Peak Oil is You
Donate Bitcoins ;-) or Paypal :-)
Page added on June 12, 2016
Is oil industry’s doom approaching?
The chorus of doom surrounding the financial future of the oil sector added another voice last week, the consulting firm McKinsey & Co.
The firm revised earlier rosy predictions and is now forecasting that global oil demand could peak in 2030 if electric cars gain momentum and the world shifts to more recycled plastic, a major market for petroleum.
The firm raised the specter that global oil demand would top out around 100 million barrels a day – only 6 million more barrels than the world uses now.
That’s a long way from the forecasts laid out by most oil companies. Exxon Mobil, for instance, is predicting oil demand will rise 20 percent through 2040.
Carbon rules delayed, but not the debate
The Obama administration’s plan to slash carbon emissions from the power sector might be held up in the federal courts, but that hasn’t done anything to quiet debate in Congress.
With the so-named Clean Power Plan scheduled for a hearing before the D.C. Circuit Court of Appeals in September, the question is what happens to all those deadlines set by the U.S. Environmental Protection Agency when it released the final rule last year.
States were supposed to begin submitting their initial compliance plans this year, with the first round of emissions cuts beginning in 2022.
Now Republicans like Sen. James Inhofe, chairman of the Senate Committee on Environment and Public Works, want to see that work brought to a halt.
“The highest court in this country, the Supreme Court of the United States, put a hold on the Clean Power Plan and all associated deadlines, because it has serious concerns over the legality of this rule,” Inhofe, an Oklahhoma Republican, said in a hearing last week.
“As such, no state should fear any penalty for heeding the Court’s direction,” he added.
According to Senate Democrats, 14 states are still moving toward meeting the carbon reduction plan despite the stay – and no, Texas is not among them.
And while Democrats are urging these states on, they worry that uncertainty hanging over the plan will delay a reduction in carbon emissions.
“One thing we can all agree on: The major job we have here is to provide a certain predictability for business,” said Sen. Tom Carper, D-Del.
A smaller frack-tion of imported oil
The U.S. fracking boom brought huge wealth to rural areas and big stock gains for many oil drillers – at least until the bust, anyway.
But a less discussed side effect is the degree to which it has reduced U.S. dependence on oil from abroad.
Fracking, the popular term for the hydraulic fracturing drilling technique, helped propel the country to No. 4 on the U.S. Chamber of Commerce’s annual energy security ranking, which measures how likely or unlikely a country’s energy supply is to be disrupted.
No. 1 on the list was Norway, which is not only rich in oil and natural gas but also relies on hydropower for a significant proportion of its electricity. Next on the list, which ranks only the world’s 25 largest energy consumers, are Mexico and New Zealand.
Not surprisingly, Ukraine, which relies on Russia for natural gas and was invaded by that country two years ago, ranked dead last.
Once again, Saudi Arabia and a dozen affiliated oil nations have decided not to intervene in the crude markets they once controlled. The media and traders buzzed expectantly, once again, as OPEC’s chief oil strategists withdrew into closed-door meetings in Vienna on Thursday, only to emerge without plans to raise oil prices. Once again.
17 Comments on "Is oil industry’s doom approaching?"
onlooker on Sun, 12th Jun 2016 12:10 pm
Wish Oil’s doom had occurred 20 to 30 years ago, then we may have had a chance to reorganize our societies on a more sustainable and less destructive path.
Plantagenet on Sun, 12th Jun 2016 12:15 pm
The prediction of a demand peak coming by 2030 is hardly the “doom” of the oil industry.
And the prediction that so many people will shift to electric cars that the demand for oil will peak is hardly a sure thing. As long as oil prices are low, many people will continue to prefer to buy cheaper gas-powered cars over more expensive EVs.
Cheers!
Northwest Resident on Sun, 12th Jun 2016 12:31 pm
The oil industry’s doom is certainly approaching, if not already here. But it isn’t due to electric cars, or due to Saudi Arabia trying to drive down the price of oil, or due to any of the other well-crafted propaganda memes that are being pumped 24/7 with the intent to obfuscate and hide the real issues. The oil industry’s doom will be due to one reason only: lack of oil, at least the type of oil that is economical to produce and is capable of producing net energy for the economy to use.
onlooker on Sun, 12th Jun 2016 12:33 pm
“The oil industry’s doom will be due to one reason only: lack of oil, at least the type of oil that is economical to produce and is capable of producing net energy for the economy to use.” Hit the nail on the head
Apneaman on Sun, 12th Jun 2016 1:13 pm
“Not surprisingly, Ukraine, which relies on Russia for natural gas and was invaded by that country two years ago, ranked dead last.”
Bahahahahahahahahahahahah
Chron, another retard texass “publication”. Practically the PR dept of texass oil & chem. After the Houston floods it was all – oh it’s the pavement and over development. What about the record 20 inches of rainfall in one night? Yabut the pavement N stuff.
GregT on Sun, 12th Jun 2016 1:27 pm
“The oil industry’s doom will be due to one reason only: lack of oil, at least the type of oil that is economical to produce and is capable of producing net energy for the economy to use.”
Bingo!
energyskeptic on Sun, 12th Jun 2016 1:32 pm
Over half of oil comes from the 500 largest oil fields, and more than half of these are declining at over 6% per year, increasing by .015% per year, so by 2030 we will have about half the oil we have now, or less, depending on whether producers with exponentially growing populations continue to export oil, or whether chaos in the middle east stops the oil flowing. “demand destruction” will come from a combination of no oil to buy and increasing poverty as the rich continue to grow richer and the poor poorer.
shortonoil on Sun, 12th Jun 2016 2:48 pm
I will throw this out for general interest. Remember correlation is not causation, but a high correlation is something to consider. The Etp Model has been well validated through its ability to recreate the price of oil over the last half century, through its 2014 projection of the price crash, and etc. and etc. This is a little off those themes, but it is interesting.
The Etp Model informs us that the maximum amount of energy that petroleum will ever deliver to the non energy goods producing sector of the economy occurred in 1997. One would then expect that some impact should have occurred to the economy as a result. Unfortunately, central bank intervention after the dot com bust of ’98 has skewed most economic indicators. It has become very difficult to filter out the components of that intervention.
The velocity of money “may” have escaped those intervention attempts: (see graph about half way down the page) –
http://www.kitco.com/ind/Brecht/2014-08-22-Money-Velocity-A-Measure-Of-Economic-Activity.html
The velocity of money peaked in 1998 at 2.2 and is now at 1.46 (a historical low). A straight line plot of that data puts the velocity at 1.0 in 2027. 2027 is interesting because it has popped out of the model several times, even though we are not quit sure what it means. A velocity of 1.0 indicates that the multiplier effect would be zero, and monetary policy manipulation would no longer have any effect.
Again, correlation is NOT causation! We are not implying that this in any way validates the Model, but we thought that some might find it interesting.
http://www.thehillsgroup.org/
denial on Sun, 12th Jun 2016 7:09 pm
I think that most of the predictions are way off! This crash is coming much sooner than most people think! We cannot continue on this path more than 5 years; we are running on fumes right now….or more appropriately FED money manipulations
Davy on Sun, 12th Jun 2016 7:17 pm
Denial, this is a big world so I imagine it will depend on where failure begins and then where it spreads to. There are so many scenarios. Timing will vary per location with a beginning through and end. Venezuela is the beginning but it may take some time to get to Germany as an example.
makati1 on Sun, 12th Jun 2016 7:31 pm
denial, you are spot on. Many want to believe that collapse is long into the future when all signs say it is just around the corner. If you know history, we are living in the days before the crash and Great Depression of the 30’s, only on a global scale.
Will it be different? Probably.
Will it be worse? Definitely.
Are you prepared?
Davy on Mon, 13th Jun 2016 5:35 am
“This Is What The Unprecedented Chinese M&A Scramble In America Looks Like”
http://www.zerohedge.com/news/2016-06-12/what-unprecedented-chinese-ma-scramble-america-looks
“The raging need for Chinese oligarchs and corporations to park their cash offshore, and as far away as possible from the the mainland and the risk of sudden, sharp (10%-15%) devaluation, has resulted in not only an epic Vancouver housing bubble, or the predicted parabolic surge in bitcoin price (which has soared by 50% in just a few weeks), but an unprecedented M&A spree for US-based assets.”
“now that even Goldman admits China’s total debt is somewhere in the 350% ballpark – watch out as ultra long bond yields plummets right into subzero territory, as the world finally realizes that absent helicopter money and hyperinflation, only a deflationary black hole awaits.”
Davy on Mon, 13th Jun 2016 5:36 am
You can parrot $100 oil all you like but the reality is we are in a slow deflationary spiral that will likely end with a hyperinflation process. Hyperinflation is primarily a confidence issue that comes with the loss of faith in markets and money. China is the focal point of this process currently. It is not that this phenomenon is not happening everywhere it is just in China they are losing control of this process. This Chinese loss of control will be a global contagion because China is too big to fail for the global system.
Mix in expensive oil and you have even more headwinds for profits and activity. I expect oil to jump around because the industry and oil producers have been severely damaged. Oil is now no longer beneficial as an economic tonic. Low oil and or high oil is not showing the beneficial effects of the past on either side of the equation since QE has lost its effectiveness and that bubble is deflating. When bubbles deflate the process is not manageable as is the inflation of bubbles. Oil is going to fall into a place per supply and demand but not a healthy one for oil or the economy.
We have the global problem of debt and bad debt. This is related to excess capacity and investments in commodities and development that is not earning a required return. This macro malinvestment is especially true in China and the reason for their extreme credit creation and devaluation pressures recently. This was a debt bubble and now it is a bad debt deflation of a bubble.
It is now global linkages that will likely make this economic decline process longer term than would be the case in the past. We are witnessing this by the fed’s inability to function freely without a Chinese contagion. We are now in the part of the deflationary process where paralysis prevents panic but it also does not allow health. There is nowhere to run. This is not so much the case in places like Venezuela but in places like China, US, and Europe the process is linked. We do have a Chinese scramble to exit the Chinese devaluations but these are limited because of the fact there are few places for so much mispriced money to go. The current economic process of deflation, devaluations, and zero percent interest points to a “how long” with a financial collapse. That how long is now a paralysis factor. Economically we are in a deflationary straight jacket. It also point to what $100 oil means. The economy is chained to deflation, debt, and devaluations. Oil is linked and chained to this process.
We may have discarded normal price discovery for central bank intervention. We may have pitched economic fundamentals for moral hazard. What we cannot discard is consequences. Actions produce consequences and when the global economy is kinked as it is now these action cannot be avoided by finding a refuge. There are no refuges in a deflationary spiral. We are now in a deflationary spiral of trade battles and currency battles with no exit at the macro and micro level. Notice I didn’t call them wars. This is because like our global conflicts we cannot have wars without both sides loosing. We can only have proxy battles that are part of the same process but slower. Oil is stuck in this spiral. Currencies are stuck. Cross border trade and investment likewise cannot run to a refuge because it is now a zero sum game. Short term there are movements but longer term it is the same consequences result.
shortonoil on Mon, 13th Jun 2016 6:57 am
” I think that most of the predictions are way off! This crash is coming much sooner than most people think! “
The difference between what the industry is now receiving for its products, and its three year run at close to $100 is now $1.3 trillion per year. Since no one was making a 50% profit margin on their gross sales at $100 we can be very sure that the industry is now losing money on its average barrel.
Our ERoEI, and energy density method of calculating average production cost generates an average production cost of $125/ barrel for 2016. That indicates that its full life cycle production cost loss is now $1.7 trillion per year. The industry, however, has an asset value of approximately $59 trillion. If prices were to recover in the foreseeable future it would probably survive. That price recovery is, however, not likely.
The price of oil is now range bound between its minimum lifting cost on the bottom, and a point on the top where an increase in price reduces demand to the point where the price is forced back down. This we refer to as affordability:
http://www.thehillsgroup.org/depletion2_022.htm
At present that is somewhere in the mid $20s on the bottom, and $60 on the top. That spread will be shrinking in the forthcoming years. The industry will be forced to continue consuming its assets to remain operational. With no relieve for the industry in sight this will undoubtedly produce huge geopolitical consequences. We are already witnessing that impact as nations like Venezuela and Nigeria dissolve, and the Middle East unravels.
Without the huge wealth from petroleum to fund sovereign states, breakdown will continue. To survive, at all, draconian measures will be needed. Expensive, and non productive activities will have to cease. The most expensive, and non productive activity that any nation state can engage in is WAR!
If we progress to violence in an attempt to alleviate our problems, we will certainly destroy ourselves!
http://www.thehillsgroup.org/
peripato on Mon, 13th Jun 2016 8:22 am
If Russia invaded the Ukraine two years ago, like this asinine article claims, then why are genocidal nazi maniacs shelling Donetsk and Lugansk every day?
Why aren’t the Russians now in Kiev, sipping champagne and eating caviar, whilst the last remaining nazis are being eliminated in Galicia?
Kenz300 on Mon, 13th Jun 2016 8:47 am
Paris Goes Car-Free First Sunday of Every Month
http://ecowatch.com/2016/05/17/paris-goes-car-free/
The transition to safer, cleaner and cheaper alternative energy sources continues…………
Germany Achieves Milestone – Renewables Supply Nearly 100 Percent Energy for a Day
http://www.renewableenergyworld.com/articles/2016/05/germany-achieves-milestone-renewables-supply-nearly-100-percent-energy-for-a-day.html
Portugal ran entirely on renewable energy for 4 consecutive days last week
http://electrek.co/2016/05/16/portugal-ran-entirely-on-renewable-energy-for-4-consecutive-days-last-week/
Boat on Mon, 13th Jun 2016 10:49 am
“demand destruction” will come from a combination of no oil to buy and increasing poverty as the rich continue to grow richer and the poor poorer.”
Actually oil demand is coming from mainly from developing countries where the poor are becoming richer.
Oil demand is still growing.
Global Petroleum and Other Liquids
EIA estimates that global petroleum and other liquid fuels inventory builds will average 1.0 million b/d in 2016. Inventory builds are expected to continue into 2017, but at a generally decreasing rate, averaging 0.3 million b/d for the year.
Global Petroleum and Other Liquids Consumption
Global consumption of petroleum and other liquid fuels is estimated to have grown by 1.4 million b/d in 2015. EIA expects global consumption of petroleum and other liquid fuels to increase by 1.5 million b/d in both 2016 and 2017, mostly driven by growth in countries outside of the Organization for Economic Cooperation and Development (OECD).
https://www.eia.gov/forecasts/steo/report/global_oil.cfm
If one tracks world demand projections you would know demand for oil in 2016 was at 1.2 mbpd growth and has now been revised to 1.5.