Why the West should welcome cheap oil

The International Energy Agency predicted this week that at current rates, the world will be awash in cheap oil by 2030. This raises the tantalizing prospect of renewed growth in declining economies: cheap energy would lower production costs, lower inflation and revive the economy’s cost-constrained industries. It would also feed emerging technologies, especially artificial intelligence, which are voracious consumers of them.

Quite a few economists, sometimes called techno-optimists, say the world is on the cusp of an energy revolution – one that will fuel the next industrial revolution. The reason for this is the rapid progress in renewable energy technology. Rapid improvements in its efficiency, especially photovoltaics, mean that it is now often the cheapest form available. Meanwhile, the expansion of China’s production capacity for photovoltaic panels has reduced their price, making their installation much cheaper.

Battery technology is showing similar progress, enabling electric vehicles (EVs) to travel longer distances with fewer charges and making the intermittency problem with renewable energy less of an obstacle to its adoption. China’s aggressive support for the electric vehicle industry, combined with an export-driven economic strategy to recover from the economic crisis, has resulted in an excess global supply of low-cost, high-quality electric vehicles.