Peak Oil is You
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Page added on January 5, 2016
The energy sector changed forever in 2015
Two massive and permanent shifts in energy took place in 2015. The first was the beginning of the end of the oil age as Saudi Arabia’s led OPEC on a mission to destroy long-term competition and preserve market share. The second was the fortification of a move toward alternative energy as 196 nations agreed to sign a U.N. agreement in Paris to avoid dangerous climate change. The two shifts are linked and will have profound impact on the global economy, geopolitics and investments going forward.
Already we are seeing reactions from Saudi Arabia, OPEC, Russia, other nations and private industry that are massive in scope. The abandonment of any oil production limits by OPEC is one of those actions that will have a permanent impact.
What is OPEC up to?
The question that we should ask about Saudi Arabia and the Gulf Cooperation Council of OPEC is why are they so adamant at this point in history about protecting market share for their oil? They were making far more money pumping less at higher prices than they are now pumping more at lower prices.
The reality is that OPEC’s maneuver to reduce oil prices short-term would not have been necessary had demand for oil been rising fast enough to absorb more expensively produced oil, such as Canadian oil sands, ultra-deep-water oil and shale oil. But as the International Energy Agency has pointed out, oil demand is relatively flat with only a slight drift upward. Essentially, oil demand is on a “peak oil plateau” that I identified back in June of 2014 when I predicted oil prices would fall.
By leading OPEC in a charge to crush competition in the oil space, Saudi Arabia is acknowledging that it must maximize profits on oil soon since the use of oil at volume is not going to last as long as many thought just a couple years ago. Saudi Arabia sees that eventually, demand destruction for oil will be upon it, and they must build cash reserves while they can.
The transition
Where will the demand destruction for oil come from? The short answer is electric cars (or maybe hydrogen-powered cars). Slightly under half of all oil is used to produce gasoline — almost all for cars. About another 30% is used for fuels of other sorts, again, mainly for transportation. By the 2020s we should expect to see electric cars much more mainstream as batteries improve and prices come down. We will also see much greater penetration of natural gas into trains, ships and heavy trucks. The downward impact on oil demand will be more fully felt in the 2030s.
Between now and the 2030s, most OPEC nations must transition their economies to become more sustainable. To accomplish that, they must make as much money on oil as they can starting in the next year or two until the eventual demand destruction of oil occurs. This requires taking as much market share as possible so that their oil does not get shut in at some point in the future.
The impact of climate change
The U.N. climate change agreement in Paris marked several important ideas. The most important was that there is near unanimous agreement that mankind is having an impact on the climate, in particular, temperature, and that something dramatic must be done to reverse course or suffer unknown consequences. This is a monumental event. If nothing else, it should tell people what direction future efforts regarding energy development are headed.
The Saudi Arabians and other OPEC members are very clear on what the climate change agreement means, it means that fossil fuels are going to be phased out over time. Ultra deep water and Canadian oil sands producers understand too as they have cut over a quarter trillion dollars in future projects. Evidence can be found across the industry. ConocoPhillips COP, +1.11% announced they are ceasing all deep water exploration by 2017. Royal Dutch Shell RDS.B, -0.91% canceled their oil drilling off of Alaska after sinking $7 billion into the project, and canceled an oil sands project taking a $2 billion charge. This is the start of a massive trend.
On the alternative-energy end of the spectrum, we are seeing solar with record order backlogs. Big nations like China and India are focusing on expanding their solar footprints. In the U.S., we lifted our oil-export ban and extended solar tax credits.
If you choose to ignore these historic developments, well then, good luck with your investing. For those who can read the tea leaves, you will be able to find good and potentially life-changing investments for the next decade. My next few columns will focus on what I believe are likely to be the last great oil and gas trades, and investments for the beginning of the alternative energy age.
41 Comments on "The energy sector changed forever in 2015"
makati1 on Tue, 5th Jan 2016 7:32 pm
More unicorn hugging bullshit from the vampire ‘investment’ pimps. The sooner the market collapses and ends this vampire draining of productive citizens, the better.
jjhman on Tue, 5th Jan 2016 9:09 pm
” Saudi Arabia sees that eventually, demand destruction for oil will be upon it, and they must build cash reserves while they can.”
This is a joke, right? KSA is bleeding money. Even though they are selling oil at a handy profit their government spending is so high that their soverign wealth fund is diminishing. Between providing bread and circuses to the “unwashed masses” and trying to prevent Iran from establishing a Shia kingdom to their south the Saudis are spending like there’s no tomorrow.
geopressure on Tue, 5th Jan 2016 10:49 pm
This Author is a moron… or else is being paid to sell the narrative that SA is the cause of the low prices…
GregT on Tue, 5th Jan 2016 11:06 pm
“For those who can read the tea leaves, you will be able to find good and potentially life-changing investments for the next decade. ”
For those that don’t believe in tea leaf reading, chicken bone tossing, or Ouija boards, get out of debt ASAP.
theedrich on Wed, 6th Jan 2016 2:05 am
Did this Market Watch writer just now become aware of Peak Everything? He seems to have no clue as to what to do, other than to recommend necromancers. What about the massive worldwide population smuggling going on? The global narcotics pandemic? The MSM manipulation of the mass mind? Never mind quantifiable factors such as currency diddling, destroying countries in order to save them, toxification of the entire biosphere, etc.
Maybe he’s an Ivy-league educated economist.
JuanP on Wed, 6th Jan 2016 8:14 am
Oil drops to 11 year low. According to this article WTI futures are now about one dollar more expensive than Brent futures. Have we finally reached price parity between them? https://www.rt.com/business/328074-crude-price-decade-low/
shortonoil on Wed, 6th Jan 2016 8:34 am
“the beginning of the end of the oil age”
It is amazing how many things this writer is reiterating that we have already said, without saying them?
“Canadian oil sands, ultra-deep-water oil and shale oil”
They forgot high sulfur extra heavy
“oil demand is relatively flat with only a slight drift upward”
A 3% increase in demand on a 65% decline in price is a Going out of business sale
“June of 2014 when I predicted oil prices would fall”
http://www.thehillsgroup.org/depletion2_022.htm
“Saudi Arabia sees that eventually, demand destruction for oil will be upon it”
Petroleum is losing the ability to power the economy that provides the demand for oil.
“you will be able to find good and potentially life-changing investments for the next decade”
This one we did not say! What we said is that you’ll be luck if you are not reduced to eating the weeds out of your lawn.
http://www.thehillsgroup.org/
Kenz300 on Wed, 6th Jan 2016 8:49 am
Electric vehicles, bicycles and mass transit are the future…… Fossil fools are the past……..
So Long, Autobahn: Germany Is Building a Superhighway for Bikes | TakePart
http://www.takepart.com/article/2016/01/04/so-long-autobahn-germany-superhighway-bikes?cmpid=tp-ptnr-huffpost&utm_source=huffpost&utm_medium=partner&utm_campaign=tp-traffic
ghung on Wed, 6th Jan 2016 8:55 am
Short said; “you’ll be luck[y] if you are not reduced to eating the weeds out of your lawn.”
I consider myself lucky to have plenty of lawn and weeds to forage in. Dandelions, wild (invasive) blackberries, fern fiddles; lots more there. Yum! ….and no inputs necessary. Shit just grows around here. Sassafras tea? Anyone?
ghung on Wed, 6th Jan 2016 8:59 am
Kenz300 says; “…bicycles and mass transit are the future.”
Sure, Kenz, I doubt folks like this are going to ride bikes, but it sure gives “mass transit” another meaning, eh?
http://www.chilloutpoint.com/images/2009/april/fat/funny-fat-gigantic12.jpg
shortonoil on Wed, 6th Jan 2016 11:37 am
“Sassafras tea?”
Never had any luck with sassafras. The dame Kudzu bugs eat it before it gets 6 inches tall.
ghung on Wed, 6th Jan 2016 11:54 am
Sassafras is a vigorous volunteer at my place. There are two that grew up next to my deck, about 15′ tall in two years. I’m going to dig the roots this spring to make sassafras/ginseng tea. I wild-planted another 3500 ‘sang’ seeds this fall. Hopefully the Chinese will still be buyers in 7-8 years.
Apneaman on Wed, 6th Jan 2016 1:12 pm
Crude oil slides by five percent as gasoline spike paints bleak outlook
“U.S. government data showing an unexpected 5.1 million-barrel fall in crude stocks last week was overshadowed by a 10.6 million-barrel surge in gasoline supplies, the biggest build since 1993. Demand for the motor fuel showed its first week-on-week decline of more than 1 million barrels per day. [EIA/S]”
http://www.reuters.com/article/us-global-oil-idUSKBN0UK04C20160106
rockman on Wed, 6th Jan 2016 1:48 pm
The price refineries pay for oil never has and never will be based upon what operators spend to drill their wells. One can’t support such foolish assertions unless one believes the cost to drill has fallen as much in the last 18 months as the price of oil has.
shortonoil on Wed, 6th Jan 2016 3:16 pm
“U.S. government data showing an unexpected 5.1 million-barrel fall in crude stocks last week was overshadowed by a 10.6 million-barrel surge in gasoline supplies, the biggest build since 1993. Demand for the motor fuel showed its first week-on-week decline of more than 1 million barrels per day.”
This will not, and can not turn around. As each part of the oil industry dies, so also will a comparable part of the general economy. Petroleum has run its course, and it will take the rest of the world with it.
MSN Fanboy on Wed, 6th Jan 2016 4:04 pm
It will be interesting to see if you are correct Shortonoil.
Keep up the good work
Joe D on Wed, 6th Jan 2016 6:51 pm
The Hills Group Paradox: “Petroleum is losing the ability to power the economy that provides the demand for oil.”
That’s it in a nutshell! Want to understand our current predicament? Repeat that simple, yet complex statement over and over again until it sinks in.
Thanks to all at the Hills Group for all their hard work!
Boat on Wed, 6th Jan 2016 7:20 pm
Short,
The US set record highs in new car sales. The entire fleet is gaining in efficiency. Not sure that means oil can’t power consumers. But then again you and your gang think were in a predicament. Plenty of cheap oil. Plenty of nat gas. Both cheap. Looks to me were doing just fine. Electricity cost will plateau with the onslaught of renewables. The future is bright.
Apneaman on Wed, 6th Jan 2016 8:23 pm
Boat, I remember all the same hype from the MSM and blind cheerleaders like you back in 2005-08 about record housing sales via subprime. How’d that work out? Remember boaty this time it’s going to be a bail in, not out, so keep making those early payments via your mutual funds. What kind of retard invests in mutual funds? You like paying all those needless management fees boat?
How Subprime Loans Are Fueling Auto Sales
http://www.bloomberg.com/news/videos/b/4d6be71f-0c94-4bb7-9762-bbb1db2406bf
Apneaman on Wed, 6th Jan 2016 8:28 pm
US Auto Sales Plunge To 6-Month Lows – Biggest Miss Since Nov 2008
http://www.zerohedge.com/news/2016-01-05/us-auto-sales-plunge-6-month-lows-biggest-miss-nov-2008
Boat on Wed, 6th Jan 2016 8:35 pm
http://www.wsj.com/articles/u-s-car-sales-poised-for-their-best-month-ever-1451999939
17.5 million cars and light trucks. Driving farther with less fuel. America should be proud.
Tom S on Wed, 6th Jan 2016 8:39 pm
Joe D,
“That’s it in a nutshell! Want to understand our current predicament? Repeat that simple, yet complex statement over and over again until it sinks in.”
The problem is, this is about the 50th doomsday prognostication from this group. Over decades now, this group has repeatedly predicted that net energy will decline to almost zero in the imminent future. There is always some new theory (the olduvai gorge, the natural gas cliff, net energy from peak oil, declining EROI, and on, and on) which implies imminent collapse. Each time, we are told that the new theory is irrefutable and simply a matter of thermodynamics, and that net energy will soon decline to zero.
When the prediction fails, over and over again, year in and year out, decade in and decade out, there is no critical questioning whatsoever within this group about why the predictions keep failing so badly. Instead, each time there is just a NEW prediction issued which again shows net energy declining to zero in the imminent future. The new prediction is then believed and treated as scientific (once again) by essentially everyone in the group.
The only kind of critical questioning which is ever done here, is of the hysterical name-calling variety (“that’s corn porn unicorn rainbow bullshit” and so on). I haven’t seen anyone investigate or even ask what is wrong with these theories which causes them to produce drastically incorrect predictions over and over again.
When short’s predictions fail, in a few years, will it make any difference to anyone here?
-Tom S
Apneaman on Wed, 6th Jan 2016 8:45 pm
Tom, the whole deal, industrial civilization, would already be over if not for massive bail outs and new debt that will never be repaid. You cornies avoid that fact like the plague.
Joe D on Wed, 6th Jan 2016 9:20 pm
Apneaman, all of Tom S arguments/statements are fallacious.
https://en.wikipedia.org/wiki/List_of_fallacies
You can’t have an intelligent conversation with an idiot. Don’t bother.
MaxData21000 on Wed, 6th Jan 2016 9:43 pm
1) ZeroHedge is a JOKE.
-How can you mis-interpret your graphs so horribly? It’s like Tyler Durden is Blind.
a) It’s NOVEMBER and DECEMBER. Tyler must live in FLORIDA. Most of the country just doesn’t buy a car in Winter months.
b) The sales drop is nothing spectacular. Auto Sales, by Tyler’s chart, are highly volatile.
c) Lowest level of plans to buy? just that one point? Because before the 2015 point there’s 5 other lowest or very close to lowest points to buy. So, NORMAL.
d) Inventory to sales, has risen, however, it’s WINTER.
MaxData21000 on Wed, 6th Jan 2016 9:47 pm
AS for gas inventory being high.
1) Oil is cheap, so refineries, not being vertically integrated anymore, buy more supply when it’s cheap and create more gas. Shock.
2) Tesla sold 50,000 Non-Gas Using Cars. EV and hybrid sales have not dropped. BMW i3 had a good December. BMW i8 did well. The Ford Fusion showed strength. And there’s the leaf.
But, these are small numbers. So, I’m surprised it could have a strong effect. Then again, people who drive a lot would save the most converting from a gas engine to Electric power, especially if they make their own electric power with SOLAR panels.
makati1 on Wed, 6th Jan 2016 9:59 pm
MaxData, is your mind a joke? Seems to me that it is. Zero Hedge is a collection of article he does not write, just as this forum is a collection of articles. You can poo poo anything you want, but reality is not going to change. Shooting the messenger does not change the message. The shit is fast approaching the big fan. Are YOU prepared?
Tom S on Wed, 6th Jan 2016 10:03 pm
Joe D, you’ve failed to produce any kind of valid response or refutation. What you’ve written isn’t even an attempt; you just typed a word into a search box at wikipedia.
You’re the idiot here. You definitely don’t have some special insight into the current predicament of civilization. Instead, you just believe these things, because you don’t carry out basic critical thinking tasks which almost everyone else would carry out.
You need to start asking why the predictions all keep failing so badly, and why everyone who’s a real expert about these topics seems to dismiss this kind of thing.
-Tom S
GregT on Wed, 6th Jan 2016 10:43 pm
“You can’t have an intelligent conversation with an idiot.”
Especially one that is in a complete state of denial.
Apneaman on Wed, 6th Jan 2016 10:50 pm
But I can have fun torturing him.
GregT on Wed, 6th Jan 2016 11:20 pm
“and why everyone who’s a real expert about these topics seems to dismiss this kind of thing.”
Hmmm? So what do the “real experts” have to say about this?
Peak oil before 2020 a ‘significant risk’, say experts
There is a ‘significant risk’ that conventional oil production will peak before 2020, and forecasts that delay the event beyond 2030 are based on assumptions that are ‘at best optimistic and at worst implausible’.
The report, entitled ‘Global Oil Depletion: An assessment of the evidence for a near-term peak in global oil production’, comes from the UK Energy Research Centre, an independent group funded by the Research Councils, whose mission is to resolve contentious technical issues and deliver clear guidance for policymakers.
This report is significant because it is the first dispassionate academic attempt to reconcile the highly polarised debate over whether and when oil supplies will start to decline, yet its conclusions chime with a growing number of recent forecasts that warn of an early peak in production.
‘This is an important conclusion,’ says Steven Sorrell, of Sussex University’s Science Policy Research Unit, and lead author of the report, ‘because the worst impacts of oil depletion could come sooner than the worst impacts of climate change. Both are important, but depletion has been largely ignored by policymakers’.
http://www.theecologist.org/News/news_analysis/333587/peak_oil_before_2020_a_significant_risk_say_experts.html
http://www.ukerc.ac.uk/asset/865EFEEF-4727-4146-87D03A239D0A1DC4/
Joe D on Wed, 6th Jan 2016 11:37 pm
Apneaman, at one time I thought that same thing. But I have come to realize, people like Tom S are a complete waste of time.
GregT on Wed, 6th Jan 2016 11:37 pm
TomS,
For the arithmetically challenged, that would be in less than 48 months.
Davy on Thu, 7th Jan 2016 6:35 am
“$30 Oil Just Got Closer as WTI Slides to 12-Year Low on China”
http://www.bloomberg.com/news/articles/2016-01-06/oil-trades-near-34-as-record-cushing-stockpiles-exacerbate-glut
“Brent oil will slump to $30 in the next 10 days, according to Nomura Holdings Inc., while UBS Group AG sees an oversupply pushing prices even lower. “Most people are probably surprised that oil prices would go to this level,” Statoil ASA Chief Executive Officer Eldar Saetre said in an interview in Oslo. “It could go even lower, and it just underlines the uncertainty.”
Kenz300 on Thu, 7th Jan 2016 8:52 am
The world is in transition to safer, cleaner and cheaper alternative energy……..
China to Increase Wind, Solar Power Capacity by 21 Percent in 2016 –
http://www.renewableenergyworld.com/articles/2016/01/china-to-increase-wind-solar-power-capacity-by-21-percent-in-2016.html
So Long, Autobahn: Germany Is Building a Superhighway for Bikes | TakePart
http://www.takepart.com/article/2016/01/04/so-long-autobahn-germany-superhighway-bikes?cmpid=tp-ptnr-huffpost&utm_source=huffpost&utm_medium=partner&utm_campaign=tp-traffic
Tom S on Thu, 7th Jan 2016 11:36 am
GregT,
“Peak oil before 2020 a ‘significant risk’, say experts”
That’s fine, but I was talking about the repeated doomsday predictions and the repeated predictions that net energy or energy supplies will decline precipitously in the imminent future. Also predictions that this would cause the collapse of civilization etc. For example, short’s claim that net energy from oil will soon approach zero. That is what we were talking about, not just peak oil.
Obviously oil will peak some day, maybe soon enough.
-Tom S
BC on Thu, 7th Jan 2016 4:50 pm
“Maybe he’s an Ivy-league educated economist.”
That’s “Ivy League-educated eCONomist” between friends. 😀
BC on Thu, 7th Jan 2016 5:05 pm
Most people misunderstand Peak Oil long after it occurred in the US and long before they will never understand Peak Oil. 🙂
Peak Oil is not unlike population overshoot, as it is among the last taboos.
One can talk openly about sex acts and all manner of other subjects of questionable taste and merit, but broach the topics of Peak Oil and population overshoot, and be prepared to be ostracized posthaste from “polite”/self-delusional company.
Apneaman on Thu, 7th Jan 2016 5:10 pm
Tom S sets a new land speed record for back peddling.
BC on Thu, 7th Jan 2016 5:16 pm
Boat, have you looked at the YoY and cyclical change rates of US vehicle sales?
The bubble in vehicles sales has begun to deflate, albeit imperceptibly at present, not unlike Housing Bubble II deflating.
This is occurring with the energy and energy-related transport and industrial sectors in recession, bear markets beginning in junk debt and the broad, global equity markets, risk spreads widening, and demand and time deposits contracting YoY.
The closest historical parallels to conditions today occurred in 2008, 2001, the early 1980s, 1936-37, and 1930-31, and Japan in the late 1990s to early 2000s.
Liquidity will be increasingly dear, as risk aversion and liquidity preference (return OF one’s money rather than a return ON one’s money) increase.
Banjo on Fri, 8th Jan 2016 1:33 pm
I’m guessing Tom S has a retained a job and probably his house, car and savings. Therefore because the rest of the world is just like his experience then it’s all sunshine and unicorns.
Try telling the 46 million people on food stamps, people that lost their savings and or home in 08-09, the people that are unable to find work (hint look at U6 not U3 numbers), the people that have lost a 70-100K job and have to make get by with 35-50K that there is no “imminent doom”. Well it’s not really doom is it only a 50% drop in income it’s just kina crappy compared to life before.
Then tell us about “imminent doom” in places like Iraq, Libya, Syria, Yemen, Ukraine, Egypt (what was it again “The Arab Spring” LOL a few coups and western friendly generals are back in charge)
What about the refugees spilling out from these war torn places. Could these wars be a result of not enough “free shit” to go around anymore.
Usual mess in Africa due to constant big power meddling, we can’t have a billion people educate themselves and start having more of the bounty of their land for themselves right? See Iran in 1953 you know the whole pesky “democratically elected” guy that won’t hand over the loot, time for the head to meet a chopping block!
But wait oh yeah the new “hybrid”, “Tesla”, “Solar panels at parity”, “Fracking”, “Oil sands”, “QE-n”, “Space-X vertical rocket” is going to allow compounding economic growth forever into the future.
The following is an interesting read. The Mineral Economy, How Prices and Costs Can Falsely Signal Decreasing Scarcity
http://www.case-research.eu/sites/default/files/The%20Mineral%20Economy.pdf