2020: Fossil fuels are dead, long live the sun

We’re female entrepreneurs and environmentalists. We’ve spent decades promoting clean energy technologies. In this strangest of all years, as the death toll mounts from a disease caused by human incursions into once intact ecosystems, we’re observing another death — the demise of fossil fuels.

Is that possible? Consider this: In April, Royal Dutch Shell, one of the largest companies in the world, announced its intent to become a net-zero carbon company by 2050. When oil and gas companies say that they’re getting out of oil and gas, shouldn’t you?

No doubt Shell is counting on some miracle like carbon capture to preserve its adherence to a century-old business model of selling oil. And who could blame it? For years, extracting the black gold from the ground, processing it, then selling gasoline, fuel oil, petrochemicals and other refined products has been one of the most profitable businesses in history.

In 2008, Exxon made a record $40.6 billion. For years, seven of the top 10 companies on the Dow Jones Index were oil companies until 2016 when most fell out of the top 10, leaving only Exxon. Last year, no fossil company made the top 10 list.

Exxon’s 2018 revenues were half of what it made a decade earlier; in 2019, it was only $14.3 billion. That’s still a lot of money, but running an oil business is capital-intensive: Exxon was borrowing to pay dividends before COVID-19. The Institute for Energy Economics and Financial Analysis reported that “the world’s largest publicly traded oil and gas companies shelled out a total of $71.2 billion in dividends and share buybacks last year, while generating only $61 billion in free cash flow.”

Meanwhile, the coal and natural gas industries are also collapsing around us — a swift decline from the shale fracking boom. Fracking equipment sits idly in fields, and utilities shutter coal and natural gas power plants indefinitely.

While businesses, community organizations, utilities and government agencies move away from dependence on fossil-fueled power generation, you can make that same shift, too.

In April, the bubble popped, perhaps forever: Oil future prices hit negative $37 a barrel.

What happened?

COVID-19 constricted commuting, and demand for refined oil products fell fast. Oil companies ran out of places to store the stuff. Tankers at anchor in the Houston Ship Channel started bumping into each other, but the oil kept flowing.

Why? It turns out it’s not easy to stop.

Capping a well, realistically, means writing it off. Wells are capital-intensive to drill in the first place, but they are also costly to reopen. The cost to buy an oil rig runs from $20 million to $1 billion. Renting one isn’t cheap, either. In 2018, Transocean (yes, the folks who brought you the BP oil spill) charged Chevron $830 million ($445,000 a day) for one rig for five years. We bet someone’s now trying to renegotiate that contract.

Hydraulic fracturing isn’t any cheaper. Even before the coronavirus hit, the shale gas Ponzi scheme was falling apart as investors realized that the enormous sums that they were asked to continue pouring into the industry were never likely to return a profit. Prices to frack a new well vary widely, depending on whether you’re drilling in West Texas or horizontally to frack under housing developments, varying from $40 to $90 a barrel. The costs multiply because fracked wells typically last less than a year. Even before COVID-19, traditional oil was lifting for $10 to $20 a barrel in Saudi Arabia, with a world average of $40. Fracking was not a viable industry even before oil went negative.

If this is the case, isn’t it a breach of fiduciary responsibility to invest in oil and gas extraction? If these are your own funds, throw them away if you wish, but Bevis Longstreth, former Securities and Exchange commissioner forecasted back in 2018, “It is entirely plausible, even predictable that continuing to hold equities in fossil fuel companies will come to be ruled negligence.”

This helps explain why more than $11 trillion have been divested from fossil ownership, even before the University of California announced that it was divesting its $80 billion portfolio.

Surely the world runs on oil. This will just be a blip to what is an essential industry for humankind, won’t it?

No. It won’t. We can see the end. When the Kentucky Coal Museum puts solar on its roof because it is cheaper than hooking up to the coal-fired grid at its doorstep, it’s over.

For fundamental economic reasons, solar power generation plus battery storage will provide at least half of electric power generation globally by 2030. Last summer, General Electric walked away from a natural gas plant in California that had a projected 20 years life because it can’t compete with solar.

And this trend is happening around the world.

India canceled 14 new proposed coal plants because they can’t compete with solar. Portugal achieved 1.6 cents a kilowatt hour (¢kWh) for utility-scale solar, a price almost five times below building a new coal or gas plant. This spring the government announced that the country was 100 percent renewably powered and canceled all subsidies for fossil energy. And then Abu Dhabi set the latest new record for “everyday low price” when it brought on utility scale solar at 1.3 ¢kWh.

In the bellwether state of California, the death knell for fossil fuels came when the Los Angeles Department of Water and Power signed a deal to buy power from a utility-scale solar plus battery storage facility at 2.9¢kWh. To put it simply, that is record-cheap solar power.

While businesses, community organizations, utilities and government agencies move away from dependence on fossil-fueled power generation, you can make that same shift, too.

You can have solar on your roof, a battery bank in your garage and be immune from power shutoffs, rising prices and vulnerability of all sorts. Centralized energy distribution from fossil fuels via the grid is not reliable (or cheaper). Extreme weather events are the biggest contributor to power outages and will increase with climate change, which the Department of Energy estimates costs the U.S. economy $150 billion annually. Customer-sited solar plus storage allows you to generate and store your own power, on or off-grid.

Welcome to the triumph of the sun.