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Accenture has completed a study that compares how the United States and China are in a race to bring alternative transport fuels (including vehicle electrification and biofuels) to their respective markets.
Past research has shown that while new technologies will reshape the future fuel mix, adoption is not completely dependent on technology development.
It is also influenced by individual countries’ domestic agendas. This includes a balance of economics, energy security, climate change and legacy (or lack of legacy) infrastructure. Both the United States and China are aggressively pursuing these “disruptive” transport technologies.
Given the current activity and outlook, this report examines how their trajectories line up and what trade-offs we anticipate the two countries might make. Whoever wins the race to commercialize technology first may have unique advantages. These include intellectual property ownership and opportunities to provide jobs to their domestic population.
In addition, the outcome will have implications for energy companies. Depending on which technologies scale first, oil and gas companies may experience significant competition from biofuels, electrification and Next-Generation Engine technology. This will likely impact their business models, portfolio planning and asset rationalization.
On the other hand, utilities will likely see new opportunities in distribution and retail as electrification develops and takes shape. Their challenge will be understanding individual markets and investing quickly enough to establish their dominance before new competitors aggressively pursue this space.
Read the Petroleum Review article: Winning the race for new fuel technologies: China or the US? [PDF, 60KB]PDF Help
In 2010, Accenture released a study titled Betting on Science: Disruptive Technologies in Transport Fuels. It examined transport technologies that have the potential to become cost-competitive to hydrocarbons in the next five to 10 years. We defined “disruptive” to mean how big a new technology’s impact may be on either the future of energy supply and demand, or greenhouse gas (GHG) emissions. The study examined 12 technologies and 10 different markets.
While the Betting on Science research highlighted new technologies that will reshape the future fuel mix, it also emphasized that adoption is not dependent only on technology development. It is also influenced by individual countries’ domestic agendas.
When examining individual markets, the race between the United States and China was particularly intriguing, as they occupy the No.1 and No.2 rankings in energy demand. The decisions they make and the positions they take will influence how the overall industry structure will shift and change.
Who will win the race? The oversimplified short answer is that, assuming continued long-term government support for alternative energy and allocation of funds to R&D and deployment, our expectation is that China will be able to achieve its targets faster, but in a narrower field of technologies. While the United States may be slower in its development, its openness to new and disruptive technologies is more likely to generate a breakthrough solution.
The assumption of continued government support (however fragmented, in the case of the United States) is critical. The scale of funding needed to deliver the capital projects that will deliver these new fuels and infrastructure is enormous. However, investment will come only if policy signals are clear and long-term. But assuming this policy stability, the current activity in the United States and China will fundamentally change the future of transportation fuels.
Other key findings:
The Accenture report also provides recommendations for oil companies and electricity utilities to exploit new opportunities. For oil companies, these include reviewing operating models to create closer links with agriculture to secure supply of biofuel feedstock, and the disposal of marginal assets that hold back competitiveness. As China’s oil companies expand globally, they will need to improve their merger and acquisition strategies and post merger implementation.
Accenture also recommends that electricity utilities proactively manage the opportunities and challenges presented by electrification of transport. Given uncertain consumer demand, utilities will have to improve their understanding of consumer preferences for EVs to mitigate the high risks associated with infrastructure investments.
Electricity distributors should also increase low-voltage energy storage investments to mitigate the volatile demand of EV charging and the intermittent supply of renewable energy. Proactive management on this level will further position utilities to capture market opportunities related to electrification of transport.
January 11, 2011
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