The best don’t catch up until beyond the quarter mile mark.

The second generation Tesala Powerwall had twice the storage compacity and with the recommended two Powerwall setup, they can power the average home independently for 7 days. Many competitors to Tesla are also offering independent power options. See Clean Energy Review here.

 

Power Costs.

Petroleum will continue to be with us for a long while; including for other use cases such as hydrocarbon gas liquids (HGL). HGLs are a clean burning propane, ethane butane, etc. HGLs are used as feedstock to a large variety of products from plastics to pharmaceuticals. Also, there is currently no alternative power source to rival jet fuel. More demand in the flight travel industry should enable more petroleum resources within refineries to divert towards jet fuel.

However, traditional gasoline may peak very soon. This will be due to auto efficiencies and electrification. Electric car offerings to the end consumer is not the only market driver. What many underestimate is convergence of various technologies to change consumers’ behavior dramatically. The convergence includes the AI of self driving cars and the sharing economy.

When fleets of electric only automobiles are purchased for rideshare deployment, people will calculate the cost of hailing flexible transport vs ownership. The cost divergence will reach an inflection point of full-time ride hailing costs equaling costs of ownership. At this point, time gained will be a commodity to factor and many will opt for sharing versus owning. When shared fleets reach economies of scale and can operate profitably and charge less than cost of ownership, a mass turn-over will occur, especially in large cities where parking is also difficult and costly.

Although government delays could be a limiting factor for infrastructure build-out to support mass electrical charging within free markets, the process may be accelerated in heavy-handed Socialist governments pushing environmental policies. Faster yet for even heavier-handed Communist governments, that can mandate only electric vehicles sold. It appears OEMs are ready for such a transition, but the oil to gasoline industry are showing slight signs of urgency only recently. Many will be surprised by a mass transition occurring up to 10 years before their projections.

However, there are companies such as BP who are getting involved with new technologies such as StoreDot and investing in solar leader, Lightsource.

Other examples are Exxon and Chevron joining a climate initiative that include European companies like Shell and BP as members.

In 2017 Royal Dutch Shell acquired First Utility, an electric utility in the UK with over 800,000 customers. It also acquired MP2 Energy, which owns natural gas distribution infrastructure and develops tools and projects for distributed solar. Equinor , formerly Statoil, is building a 1,000 Mega Watt offshore wind farm, about 20 miles off the coast of Long Island, NY. This offshore wind farm can generate more electricity for 1 million homes than a comparable sized coal burning or natural gas plant. Total, a French energy giant, leads the way by staking a 56% investment in SunPower, a $1.1 billion acquisition of energy storage developer Saft, and other investments in synthetic biotech renewables.

The majors may capitalize on startups and smaller alt producers as they show promise. The smaller companies in the chain of oil & gas business are the high risk/ high reward companies that operate on tight margins. These smaller companies that don’t have excess capital to invest, will suffer in a major down-turn the most.

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