Peak Oil is You
Donate Bitcoins ;-) or Paypal :-)
Page added on December 18, 2016
We Need to Accept That Oil Is a Dying Industry
The future is not good for oil, no matter which way you look at it.
A new OPEC deal designed to return the global oil industry to profitability will fail to prevent its ongoing march toward trillion dollar debt defaults, according to a new report published by a Washington group of senior global banking executives.
But the report also warns that the rise of renewable energy and climate policy agreements will rapidly make oil obsolete, whatever OPEC does in efforts to prolong its market share.
The six-month supply deal brokered with non-OPEC members, including Russia, could slash global oil stockpiles by 139 million barrels. The move is a transparent effort to kick prices back up in a weakening oil market where low prices have led industry profits to haemorrhage.
The Organization of Petroleum Exporting Countries (OPEC), whose members include major producers from Saudi Arabia to Venezuela, have been hit particularly badly by the weak oil market. In 2014, OPEC had a collective surplus of $238 billion. By 2015, as prices continued to plummet, so did profits, and OPEC faced a deficit of $100 billion.
The immediate impact of the deal was a 4 percent price rally that saw Brent crude (the benchmark price for worldwide oil prices) rise to $56.64, its highest since mid-July. But according to Michael Bradshaw, Professor of Global Energy at Warwick Business School, a price hike would not solve OPEC’s deeper problems. In fact, it could speed up the transition away from oil.
As oil gets more expensive again, there is more incentive to use alternative, cheaper forms of energy.
“The current agreement is only for 6 months and decisions about investment in oil and gas are based on a 20 to 30 year view of future demand,” Bradshaw told me. “On that time scale, none of the uncertainties are addressed by the current agreement and oil exporting states need a strategy beyond achieving a short-term agreement on production—they need to start preparing for a world after fossil fuels.”
As oil gets more expensive again, there is more incentive to use alternative, cheaper forms of energy—like solar photovoltaics, which can now generate more energy than oil for every unit of energy invested.
“They will also incentivise more unconventional oil production that will challenge OPEC production. Clearly there is a balance to be struck and it is not a return to $100 a barrel,” Bradshaw said.
He warns that higher prices might kick-start US tight oil production, which would increase competition with OPEC, making the production cut agreement moot. They also might add “inflationary pressures in the economy” that could prolong sluggish economic growth. Both factors could end up keeping prices lower than OPEC wants.
“We are not in a business as usual world,” Bradshaw said. “Higher prices for oil and gas will drive investment in efficiency and demand reduction and also substitution, so they may actually promote structural demand destruction.”
It’s not just OPEC that needs to be prepared. A report published in October by the Group of 30 (G30), a Washington DC-based financial advisory group run by executives of the world’s biggest banks, warns investors that the entire global oil industry has expanded on the basis of an unsustainable debt bubble.
The oil industry’s long-term debts now total over $2 trillion.
G30’s leadership includes heads and former chiefs of the European Central Bank, JP Morgan Chase International, and the Bank for International Settlements.
The industry’s long-term debts now total over $2 trillion, the report concludes, half of which “will never be repaid because the issuing firms comprehend neither how dramatically their industry has changed nor how these changes threaten to soon engulf them.”
The report is authored by Philip Verleger, a former economic advisor to President Ford who went on to head up the US Treasury’s Office of Energy Policy under President Carter, and Abdalatif al-Hamad, Director General of the Arab Fund for Economic and Social Development.
Its main finding is that permanent shifts in global energy markets will inevitably overwhelm oil companies, along with all economies which depend primarily on fossil fuel production. The attempt to rally prices, the report confirms, is a somewhat futile effort to avoid a major debt crisis by lifting revenues.
But it won’t work because the global oil industry is in denial about the bigger trends disrupting energy markets as we know them. Oil majors, the report says, are holding on to a number of fatal delusions.
They believe that the oil price decline is “transitory”; that oil consumption will grow despite ongoing economic stagnation; that the industry will be magically immune to public and policy demands to reduce greenhouse gas emissions; that technological progress will never be able to “displace fossil fuels such as oil”; and, finally, that fracking will not produce enough supply to undermine OPEC’s market monopoly.
Oil majors, the report says, are holding on to a number of fatal delusions.
But if these assumptions are wrong: “They represent an ossified industry that will gradually fade away [and] hundreds of billions if not trillions in debt issued by these firms and countries may never be repaid.”
So what’s the alternative? Instead of tinkering with production quotas, Bradshaw said: “They [oil producing countries] should also be promoting greater energy efficiency and renewable energy in their domestic economies to preserve their exportable surplus as some will struggle otherwise due to rapidly increasing domestic demand.”
To its credit Saudi Arabia’s Vision 2030 plan is a step toward this. But a HSBC research note in May found that the plan would not do enough to avoid the kingdom entering “a protracted period of marked economic decline.”
In the meantime, a trillion dollar collapse in the oil market is coming because oil simply cannot compete with new energy technologies. If Bradshaw is right, then OPEC’s efforts to ‘shock’ the markets into boosting prices are only going to prolong the fossil fuel pain.
18 Comments on "We Need to Accept That Oil Is a Dying Industry"
Dave thompson on Sun, 18th Dec 2016 1:06 pm
A transition from oil. To what? Moonbeams pixie dust and unicorn gas.
shortonoil on Sun, 18th Dec 2016 2:22 pm
“A transition from oil. To what? Moonbeams pixie dust and unicorn gas.”
Well it is true that the oil industry is a dying industry; it is not true that it will be replaced by solar powered, lithium EVs driven by happy little snow flakes. The simple matter is that there is no substitute for petroleum that can power our present civilization. When it is gone, which is not far into the future, so also will be the civilization that was built by it.
The global bankers had better come up with a better story line than the one they are trying to sell. They forgot to mention that today’s $40,000 EV (which almost no one can afford) was built with the energy that came from oil. Without that energy it would cost $400,000, and only global bankers would have one. Perhaps the last part didn’t come to their attention!
penury on Sun, 18th Dec 2016 2:50 pm
I really think that the question ignored by just about everyone is: transition to what for energy? And remember “electricity is not a source of energy” repeat three times every day until you remember that electricity is generated by (insert your favorite hopium pill here)
bug on Sun, 18th Dec 2016 3:01 pm
Thank dog there is nothing to transition to, that would mean that the unsustainable existence humans have generated would continue longer. Let’s run out of oil and be done with it. Think dodo bird, great auk, passenger pigeon and famously, dinosaurs.
Brian Richards on Sun, 18th Dec 2016 6:13 pm
The ivory tower gods have spoken.
From a contrarian perspective though, everyone seems to be in agreement that oil cannot go much above $60/barrel. Makes me want to buy long dated calls.
onlooker on Sun, 18th Dec 2016 6:30 pm
Agree with Bug. We can have Industrial Civilization or a Living Earth but we cannot have both
geopressure on Sun, 18th Dec 2016 8:22 pm
Global Demand = 95 Million BOPD, record highs & growing…
Yeah, it really looks like Oil & Gas is a dying industry…
\
Apneaman on Sun, 18th Dec 2016 8:46 pm
geotard, you back for another ass whooping? How is the industry doing with replacing their reserves? How is their debt situation? Right, none of that matters – just barrel counts.
ratfish on Sun, 18th Dec 2016 9:29 pm
Hey geo, remember this one?
http://peakoil.com/business/end-of-the-u-s-major-oil-industry-era-big-trouble-at-exxon-mobil
makati1 on Sun, 18th Dec 2016 10:50 pm
Today’s news:
“U.S. SHALE GAS INDUSTRY: Countdown To Disaster”
“Huge Decline In U.S. Proved Oil And Gas Reserves”
“Massive 2013 Oil Spill in North Dakota Still Not Cleaned Up”
Yep, all is well in the fantasy land of gas and petroleum.
oracle on Mon, 19th Dec 2016 6:12 am
A transition to the long emergency.
Cloggie on Mon, 19th Dec 2016 6:17 am
Agree with Bug. We can have Industrial Civilization or a Living Earth but we cannot have both
Nothing wrong with industrial civilization, you just shouldn’t do it over your lungs.
Mark Ziegler on Mon, 19th Dec 2016 11:32 am
Society hit the wall when it comes to switching over to a comprehensive rail system which would reduce liquid fuels consumption dramatically and would postpone peak oil by decades.
https://www.youtube.com/watch?v=7A7GsAPR3J0
JR on Tue, 20th Dec 2016 4:56 pm
Idiot bankers fell for the line that solar power was going to build solar power installations. Total morons who understand nothing. Civilization IS oil and when oil is too expensive to extract, civilization is kaput.
Cloggie on Tue, 20th Dec 2016 6:47 pm
Civilization IS oil and when oil is too expensive to extract, civilization is kaput.
American civilization IS oil and when oil is too expensive to extract, civilization is kaput.
Fixed that for you.
Idiot bankers fell for the line that solar power was going to build solar power installations. Total morons who understand nothing.
Thank God we have you around to tell us it is all not going to work. There are quite a lot of your type around here.
What happened to the “can do” spirit that brought you folks to as far as the moon?
The entire world is busy setting up a new renewable energy system and you folks say it won’t work.
May the best opinion win.lol
GregT on Tue, 20th Dec 2016 7:35 pm
“The entire world is busy setting up a new renewable energy system and you folks say it won’t work.”
There is no such thing as ‘renewable energy’ Cloggie, and being a somewhat intelligent guy, you should already know that.
GregT on Tue, 20th Dec 2016 7:58 pm
“Civilization IS oil and when oil is too expensive to extract, civilization is kaput.”
Modern industrial civilization will be kaput JR. There was, however, civilization before industrialism. It just didn’t resemble anything remotely close to what we have become accustomed to.
makati1 on Tue, 20th Dec 2016 8:32 pm
GregT, yes, we only have to go back to about 1850 to see the future … if we are lucky. But, even then, it was powered by coal which is also going to be scarce when the oil burning mining equipment is no longer available and the moving mountain style coal recovery is not possible.
Maybe we can go back to the 1700s when wood powered civilization? Nope! The woodlands of the 1700s are gone. Much of what we call ‘wood land’ today is scrub and junk wood with low energy content. Not to mention the need to move what there is to all parts of the country.
Hmmm. What future IS possible?
Answer: None. Even if we are killed off down to the last few million, they will not be able to exist for long in our polluted, raped, ravaged world. Mother Nature is seeing to that with her ever increasing temps and her drug resistant diseases and bacteria, not to mention our own lifestyle caused cancers.
Life in the not too distant future is going to be brutal and short … until there is none.