Houston and Detroit – Twin Cities?

Why is Texas letting the clean energy transition move ahead without it? There are a lot of people asking this question. The new head of the Greater Houston Partnership affiliate Center for Houston’s Future, Brett Perlman was recently  asked this question by the Houston Chronicle. He suggested that if Houston does not get its act together, the City may no longer be a relevant player in the energy industry as the transition moves forward.

Why is it important to ask this question? Because the transition is real and it is enginehappening at a pretty decent clip. In the latest issue of the Economist there is an article about the coming demise of the internal combustion engine due to recent technological breakthroughs of electric vehicle battery technology.  Battery prices have gone from $1,000 per kWh in 2010 to $130-$200 per kWh today. With this reduction in pricing it is anticipated that by 2025 EV’s will make up 14% of total global car sales, per the Economist article. This number of EV’s may continue to raise as more countries and automakers make statements of going fossil fuel free by 2040 and shifting resources to EV R&D and production. How much of this is greenwashing, time will tell. However, with decreasing technology costs and changing consumer attitudes we may be close to that uptick in s-curve.

Houston is a bit vulnerable to the oil and gas roller coaster as has been demonstrated time and time again. This vulnerability was demonstrated during a time when oil and gas was the only game in town. Granted there was some really expensive hydrogen options, some very short range EVs and a bunch of compress fossil fuel options. However, now there are some true alternatives and these alternatives are quickly coming to price parity with our traditional transportation fuels and their range is becoming just as good as the internal combustion option.

A recent University of Houston Bauer College of Business Institute of Regional Forecasting report presents a good picture of how the Houston economy is still very much dependent on the oil and gas market and one can draw some interesting conclusions on what may happen to the Houston economy if prices remain low or go lower. in reality we are already in a long-term low price market. Shell CEO Ben van Beurden predicted we are in a “lower forever” oil price environment. This is at a time when demand for transportation fuel has been increasing due to growing transportation demands. So what happens if demand starts to fall due to EV’s?

Much of this oil and gas activity has some tie to Houston and Texas. Oil and gas is  a global industry but Houston has some involvement at some point whether it is R&D, refining, transportation, manufacturing, oil field services, financial/transactional, etc. We are responsible to some degree for the 36.9 quadrillion BTU’s of petroleum production in the US and make much of the 27.9 quads used in transportation. See the LLNL chart below.
Energy_US_2016

Houston is a major player in the transportation market due to our position in the production of oil and gas and refining fuels. So, why not build on this, extend a bit beyond fossil fuels. The City has the engineering expertise and the industrial base to play an active role in making a clean energy transition. If we do not do so, we face a double climate risk. Risk from physical climate change and risk from an economy that is stuck in time and being left behind. I discuss this in an earlier blog post

There is no definite timeline for when this transition will really ramp up and significantly reduce demand for fossil fuels. There is plenty of skepticism among if and when this will actually happen. However, different from the past, the technology is quickly becoming cost competitive with traditional fossil fuel transportation options. The infrastructure needs to be built out, attitudes and perceptions of electric vehicles will need to be changed, costs will need to continue to come down, etc.

Much of it appears to be dependent on battery storage. The deployment of EVs is anticipated to increase significantly as the price points, size and weight of batteries decreases. The intermittency problem of renewables also is largely dependent on battery and other physical storage options.

 

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