OPEC’s Existential Sucker Punch

Date: 30/07/17 Bloomberg

You wait decades for an existential crisis, then two come along at once. At least that’s how it must feel for OPEC’s beleaguered ministers. In the short term the market for their oil is being eroded by rising production outside their control. Looking further ahead, oil demand itself is under threat from the electrification of road transport. OPEC may not yet be dead, but its days are surely numbered.

The most obvious short-term threat to the group comes from the rapid rise in U.S. shale oil, but the risks have expanded to include other areas like Brazil’s prolific sub-salt discoveries and more recent finds further north along the east coast of South America.

Asian Appetite

Asian buyers are turning to U.S. crudes to offset the effect of OPEC output cuts

OPEC-1-768x282

Sources: Bloomberg, EIA

An increasing volume of U.S. crude is finding its way to markets in Asia that used to be the preserve of the group’s Middle Eastern powerhouses. China was the biggest foreign buyer of U.S. crude in April — the most recent month for which EIA data are available — overtaking Canada for the second time this year. And Indian refiners are finding an appetite for heavier U.S. grades that compete directly with Middle Eastern crudes. This is a particular worry for OPEC producers whose initial output cuts were said to target buyers in Europe and the Americas while sales to key customers in Asia were to remain untouched.

Add to this that there’s been little letup in U.S. oil production. The American surge began late last year, just as OPEC ministers were edging toward a deal to cut output after a two-year production free-for-all that saw WTI crude fall to little more than $26 a barrel. This shows little sign of running out of steam — output from the Lower 48 states, which includes offshore activity in the Gulf of Mexico, edged above 9 million barrels a day in the third week of July, its highest level for almost two years, according to weekly data from the Energy Information Administration.

Recovery

Lower 48 oil production hit 9 million barrels a day for the 1st time in nearly two years

OPEC-2-768x272

Source: EIA

The group’s short-term worry is that any rise in crude prices above $50 a barrel will simply allow competing shale companies to hedge more of their future production and unleash another surge in output. This makes it almost impossible for them to engineer the price recovery they desire.

Outside the shale patch, big oil is learning to live with lower prices again. Royal Dutch Shell Plc “is getting fit for the $40s,” Chief Executive Officer Ben van Beurden said on Thursday’s second-quarter earnings call, after the company released results showing that it generated almost as much cash from its operations last quarter with crude around $50 a barrel as it did when it was above $100. These companies may be getting fit, but the budgets of the OPEC countries certainly aren’t. They haven’t made the cuts they need to survive if prices persist at that level.

Van Beurden also articulated the second existential threat, when he said in an interview with Bloomberg TV not only that his next car would be electric, but that he could see demand for liquid fuels peaking in the 2030s.

A political trend towards growing electrification of transport poses a real, long-term problem. Nobody in their right mind is suggesting that oil is suddenly going to stop being the world’s transport fuel of choice, but its market share will come under increasing pressure. Four countries in Europe have now proposed bans on the sale of gasoline and diesel-fueled cars by 2040 at the latest. Between them they account for around a third of all the passenger vehicles in use in Europe.

Full story

HT/ The GWPF

Advertisements

133 thoughts on “OPEC’s Existential Sucker Punch

  1. Looking further ahead, oil demand itself is under threat from the electrification of road transport

    Stop right there.

    • Maybe in 30 years, maybe. Right now the fleet is about 1/10 of 1% electric and that’s being optimistic. Electric cars have no effect on oil demand at the moment.

      • That comment reminds me of the joke about the guy falling from the 40th floor – as he passed the 20th floor
        and an observer asked about his situation, the guy said “So far, so good.”

      • Until magical batteries hit mass production, electric cars will never be more than a bit player in the transportation game.

      • “US LTO to go up by 1.4 MMBOPD by 2022”
        … 5 years from now

        In the mean time, global demand is going up 1.2 MMBOPD/yr.

        What’s the rest of the non-OPEC world doing production wise? Treading water at best.

        Predictions:
        1) prices will be going up substantially (> $80/bbl) over next 5 years

        2) OPEC will find themselves back in the drivers seat with in 5 years

        3) Good times in the oil patch ahead

      • If I’ve learned one thing in my 36 years in the oil patch, it’s that all oil price predictions are wrong… 😆

      • $700,000 battery pack per semi, $1.0 billion solar farm, $1.0 million motel for the 48 hour turn-around for charging up (and maybe some entertainment costs for the truckers) and we are ready to go.

      • Bill,

        A thousand truck stop hookers can’t be wrong! And they say hooray for recharging. The longer it takes, the better.

      • If I’ve learned one thing in my 36 years in the oil patch, it’s that all oil price predictions are wrong

        Oh wow, just like climate predictions !

      • I have to laugh at the silly estimates of future electric cars sales – they are too often based on recent statistics, which mean nothing in light of the fact that electric car demand depends almost entirely upon the
        price of batteries and their recharge times, both of which are falling and approaching the tipping point at which EVs can be built cheaper than gas powered vehicles. In all aspects other than build costs, EVs clearly possess an economic advantage – mainentance, fuel costs, etc. Those who have lived thru the replacements of one technology by another realize just how fast and how completely things can change – 4 track stereo to 8 track, to cassette to CD. Those recent laws prohibiting production of gas powered cars in 2020 or 2030, etc are irrelevant – electrics will be the only game in town long before those future dates ever arrive. Gas powered cars wil suddenly vanish from pproduction lines, but that doesn’t mean they will also vanish from the highways. No one is stupid enough to throw away a $40,000 gas powered car in order to save fuel costs he
        can get in an electric. I just wonder to what extent companies will offer electric conversion kits for gas powered cars. I would love to convert my 57 Thunderbird to electric. Wouldn’t be hard for that car – no electronic controls, computer, etc. It would be a simple operation – mostly throwing stuff away. Most attractive car ever built, in my humble opinion, although the Austin-Healey and Jaguar XKE would have to be considered as well.

      • Falling charging times means shorter life for the batteries, which makes their lifetime costs increase.
        There’s not much more that can be done to squeeze costs out of battery manufacturing.

      • Dave, in the referenced article they talk about the increased demand from long haul heavy trucking. It wouldn’t surprise me if someone doesn’t come out with a hybrid electric tractor in the next couple of years. To me that is the only application for electric power in trucking I can envision until/unless there is some major and currently inconceivable breakthrough in energy storage. I’d say that right now you are as likely to see some form of cold fusion powered tractor as you are an all electric one in the foreseeable future.

    • T. Boone got closer than anyone thought he would at the time, when he predicted $200 for a barrel of West TX light sweet crude, but it only got to $150. Or was it Brent?

      However he was later even more overly optimistic after the crash, forecasting a quicker recovery than happened.

    • It is one thing to “say” there will be a change to an electrification of road transport, and actually making it happen. Battery use for storing electrical power does not generate a single watt of energy. The batteries are charged with energy generated from conventional power plants. Batteries Do Not Generate power, they store it for later use. Lets say we start using hydrogen fuel cells, which is a realistic option, but industrial quantities of hydrogen are produced from natural gas (methane, CH4). Also, for safety reasons, we want to generate the hydrogen on-board as needed for the fuel cell…because stored hydrogen is very difficult to deal with safely.

    • why?

      Bear this in mind:

      “Four countries in Europe have now proposed bans on the sale of gasoline and diesel-fueled cars by 2040 at the latest. Between them they account for around a third of all the passenger vehicles in use in Europe.”

      In addition you may note Volvo is moving to only EVs and hybrids: Skoda and volkswagen and BMW all have new EV models…

      Norway, with hydro power and govt subsidy, already has 42% of new cars EVs.

      It is definitely moving that way…

      • Britain and France have only proposed to ban gas-only and diesel-only vehicles, allowing hybrids. That does nothing to move away from petroleum as the basis for transport, it just makes cars more expensive and shifts some of the pollution to mining, battery manufacture, and battery disposal; likely with a net increase in real environmental damage.

      • One observation that has been entirely reliable – when politicians fool with energy systems, real people suffer and die. That is the tragic legacy of global warming alarmism.

        Cheap, abundant, reliable energy is the lifeblood of society. It IS that simple.

      • “Cheap, abundant, reliable energy is the lifeblood of society.” Which is precisely why greens despise it so much, they can not control people who have access to energy which is reliable, or cheap, or abundant. They want it, they do not want anyone else to have it.

      • Volvo is a bit player that has always concentrated on the market segment where money exceeds common sense.

      • Griff,

        I don’t think you get it.

        I can’t recall anyone on this site objecting to EV’s per se , but they are an emerging technology which isn’t mature enough yet to provide the flexibility ICE vehicles do.

        The real objection, therefore, is to a government arbitrarily banning the most effective means of transport of the last 150 years or so, demanding it’s replacement be said immature EV’s.

        This is not the practise of a government promoting freedom of choice and the principle of free market trading, this is an act of dictatorial socialism, a government deciding what’s good for us, stifling freedom of choice, and in collusion with manufacturers, actively restricting it. Where does this end?

        Quite apart from which is the well documented failure of socialist/communist government diktat’s, across the globe and time, and the effect it has on the poorest, which is, in fact, invariably anyone outwith the government itself.

        There is, of course, Christiana Figueres announcement that the climate change agenda is a movement to promote global governance. And, again, the Club of Rome’s determination to address population growth using climate change as a vehicle.

        If you don’t find these ambitions terrifying, you really need to acquaint yourself with the most despotic regimes the world has ever seen, all in the 20th Century, the USSR, China, Cuba, N. Korea, Nazi Germany etc. who all practised governmental imposition on the individual, of their personal preferences, frequently without foundation in science or the usually accepted norms of lawful behaviour.

        Inducement by subsidies, rewards, coercion etc. have all been employed by the UK government to push various failed initiatives, including dieselgate and the poll tax (which itself caused civil unrest in Scotland) amongst others, so they now find it necessary to demand their regulations are complied with.

        And far from the paltry amount of taxpayers money being given to EV research being effective, we all know it will mostly be wasted by the massive bureaucracies surrounding all government handouts. Far better to leave scientific innovation to the free market.

        Like I said, just where does the ‘will of the government’ end?

      • Griff, all these promises amount to is government posturing – they all know that they won’t be around to have to deliver on the “promise”.

        All cynically realise that so much can happen in 20 years that their “promise” could be rendered irrelevant. In fact, I would say they’re all banking on that being the case – risk-free “green” posturing to garner votes and cloak themselves in a “feel-good” aura for the snowflake vote which is becoming important.

        The stone age did not end because we ran out of stones. It ended because someone invented a better mousetrap. The same will apply to the hydrocarbon age. It certainly will end, and perhaps sooner than we think. But the better mousetrap certainly is not electric cars or “renewable energy”.

        Those are simply grossly expensive, twee BS from people who have never lived in the real world, never had to earn a real living, and frankly for the most part are rather stupid.

      • Still spouting your paid-for drivel, Skanky?
        When are you going to apologise to Dr. Crockford?

      • I think things will slowly move that direction. In theory an electric should accelerate faster, be cheaper to operate, cost less to buy, and last longer than an ICE car. In theory. Not so far in practice.

        The best thing we can do is keep an open mind, and see what we shall see. I myself look forward to less pollution on the roads, less noise, fewer gas station trips etc.

        Make the electric car better than an ICE car and you won’t need any subsidies, regulations, etc. people will snap them. If you can’t no law or regulation in the world will make any difference.

    • Sure, when I commuted to the big city to go to college, the trains on my commute all ran on electricity. Now the same trains run on Diesel.
      Electrification of road transport is yet a (bad) dream only existing on subsidies and progressive government mandates.

  2. The only real “good” news for OPEC is the political turmoil in Venezuela and the disputes with the Russians. If either becomes less available as a source of crude oil, world prices could go up. Or not. Predicting future prices has been a bit difficult recently.

    • Predicting future prices has ~ALWAYS been difficult – not just recently.

      Back in the 1990’s there was an oil industry graph that showed several times when ~all the major predictors of future oil price were aligned – and they were all wrong.

      Even now, when all the signs say WTI will stay in the 40’s for a long time, watch and wait – that too will probably be wrong.

      • I can categorically predict that oil prices will be between $20 and $120/bbl by this time next year… unless they are higher or lower.

        Do I need this? /Sarc?

  3. They were right, we’ll start seeing oil refuges any time now, all due to climate change.

    • The Oil-Prince of South Arabia is fleeing into the Midwest, together with his 250 arab-horses and his 250 fossil-fueled 250 german-horses cars. He is trying there to learn how to fracking GAS because OIL-PEAK is forsaken again in the thirteens. And perhaps he is buying a tesla. That is enjoying the Elon.

      • Where is “South Arabia ” ?! If you mean Saudi Arabia, it does not mean south in arabic. It refers to the house of Saud: the royal family.

      • South Arabia ist the old name of Saudia Arabia. And in this region there are many Oil-Princes and many 250 german-horse fossil-fueled cars. But no Tesla. This is a shame.

    • Though note the increasing Saudi investment in solar power…

      and the Saudi Prince who recently said regarding oil ‘the stone age didn’t end because they ran out of stones’

      • The stopped clock gets one thing right, finally. Saudi Arabia is an EXCELLENT place for solar, and it will suck up all the cash and bring their crash that much sooner. Win/win.

      • “Saudi Arabia is an EXCELLENT place for solar”

        It would be if it wasn’t for all that wind-blown sand abrading the solar panels…

      • Oh, come now! They gots plenty-O-money, they can just buy more. At least till they go bankrupt.

  4. Electricity will replace oil for the source of energy for automobiles when I can spend 5 minutes charging my battery and then drive 400 miles on that charge. As it is right now, in 5 to 10 minutes I can put gasoline in my car and then drive 400 miles whereas I have wait 30 minutes for a rapid charger to drive 300 or fewer miles. I often have thought that the best way to have electric cars is to have a liquid battery. I drive up to a charging station, it drains my battery fluid and fills it up with a charged fluid.

  5. Trouble is that if OPEC increases their output, which they can easily do, the $$ American rigs shut down.

      • Besides, Trump is considering additional sanctions on trade between US and Venezuela adding to those on the governing elites. They currently sell their heavy crude to the US where the refineries have the technology on the ground to process heavy crude. Most other refineries outside the US cannot process the heavy crude so Venezuela will have to sell it very cheap.
        Also Venezuela depends on the US for lighter crude and product.
        Trade sanctions could be brutal for them.
        I feel for the Venezuelan people , particularly since I have spent a lot of time there when times were good before the socialists took over.

      • Agree Catcracking – but people tend to get the governments they deserve.

        The problem is that so many voters are fools who accept the blatant lies of the left, and then they pay the price. In Venezuela they are far down this dark road.

        In Canada, we have elected leftist “energy imbeciles” in Ottawa, Ontario and Alberta Ontario is already paying the price, and the rest of the country is likely to follow.

        Canadian heavy crude belongs in the Texas refineries and this should happen as soon as the pipeline nonsense is fixed – we can thank the watermelons for the long, costly delay in this much-needed pipeline.

        Strategically, the USA is much better off with Canadian heavy crude.

        Comparatively, there are no major environmental issues with pipelines, and the railway alternative has much greater environmental and safety risks – not just oil spills – witness the Lac Mégantic rail disaster, where 47 people were incinerated.
        https://en.wikipedia.org/wiki/Lac-M%C3%A9gantic_rail_disaster

    • ReallySkeptical,

      So you believe everyone in OPEC is a nihilist, and wants to go out with a bang and not a wimper?

    • Actually no. What gets shut down is new drilling. And it starts back up again as soon as prices rise.

    • American oil companies are better situated to survive a period of prolonged low oil prices than are most OPEC countries.

    • If they do, prices will drop even lower. OPEC countries have one major source of income: oil revenues. Their entire economy depends on it. If prices go too low for too long, then the whole house of cards collapses. They won’t take that chance. Like the broke guy nursing his last beer, they will make it last as long as possible.

  6. We are going to have a shortage of oil if drilling CAPEX continues to be restrained due to low current prices.

    Drilling efficiencies have increased dramatically over the past few years along with 3D imaging but it still costs (in most cases) more than $50 a barrel to extract. Drillers have been borrowing and selling stock to make up the difference but sooner than later the money is going to stop.

    Depletion is a big deal so you have to keep drilling just to stay even in most oil fields. I don’t think we are going to have a big bang, but WTI is going to have to get into at least the mid $60’s fairly soon to avoid a crisis. When we are blowing through 100 million barrels a day globally supply constraints can be felt in short order.

    • If we have a shortage of oil, prices will go up, and drilling will increase. The problem will solve itself as long as government doesn’t try to solve the problem first.

      • It won’t be a shortage. Drilling the light tight oil reservoirs is not commercial at current prices. Some companies drill but fail to complete, some do it expecting higher prices, some have hedges to allow them to survive, but the business isn’t viable long term unless prices go above $60 to $65.

        The export curves shown in the article are a bit misleading. The oil being produced from “shales” is very light, and USA refineries do better importing a medium crude. This leads to exports of light crude and condensates and imports of medium and heavy crudes.

        We are also seeing significant emphasis on one single play, the Texas Permian. Others such as the Bakken and Eagle Ford simply can’t provide decent returns. This is made worse by slight increases in contractor and supplier prices.

        So let’s get something straight: the ability of shales and fracking to eliminate crude oil imports is practically zero. The USA is doing better with gas, but even those reserves have limits.

    • I thought the break-even price had dropped to just under $40 (~$39/bbl). $50 was the old floor dating back more than a year ago. Some have stated their belief that the break-even price will drop to ~$35/bbl in the near future as the technology gets better and cheaper.

  7. Four countries in Europe have now proposed bans on the sale of gasoline and diesel-fueled cars by 2040 at the latest.

    ….this is just not going to work

    • It will if the people have no choice. Doesn’t matter the economic consequences. The politicians know they’re right so it shall be done.

      • My suggestion for this type government mandate is that, for verification, those who govern us must go first implementing the mandate for a trial 5 year period before imposing it on the populace. Why do you think Obama implemented an exception for the congress from Obamacare, which had the requirement for congress to depend on it for their medical coverage. If congress had to put up with the problems they would have repealed it long ago. What if Senator McCain had to go to an an Obamacare approved facility for his operation.
        Trump is threatening to repeal Obama’s exception for congress since they will not vote to provide an alternative.
        The “king” must ride in an electric car.

    • Britain and France have only proposed to ban gas-only and diesel-only vehicles, allowing hybrids. This would lead to a reduction in petroleum, but it wouldn’t swap liquid fossils for electricity from the grid.

  8. If America’s output does continue to hurt OPEC I predict a string of unfortunate “accidents” in a few key points, followed by well financed “journalists” telling us all how it is the fault of climate change caused by evil petroleum.

  9. IEA Warns of reduced production investment insufficient for steadily rising demand
    The International Energy Agency (IEA) warns of higher prices or spikes in 2020-2022 because of lack of recent long term oil exploration and production investment. It expect that will cause prices to spike.

    IEA: Huge Oil Price Spike Inevitable

    “the IEA’s working assumption is that all non-OPEC countries together contribute an extra 3.3 mb/d of supply over the next five years.

    The problem with that figure is that demand is expected to rise by 7.2 mb/d over that same timeframe.”
    http://oilprice.com/Energy/Energy-General/IEA-Huge-Oil-Price-Spike-Inevitable13477.html

    Rising oil consumption with declining oil production
    In his Export Land Model, Jeffrey Brown warns of rapidly rising population and consumption in the face of slowing or declining oil production. Note especially the transition of Indonesia and Egypt from major oil exporters to major importers.
    See Euan Mearns Peak Oil Exports

    The poster child for the export land model was Indonesia, one time member of OPEC and major oil exporter, which watched exports evaporate as oil production went into decline while domestic oil consumption ballooned (Figure 1). Production peaked at 1.69 Mbpd in 1977, but only began to decline post-1991. But as population and prosperity rose, the production surplus turned to deficit in 2003 and by 2015, Indonesia imported 740,000 bpd. Should this be repeated in many of the oil exporting countries it must surely leave the oil importing countries gasping for breath.

    Similarly:

    Egypt has experienced the same fate as Indonesia with falling production and, in particular, rising consumption has seen significant exports of 520,000 bpd in 1993 converted to imports of 80,000 bpd in 2015. The possibility of falling oil revenues contributing to civil unrest in Egypt needs to be considered.

    http://euanmearns.com/peak-oil-exports/

    • Peak oilers are still trying to put lipstick on that pig. How long have they been predicting that peak oil is imminent?

      I can remember Colin Campbell back in the 1990s going on about the last gasps of the Age of Oil. It didn’t happen then, and it may not happen for a long time to come.

      • Glenn E Stehle writes “and it may not happen for a long time to come.”

        But you agree it will happen. So if policy was up to you, what would you do with that knowledge?

        Perhaps let market forces continue to work after peak oil has occurred on the assumption we’ll be able to come up with alternative energy to make up for the shortfall? Or something else?

      • No the pig got going a lot earlier. As early as when the British Navy built it’s first oil fired dreadnought battleships before the First World War and worried officers started predicting oil fuel running out by the twenties.

      • The idea that the government can create a solution to peak oil is as dumb as the idea that government can create a solution to too much CO2.
        A lot of peak oilers actually seem to believe that peak oil means that one day they are going to go to the gas station and all the pumps will be dry. Bang, overnight.

        In reality what happens is that the cheapest to access sources get drained first. This causes a small increase in average cost.
        This small increase in average costs causes two things to happen. People use oil more efficiently and producers spend more to find more oil.

        Over time, the next cheapest sources of oil get drained, This causes a small increase in average cost …

        And so on, ad infinitum.

        There is no need to re-order the world to fight a problem that in all likelihood will never happen.

      • “As early as when the British Navy built it’s first oil fired dreadnought battleships before the First World War”

        Even earlier than that, actually.

        When Scotland was the World’s premier producer and exporter of petroleum products – shale oil, as it happens – there were dire prognostications that it was going to rum out in the 1860s.

        http://www.scottishshale.co.uk/

  10. Bloomberg is just one more source of fake news. The USA is importing huge amounts of oil and always will.

    Saudi Arabia’s best field – al Ghawar – is running down with massive water injection. The replacements are offshore and of a much lower quality

    • The USA is importing huge amounts of oil and always will.

      I wish I had one of those infallible crystal balls. Where did you get yours?

    • If the US was smart it wouldn’t export any oil or gas – leave it in the ground and continue to drain Venezuela and others.

      • Beggar ourselves now so that we won’t have to worry about a small drop in income decades from now.
        We are getting wealthier by selling that oil. Wealth that is used in the here and now to make lives more comfortable and to invent new things so that we don’t need to use as much oil in the future.
        If we were to leave the oil in the ground and only sell it later when prices are higher, we will not only be a lot less wealthy in that distant future, but the odds are the rest of the world will have moved on and the demand for oil will be a lot less.

  11. Saudi Arabia is looking a bit unstable. link Its economy has almost nothing except oil. It buys off its malcontents. If it can’t buy off the malcontents trouble will ensue. The only good thing is that there will be less money to spread its particularly vexatious brand of Islam to other countries.

  12. Yeah, they’ll go electric in autos eventually, but I wouldn’t forecast that on the basis of bankrupt policies of governments who won’t even be in power for long if there are still two neurons left to rub together in the European electorate. Moreover, they’ve impoverished their people so much they won’t be able to buy electric.

  13. Doesn’t electrification of transport argue for cheap reliable electricity. Difficult to square wind and solar with that goal

  14. The difference today is frackin’.

    This has opened up so much more production potential. And not just in the US, but everywhere. The Saudi’s have the most sophisticated fracking technology available now given they have 3d mapped all of their oild resources and things can even be remote controlled from a central control centre.

    So the high-cost fields will slowly be closed down and production will move to the lower cost, often fracking-focused, resources.

    One day, the market will realize that overall production is less than demand and the high-cost closed-up pools are hard to restart. Prices will go back up again. It’s weird that the market will seem to be completely surprised by this. Prices will be sticky on the way up. And then one day, someone from Goldman Sachs will write an article that demonstrates production is 1 million barrels per day lower than consumption and the price-shock adjustment will happen.

    This is the history of high-demand commodities like oil and wheat and corn and steel and copper and gold and lots of things. Watch the smart guys from Goldman Sachs to see when the turning point happens. In hindsight, it will be easy to spot. But not on the the day the article is published. Learn to recognize the signals. It is at least one year out right now, but is inevitably coming.

    • I only wish the world had gone down the “One day we’ll run out of fossil fuels so lets smoothly transition to renewable energy while we have plenty of cheap energy to do it” path instead of the insane climate change path we’re lurching down instead.

      Then the focus would be on the renewable and alternative energy technologies and not on demonising CO2. I have no problem with governments allocating resources to push us away from fossil fuels…gently over a longer time.

      • Government planning almost always makes things worse. They tend to bet the people’s money on the wrong horse. We don’t need government to “push us away” from fossil fuels. The oil fields will not all run dry at the same time. If production begins to decrease, prices will start going up. As prices increase, alternate energy will become more viable and will gradually relieve pressure on fossil-fuel demand. Higher prices will also increase incentives to develop new forms of energy. If prices get too high too quickly, the demand for nuclear energy will overwhelm environmentalists no matter how many scare stories they invent. In any case, if peak oil does happen, and government doesn’t get too involved, the shift from fossil fuels to alternative forms of energy will be as gradual as the shift from horse and buggy to the horseless carriage.

      • Louis writes

        If production begins to decrease, prices will start going up. As prices increase, alternate energy will become more viable and will gradually relieve pressure on fossil-fuel demand.

        This is a straightforward statement of market forces. But is it relevant to energy? Every single thing we do is bound up in energy production so how do we know energy cost will clearly manifest when every other good has energy costs built in too?

        Sure, over the short term one might expect energy prices to fluctuate mostly independently of the costs of goods, but is that a valid assumption over the longer term? Can energy price remain high relative to everything else over the longer term to encourage energy innovation? I’m not so sure.

        There have been many studies that attempt to determine causality between GDP and energy consumption and vice versa and there is no clear answer. Hence we can expect that energy and GDP are bidirectionally related especially over the longer term. eg

        http://www.sciencedirect.com/science/article/pii/S0306261909004383 http://www.sciencedirect.com/science/article/pii/S0921800907005344
        http://www.sciencedirect.com/science/article/pii/S0140988302000099 http://journals.sagepub.com/doi/abs/10.1260/0958-305X.24.5.727?journalCode=eaea
        http://www.seec.surrey.ac.uk/Research/SEEDS/SEEDS113.pdf

        So when those market forces see a decline in production and hence consumption, we can expect to see a decline in GDP and given the considerable lag involved in getting new technologies researched and off the ground, that’s not necessarily a position we want to put ourselves in. Hence I tend to agree with policies that favour research now while the going is good, energy wise.

      • “alternative energy technologies”
        & there lies the problem….we have been wasting our talents chasing “alternative energy technologies” when we should be looking for APPROPRIATE technologies.

      • “Alternative” doesn’t imply inappropriate.

        Personally I dont like wind much. Too many moving parts that wear out and require maintenance…but in the right location it can be very effective and that would make it appropriate.

      • Neither are or will ever be appropriate for any high energy civilization. Solar has potential in open space, on a planetary surface it is far too limited. Wind is a low energy system with extremely limited applications. Wake up and smell the coffee, you want to live in an high energy civilization then you got to produce high levels of energy. Cheaply. Abundantly. Anything else is just[snip] before you throw it out after the wash water.

      • In other words rather than switching over to expensive unreliable energy sources sometime in the far future, we’ll do it now.

      • TimTheToolMan said

        Too many moving parts that wear out and require maintenance…

        Actually this problem is being quickly resolved in some of our larger universities (led by Berkeley and Davis here in California) as they concentrate on developing alloys of adamantium and unobtanium. These alloys should result in friction-less surfaces, which result in no heating and last indefinitely, requiring no maintenance. Currently, the only difficulties are in mining, refining, and forging the materials.
        We’re almost there.
        Source: http://www.outotmyass.com

      • MarkW writes

        Of course it is. in response to “But is it relevant to energy? ”

        Market forces dont stop there…energy price goes up (this is where you hope new energy sources are developed because they’re now cost effective) but you’re missing the point that a business producing widgets now has greater energy costs which have to be passed on through the price of their widgets. So the price of everything goes up over the longer term.

    • But to come to a point…. Higher prices came not from the producers nor the consumers. Higher prices came from those Intermediaries, who also earn more at a higher price. If only once, as a model, oil directly put to the refineries and transported directly from the refineries to the consumers without intermediary, oil and its end products would again be 50 percent cheaper. In my opinion this is also the reason why the nuclear power is so demonized. There is little or no intermediate trade, and a cheap and steady stream of nuclear power spoils the profits of electricity. They are, however, attracting a great deal of profit from the necessary diversified trade of the mix of renewable, hydropower, coal, oil, and nuclear energy, with the resultant electricity exports and imports. There you can act, walk and earn for life. Therefore the price for the final consumer in countries with such a mix also rises because the cream is skimmed there.

      • That’s why we see more and more people with beards in the energy and oil stock markets. Distinguished merchants, as the Arabs are now, have recognized this merit and deserve double and with pleasure in the energy.

  15. “Van Beurden also articulated the second existential threat, when he said in an interview with Bloomberg TV not only that his next car would be electric, but that he could see demand for liquid fuels peaking in the 2030s.”

    BEV is the technology of the past. My great-grandmother owned a BEV a century ago. All they are useful for is golf carts and loaders in warehouses.

    • Steven,

      Even a total scientific ignoramus such as yourself must realize, were you to be honest, that there is a difference between the soft social science of economics and the hard physical science of geology.

      But maybe not, since you are a graduate not even in soft science but in literature. With no work experience that would qualify you to comment on science, let alone participate in it.

      But thanks for trying.

      • To play Devil’s advocate, perhaps he was trying to make a comparison to the realist’s argument that since warmists haven’t been able to predict temperature, then CAGW must be a hoax. So what he’s really missing (among other things) is the fact that it isn’t geoligists making the predictions about peak oil or future prices, much less demanding that the world make adjusting to their predictions a top priority for world governments.

      • The Peak Oil equations were developed by a geologist, M. King Hubbert. The most prominent Peak Oiler of the past few years has been Art Berman, also a geologist.

        Half of my job is in predicting how much pay a well will encounter and how much oil & gas it will produce. While we don’t predict product prices, we do have to make a lot of predictions. The biggest difference between geologists and climate scientists is that our predictions are tested fairly quickly and we can be held accountable for our predictions. We can also be fired, sued and even prosecuted for ginning up fraudulent hockey sticks.

    • The geology of peak oil is a hoax. We have been drilling for the rarest of oil, that being the petroleum that had been naturally fractured and then managed to become trapped instead of venting to the surface.

      Real petroleum geology is built on source rock and its journey through time. We have yet to scratch the surface on source rock. Every major oil field can see production resurgence with hydraulic fracturing. New unconventional fields like Bakken, Eagle Ford and Niobra are only limited from infrastructure support. Developed fields like the Permian Basin have lower costs of unconventional production as leases, pipelines, roads and equipment are all established. This discounts the high cost of unconventional Petro to a level competitive to OPEC .

      • Wrong on two counts. Essay Matryoshka Reserves explains one reason, using the worlds largest single source rock basin, Russia’s Bahzenhov, as the example. The other is that fracked shale oil recovery factors run about 1.5% today. They mandouble to 3 % with continued technology improvement. That enables estimates of TRR, the latest for the US being 2017. So the limits not only are calculable, they have been.

      • The geology of Peak Oil is definitely not a hoax. We just don’t know what the total recoverable resource is. Fracking has enabled us to tap into the source rocks… Which makes the total recoverable resource a lot larger than Hubbert thought it was.

    • Have you ever wondered why the world’s largest concentration of geologists live in Texas?. Oil companies aren’t exactly famous for charity.

    • “geology is a hoax”

      I’m becoming increasingly convinced that Steven Mosher is a hoax…

      I wonder when we’ll reach ‘Peak Mosh’?

  16. Time to treat oil like we should have and link it to free trade, OPEC is the definition of monopolistic practices. Place a tariff on Mexican and other opec countries imports of all goods tell they quit opec.

  17. ‘…the electrification of road transport.’

    This is like Peak Oil, always coming but never arrives.

    A very small percentage of the first cars were electric, and a hundred years later a very small percentage of cars are electric – spot the trend?

    The question everyone ignores is where will the electricity come from?

    • The question everyone ignores is where will the electricity come from?

      +1,000

      & a new grid structure to support it.
      When everything is 100% electric & we get the next Carrington Event we all revert back to the stone age in less than a week……without any of the survival skills; should be fun !!!

    • Electric cars have been the next big thing for literally more than 100 years. The biggest thing the proponents always forget is that consumers are irrational. This is why there’s so much crossover with socialism. Their big plans only work if they’re able to force them onto the greater population and punish anyone who resists.

      If you live in a medium sized metropolitan area, only drive 50 miles a day, and you’re good at never forgetting to plug in when you get home, then there’s a chance that an electric car is a good choice for you. You might enjoy a modest savings and a bit of an increase in convenience since you don’t have to stop for gas ever.

      But people don’t buy a car for their daily drive. People buy a vehicle that will carry their whole family across country to Grandma’s house every other Christmas. People buy a vehicle that will tow the boat they only use one month a year. People buy a pickup just in case they need it some day. Sure you could buy an electric and rent a more suitable vehicle in the event that you actually need it. You may even still spend less money in the long run, but the bottom line is that people want to believe that they COULD drop everything, strap two canoes to the roof, and take a weekend trip with no planning even if they never do.

      Until the electric car can compete with internal combustion in the possibilities market, it’ll never win.

  18. “A political trend towards growing electrification of transport poses a real, long-term problem.”
    I’m glad they said it’s political. As in, not based on market forces, nor reality. It is in fact, Greenie fantasy, based on the idiotic notion that our CO2 is “polluting the planet”. There may currently be virulent strains of this Greenism in parts of Europe, and part of their growing cognitive dissonance is this notion that somehow, their Greenism brand is, or will be spreading worldwide, but the reality is that support for it is dying. Electric vehicles for the most part, are dumb. They cost far more than ICEs and are inconvenient and impractical.

    • But think of all the wonderful places you’ll see and things you’ll experience when you have to stop every 75 miles to take a four hour charging break.

      Said no one who’s ever accidentally run out of gas in the wrong place.

      • “Said no one who’s ever accidentally run out of gas in the wrong place.”

        Indeed.

        I wouldn’t entertain an electric car until I can get a gallon can of electrons to keep in the boot.

      • Apartition42 writes

        But think of all the wonderful places you’ll see and things you’ll experience when you have to stop every 75 miles to take a four hour charging break.

        From here

        https://transportevolved.com/2014/07/03/fast-tesla-supercharger-charge-electric-tesla-model-s-fast/

        You can get an idea of just how far charging has come. Naturally there needs to be superchargers everywhere but its way less of an argument that the infrastructure doesn’t exist therefore electric cars are non starters…

        “Plugging in with about 10 per cent of charge, Bjørn’s video shows that the initial part of Tesla’s charge process is unbelievably quick, adding about 20 miles of range in a little over three and a half minutes. After six minutes, the Supercharger has added more than 50 miles of range to the car.”

        “Like other rapid charging technologies, the Tesla Supercharger starts to ramp down its power delivery when the car reaches sixty percent full or so, achieving an 80 per cent charge in around 45 minutes. The rate of charge then dramatically slows down for the final 20 percent, which occurs some 115 minutes after plugging in. It’s worth noting however, that after 60 minutes of being plugged in, the car was more than 90 per cent full, highlighting dramatically why it’s not worth waiting around for that final ten percent when rapid charging.”

        So in something like 10-15min you can get some serious mileage. Sure, if you spend your life driving cross country its probably not for you yet but for most people most of the time, its going to work just fine.

  19. Forget climate change and CO2. Reality is that costs of PV and wind are falling. At some point costs will be competitive with oil and gas although this depends on local taxation policies.

    Electric vehicles need fast charge or exchange batteries + increased range. Local pollution and legislation may mandate their introduction and at some point will become the motive power of choice.

    The only issue is timing – 5, 10, 15 or 20 years.

    The big threat however is OPEC. Most members have made little progress isolating their economies from oil price fluctuations.

    Maintaining stability will be difficult as an ever smaller cake needs to be shared, Inevitably those countries with a ruling elite and/or monarchy (often somewhat corrupt) are likely to be first to suffer insurrection – possibly as Syria and Iraq.

    • The “eventually in the next twenty years” argument has been around for more than a century now. It fails to account for several niggling little issues. There are a lot of logistics problems that need to be addressed before electric cars can surpass internal combustion in real-world convenience and usability metrics. Even the distance between towns on the interstate has grown around the limitations of the internal combustion engine.

      Saying we just need batteries to charge faster is no better than saying we just need internal combustion engines to perform the same on less fuel. It’s a lot easier said than done. We’re well into “law of diminishing returns” territory there. Some people always think just throwing more money at a pet project will motivate engineers to overcome the laws of physics, but it doesn’t work that way. Throughout history, discovery of new technology typically leads massive changes in civilization. Very rarely has it followed need. We didn’t convert to internal combustion because we were running out of horses, or because steam was in peril of a coal shortage. We didn’t invent electric lights because we were running out of candles. If there is a new, better battery technology to be invented, then it’s discovery might change everything, but it’s not going to magically show up because someone legislates it, and we certainly can’t be making twenty year plans based on the blind hope that currently non-existent technology will arrive on time.

      As for swapping, current batteries don’t take kindly to being left on a shelf at full charge either. Designing electric cars to make the batteries easy to get to for timely swaps is another easier said than done project. These are extremely heavy, bulky parts we’re talking about, and most EVs use an array of them positioned around the vehicle for balance. They’d also have to be highly standardized across all brands unless you expect service stations to stock a constant supply of dozens of different types of battery (all of which will be constantly using energy from a complicated battery maintenance system) just in case that kind of car comes by today. Think about how much smaller the energy density of a battery is compared to gasoline. How much storage space would a service station have to dedicate to spare batteries? In the business world, inventory and storage are forms of waste. It’s going to take a lot of time and money to figure out the logistics of such a system, and the real kicker is that, until there are a very large number of EVs with standardized swappable batteries on the road, there’s no monetary motivation for anyone to even start working on figuring those logistics out.

  20. My cousin is dropping by tomorrow on the third leg of her cross-country trip from the East coast to a family reunion on the West coast. The drive Thursday is from Houston to Carlsbad caverns, 630 miles in the desert heat at 70-80 mph. (The speed limit on I-10 is 80 mph from near El Paso to near San Antonio – how fast Texans actually drive is another story.) Until a battery-powered car can do this in 9 hours, many people in the US won’t want one. There is no economic sense in buying another EV car to save a few gallons of gasoline that will be replaced by burning some coal somewhere else.

  21. EV’s will never be more economical than ICE. Think lost government revenue from the taxes on fossil fuel consumption alone.

    Dear Tesla drivers, enjoy the ride while it lasts.

Comments are closed.