Revenue Loss Due to Reduced Usage of Gas and Oil Tankers
As the global community intensifies efforts to combat climate change, fossil fuel transportation companies face significant financial challenges. The shift towards renewable energy reduces the demand for fossil fuels, thereby impacting the profitability of companies operating gas and oil tankers. OPN Researcher Joseph Bryant explores these financial challenges and discusses how innovation in green energy and battery technologies can support transportation companies' electrification journey.
Tom Seyer emphasizes the cost-effectiveness of renewable energy by highlighting the rapid growth and economic advantages of renewable energy sources, even in regions traditionally dominated by fossil fuel production.
Solar and wind are substantially cheaper than fossil fuels. If you don't know that, ask Texas. In the last three years, Texas has tripled solar. They are the biggest producer of wind energy by far, in the United States of America.
- Tom Seyer ( Former Presidential Candidate & Author)
The transition from fossil fuels is leading to a notable decline in revenue for fossil fuel transportation companies. According to a study led by the MIT Joint Program on the Science and Policy of Global Change, the global net present value (NPV) of untapped fossil fuel output through 2050 could range from $21.5 trillion to $30.6 trillion, depending on the severity of climate policies implemented. Henry Chen, a research scientist at MIT, states, “The more stringent the climate policy, the greater the volume of untapped fossil fuels, and hence the higher the potential asset value loss for fossil-fuel owners and investors” (MIT News, 2022).
The International Monetary Fund (IMF) underscores that fossil fuel exporters are experiencing substantial economic impacts due to the global energy transition. These impacts affect exports, fiscal flows, investment, economic growth, and employment, creating significant financial uncertainties for fossil fuel-dependent economies. The IMF report highlights that the global energy transition adds to longstanding uncertainties on relative movements of fossil fuel demand and supply, impacting fossil fuel-related exports, fiscal flows, and investment (IMF, 2024).
Similarly, the International Energy Agency (IEA) reports a steep decline in fossil fuel demand, negating the need for new long lead-time upstream oil and gas projects, significantly impacting revenue streams for fossil fuel transportation companies. The IEA states, “Declines in fossil fuel demand are sufficiently steep that there is no need for new long lead time upstream oil and gas conventional projects, nor for new coal mines or mine extensions” (IEA, 2023). The graphical data indicates a steep decline in the total fossil fuel supply from 511 EJ in 2022 to 88 EJ in 2050, with oil, natural gas, and coal all seeing significant reductions.
Additionally, a study published in Nature found that to avert the worst impacts of climate change, most of the world’s known fossil fuel reserves must remain untapped. Specifically, 90% of coal and nearly 60% of oil and natural gas must be kept in the ground to maintain a 50% chance that global warming will not exceed 1.5 degrees Celsius above preindustrial levels (Nature, 2021).
Future Cargo for Transportation Companies
With the decline in fossil fuel transportation, companies must adapt to new market demands. In the coming years, these companies may pivot to transporting alternative energy sources and materials critical to the renewable energy infrastructure, including:
- Hydrogen
- Biofuels
- Carbon Capture and Storage (CCS)
As hydrogen fuel becomes more prevalent, tankers could be repurposed to transport liquid hydrogen. This shift is supported by various studies suggesting that hydrogen will play a significant role in the future energy mix (IMF, 2024).
Transporting biofuels, a renewable alternative to traditional fossil fuels, could become a new revenue stream. Integrating biofuels into the energy market is seen as a sustainable path forward for reducing carbon emissions (IEA, 2023).
Tankers may transport captured carbon dioxide to storage facilities. This method is part of broader strategies to reduce greenhouse gas emissions by capturing and storing carbon emissions from industrial sources (IEA, 2023).
Innovation and Electrification
Innovation plays a crucial role in supplementing transportation companies’ electrification journey. Here are some ways innovation can drive this transition:
- Innovative Electrification Strategies
- Renewable Energy Integration
- Battery Supply Chain Development
The International Renewable Energy Agency (IRENA) emphasizes the importance of intelligent electrification strategies to decarbonize end-use sectors, including transportation. Innovations in technology and infrastructure, such as integrating renewable energy sources like wind and solar, are crucial. These strategies also involve enhancing market design and regulation, improving system planning and operation, and developing new business models (IRENA, 2023). Please see the complete PDF for more information.
Renewable energy, such as solar and wind, is essential for powering electric vehicles (EVs) on national highways. Optimizing the use of renewable energy and grid-scale battery arrays can significantly reduce greenhouse gas emissions and support large-scale EV adoption (Sustainability, 2023). This research article has great information for us to digest further.
Building a robust battery supply chain is essential for the widespread adoption of EVs. Ensuring a reliable and cost-effective supply chain involves sourcing raw materials, efficient battery assembly, and integration with EV control systems. Innovations in this area are critical to meet the growing demand and sustain production efficiency (Thomasnet, 2023)
Government policies play a significant role in driving the electrification of transportation. For instance, the U.S. Environmental Protection Agency (EPA) and the Department of Transportation (DOT) have set stringent greenhouse gas emissions and fuel economy standards. Substantial investments are being made in developing EV charging infrastructure and providing tax incentives for EV purchases, encouraging manufacturers and consumers to embrace electric transportation. “Within the energy sector, the use of tax incentives within the Inflation Reduction Act will encourage consumers and companies to purchase and install renewable energy technology — such as wind and solar — and replace heating systems that rely on natural gas or oil with electric heat pumps. Manufacturers and distributors of these systems, as well as installers and service suppliers, will benefit from a rise in demand” (Thomasnet, 2023)
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