The Rise of Renewables and their Impact on OPEC

Introduction

OPEC was founded for the purpose of stabilizing the oil and gas industry and ensuring both efficient and economic supply of petroleum products to the consumers across the globe. This oil cartel includes members from 13 nations and accounts for the production and distribution of over 70% of the world’s petroleum products since 1960 (Organization of the Petroleum Exporting Countries, 2016). In many ways, OPEC can be considered as an international oil cartel. In fact, the member nations benefited from restricting oil production and distribution in the 1970s, and this way boosted their wealth and improved the circulation of their petroleum products across the globe (Organization of the Petroleum Exporting Countries, 2016). The subject of renewable energy has also been in existence for a long time. Moreover, the renewable energy was first mentioned in the research in the mid-19^th century. The researchers at that time were concerned that the fossil fuels would soon run out, since they were not replenished by the consuming civilization (Abuzarli & Mammadzada, 2016)). It is, however, not until the 1970s that the environmentalists started actively campaigning for renewable energy, since the future of the planet, due to the increase in population, seemed bleak in the face of all the fossil fuel combustion (Frankfurt School-UNEP Centre, 2016). In fact, since nothing much can be done to cap the demand for energy, OPEC is able to remain comfortable in business. In the recent past, however, many things have happened to make the rise of renewable energy as one of the most significant challenges for this international oil and gas cartel. Therefore, in the face of global warming, increased investments in clean energy and the diminishing need for fossil fuel, the world will eventually shift to renewables, consequently avert from OPEC’s operations.

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Global Warming

The Maldives is currently at risk of submersion as the sea levels keep rising continuously around it. The problem facing Maldives is one of the most evident and undeniable examples of global warming. In fact, the rising sea levels are attributed to the melting ice on mountain caps and colder regions in the world (Moore, 2010). Every nation with a coastline monitors their sea levels with the concern that millions of people will need to be displaced. Australia, the US and even some parts of Africa have already raised their concerns over the rate at which the sea levels are rising, thus making global warming a reality instead of a scientific finding, which is meant to cause unrest. Besides, it is critical to note that there have been more cases of extreme weather since the early 1980s (Moore, 2010). In the past, there may have been regular storms and floods, but it is only in the recent past that tropical cyclones have become increasingly violent resulting in numerous deaths. Natural disasters in the past may not have been as disastrous as they are today and this is because the planet’s climate has changed more drastically. In addition, many plants and animals are becoming extinct despite being in their natural habitats. Plant and animal extinction indicates that the climatic conditions that once favored them have changed significantly and the living things in question are not able to adapt to such drastic changes.

These are only some of critical factors that have necessitated the admission of players in the oil and gas industry to global warming. The solutions that the OPEC and other players in this industry have been looking for are also considerably mediocre considering the extent of damage they have been causing while remaining in denial of the well-known negative influences. Oil, coal, and gas have for years been blamed for the current state of the planet concerning climate change. Greenhouse gas emissions are mainly traced back to the three fossil fuels, which are also the pillars of the OPEC’s business (Abuzarli & Mammadzada, 2016). Furthermore, findings indicate that since the start of the Industrial Revolution, the planet has become much warmer, with most of the greenhouse gases coming from the industrialized nations, such as the US, the UK, Canada and Japan among other European countries. The impact of global warming is, however, more evident in the poor countries, which are least capable of adapting to the gradual environmental changes (Ryszka & Withagen, 2016). However, there was a time when global warming was shunned as a conspiracy theory made up by the environmental enthusiasts who were mainly interested in shutting down the oil and gas industry. More importantly, the oil and gas industry has since been pressured into accepting that they play have a negative role in the degradation of the environment through excessive carbon emissions that continue to endanger the sustainability of life on this planet.

Projects, such as carbon trading, have been implemented as a measure against the excessive greenhouse emissions, but they do not necessarily work towards reducing the release of excess carbon. In fact, industries that have lower carbon emissions simply trade in their license for carbon emission with industries that are yet to devise a mechanism to reduce their environmental impact significantly. In the end, the oil and gas industry is buying its way through the degradation of the environment and simply worsening the issue of global warming as it stands.

Another recently implemented project based on the global warming issue is the carbon capture and storage, which aim to keep the carbon in the soil instead of having it released into the atmosphere. The OPEC has lauded the carbon capture and storage as a solution to the global warming issues, since it ensures that the amount of carbon released into the atmosphere is negligible at best. In reality, however, CCS as a process is similar to nuclear energy in many ways. In the event of a natural disaster that could tamper with the storage sites, there would be too much carbon released into the atmosphere at once, having unprecedented outcomes on the sustainability of life on Earth. With all the money that the OPEC spends on research, it can be anticipated that they are aware of the potential effects of all their counter projects, but they are driven by the need to maintain stable economies that are dependent on the oil and gas industry.

OPEC currently understands that the oil and gas industry has a medium buyer power. The consumers may not be able to dictate the prices of oil and gas yet, but they can choose alternative sources of energy especially in the face of the growing supply of renewables in various parts of the world (Wood & Dow, 2010). The organization is thus currently increasingly concerned about their position in a market, where the environment is the main determinant of the market value. The customers are willing to spend more to purchase a cleaner energy rather than contributing to the destruction of their home.

Investment

In 2014, about $300 billion was invested in renewable energy with the expectation that the numbers will go even higher with time (Currier, 2015). Meanwhile, the oil and gas industry was only investing $130 billion (Currier, 2015). Part of the OPEC’s goal is to ensure that the demand for oil and gas is met effectively and efficiently without further damage to the industry’s reputation. Therefore, a mechanism that ensures that the oil reserves are exploited within their reasonable limits is one of the greatest roles of the organization. However, the energy industry, similarly to any other industry, has been driven mainly by the numbers. The global warming narrative is appealing to the environmentalists and some customers, but even more attractive is the economics associated with the renewable energy. Oil is expensive, especially in a volatile market where the prices fluctuate without notice. Renewable energy, on the other hand, is cheap not only to harness and store but also to maintain due to the predictability of the elements that are involved. The main lines of investment are solar, hydro, the wind and geothermal energies.

According to Adlong (2012) solar energy is responsible for over 55% of the investments in renewable energy. By 2004, the world was able to generate over 180 terawatt hours of electricity from the sun (Adlong, 2012). With advances in technology powered by the billions invested in this research, it can be anticipated that the sun has the potential of catering to over 50% of the planet’s energy needs (Adlong, 2012). Energy from the sun is not only independent and reliable but also is very safe for the environment, since it does not alter the way the planet works. The solar energy is already a part of the global wealth, and harnessing it to provide electricity for the population is one way of ensuring that the planet’s resources are put to good use without the risk of harming the planet in the process. By contrast, hydroelectricity currently accounts for over 70% of the world’s renewable energy with over 150 countries producing their power using water (Solarin, 2015). Only 2% of the global investments in renewable energy have been spent on hydropower mainly because the technology involved in this field has been in use for over three decades (Solarin, 2015). The only major concern that organizations in the oil and gas industry use to justify their existence is that some hydroelectric power plants use fossil fuels to run the turbines that generate the electric power. As such, the process of hydro electrification is not entirely independent of the OPEC regardless of its potential to replace oil and gas. Currently, hydropower accounts for less than 20% of the global electricity with the possibility of improving, once the investments yield positive outcomes that eliminate the need for oil and gas in the process (Solarin, 2015).

Besides, wind also generates electricity, with a current capacity of up to 5% of the global demand for electricity. While wind is highly dependent on the geographic location at which it is generated, there have been significant success stories where wind-generated electricity is used to meet over 40% of a nation’s demand for electricity (Govindan & Shankar, 2016). The potential of wind as a source of energy is currently attracting 37% of the investment in renewables with the possibility that it will be the cleanest and cheapest source of energy in the future (Govindan & Shankar, 2016). Wind, in this case, can be considered almost as cheap as the natural gas within the current market, with the advantage of being environment-friendly.

Moreover, geothermal energy is another popular aspect in the renewable energy front with only 1% investment of about $2.7 billion globally (Frankfurt School-UNEP Centre, 2016). It can be appreciated that geothermal energy has been in use for the longest time and it remains one of the fascinating areas. The thermal energy, in this case, is harnessed from the earth’s core where the temperatures are believed to be very high and can be accessed through strategic points on the earth’s surface. In fact, geothermal energy is the inexpensive to harness and distribute, at a record $0.05 per kWh, what is significantly cheaper than natural gas (Güney, 2014). However, this source of energy has a few limitations that are being looked into, thus require investments despite being an ancient practice.      

Overall, these are only some of the opportunities that the global energy industry is focusing on with the aim of satisfying the growing demand for energy without any further degradation of the planet. The fact that there are so many lucrative opportunities and so much money for further research should mean that the time for oil and gas is very limited. In fact, people open about this issue threaten the oil and gas industry thus creating significant disorder in the OPEC economies. In this case, it is reasonable for the organization to continue exude confidence in their annual meetings on the state of the oil and gas industry.

Diminishing Need for Oil and Gas Due to Technology

At some point, it was considered impossible to run the world without oil and gas. However, inventions, such as the production of hydroelectric power, which currently caters to the energy needs of most developing nations, is heavily dependent on oil and gas. Similarly, solar, wind and biomass as the sources of energy that were mainly used for minor activities, such as lighting, heating, and cooking, with oil and gas being mandatory for the heavier energy applications. The limited capacity of the production of renewables proved to be the best strength of the OPEC, as they considered oil and gas as the foundation of the energy industry. However, this situation has so far changed as well. Oil and gas are no longer as necessary since the renewable energy platform is embracing mass production and market competition.

Under mass production, there are many manufacturers of the renewable energy now with the capacity of 1,849 GWe (Giga-watt electric). The global energy consumption currently stands at 12.3 terawatts, which can translate into 12,300 GWe (Frankfurt School-UNEP Centre, 2016). This deficit implies that the world is still far behind with regards to the production of renewable energy and the actual demand for energy. However, one must consider the increasing investments in the sector aimed at improving production capacity by 2020 (Frankfurt School-UNEP Centre, 2016). The demand for energy may be growing at a level that will keep the oil and gas industry in business for some time, but the market is getting ready to shift their dependence to renewable energy as the sector matures and starts producing enough energy for the large market. Currently, most production plants of renewable energy are small-scale plants that are designed to cater for a small market. As corporations start to appreciate the potential of renewables at an industrial level, they are likely to pay more attention and thus fund larger production plants that will meet the growing demand and slowly drive down sales of the oil and gas industry.

Market competition, in this case, relies on the price. The cost of oil and gas has always been very unstable, with the OPEC being often accused of manipulating the oil and gas prices to favor its member states. Initially, the greatest disadvantage of the renewable energy platform was cost. The cost for renewable energy on a small scale is considerably higher than the cost of oil and gas. For example, if an individual could simply buy cooking gas at a lower rate than a solar power system, it is likely that they would prefer the cooking gas due to low cost. However, in the long term, it can be proven that the solar power system is more cost efficient, since, after the installation, the system becomes self-replenishing, and the need to buy fuel ever again diminishes. Other than competing on price of acquiring and installing the equipment the market is becoming more focused on the expense required by the oil and gas energy concerning the long-term maintenance and sustainability of the environment. Energy from wind would cost about $0.07 per kWh, hydroelectric power $0.08, geothermal power $0.05 and solar energy $0.24 (“Why Alternatives Are Important,” 2016), all of which are reasonable because they are safe for the environment.

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In a market where the consumers depend on more than the price to make a choice between oil and gas and renewable energy, it can be argued that the environmental effects of oil and gas will push the customers away that can find a variety of safer options. Many people in the world currently understand the full implications of global warming either from experience or from watching the news. The rate at which the world has been suffering natural disasters and alternating between floods and droughts presents how affected the planet is, and thus there is a need to put effort towards repairing the damage and thus reversing the climate change within a reasonable margin. It would thus be easy for the environmentalists, with the help of the emerging renewable energy industry, to convince the masses that oil and gas are evil and that renewable energy is the ethical choice in situations where the economic front is not as effective. Considering that OPEC can easily manipulate the price of oil and gas, a moral and ethical ground can be just as effective for renewable energy if used appropriately.           

Conclusion

OPEC has been blamed along with the oil and gas industry for the earth’s current issues concerning global warming and other things related to the excess greenhouse gas emissions that have plagued the environment since the Industrial Revolution. Throughout history, science has been known to provide solutions for humankind, and in this case, renewable energy is the answer to the oil and gas menace that OPEC seems to stand for. With the rise of renewables, the oil and gas industry stands to lose its market demand, since the renewable sources of energy become cheaper and more reliable across the globe. Currently, some regions of the world remain tied to oil and gas because they have not invested in renewable energy. However, with time, as some of the global corporations begin to appreciate the future of renewables, it is likely that even the remotest parts of the world will gain access to the global power grid connected to solar, hydro, wind and geothermal sources of energy. This impending shift means that in the future, OPEC will not have any demand for their oil and gas, meaning that the economies of these thirteen member states will be in jeopardy unless they change their dependence from the current lucrative oil and gas industry to renewable energy. It is important to note that most of the OPEC nations including the UAE have already implemented strategies aimed at diversifying their economies despite the statements released by OPEC on the stable future of the oil and gas industry.