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Page added on May 11, 2015
How Much Longer Can The Oil Age Last?
History has been so fascinated with oil and its price movements that it is indeed hard to imagine our future without oil. Over the last few months, we have witnessed how oil prices have fluctuated from a 6 year low level of $42.98 per barrel in March 2015 to the current levels of $60 per barrel. It is interesting to note that, in spite of the biggest oil cartel in the world deciding to stick to its high production levels, the oil prices have increased mainly due to falling US crude inventories and strong demand. However, the current upward rally might be short lived and there may yet be another drop in the international oil price when Iran eventually starts pumping its oil into the market at full capacity, potentially creating another supply glut. In these endless price rallies, it is important to take a holistic view of the global energy industry and question which way it is heading. Are the dynamics of global energy changing with current improvements in renewable energy sources and affordable new storage technologies? Can the oil age end in the near future? Will we ever stop feverishly analyzing the rise and fall of oil prices? Or, will oil remain irreplaceable in our life time?
Are Renewables ready to take over?
With little or no pollution, renewables like solar, wind and biofuels are viewed by many as a means to curtail the rising greenhouse emissions and replace oil as a sustainable alternative. There is little doubt as to why China, US, Japan, UK and Germany, some of the world’s biggest energy gluttons have invested heavily in renewables.
Image Source: EIA
However, according to a study conducted by Frankfurt School-UNEP Collaborating Centre for Climate & Sustainable Energy Finance, the United Nations Environment Program (UNEP) and Bloomberg New Energy Finance, the total global investments in renewables fell by 14% to $214 billion in 2013. One of the major reasons of this fall was the backing out of some big oil firms such as BP, Chevron and Conoco Phillips. These companies significantly reduced their investments in renewables and decided to focus on their ‘core’ business; that is, oil and gas. As per Lysle Brinker, an oil and gas equity analyst at IHS “It’s not their (Big oil majors) strong suit to be spending a lot of money and time on renewables when they are definitely challenged in their core industry.”
However, if we take the example of the solar industry, where the cost of an average photo voltaic panel is declining at a rate of more than 10% per annum we see that, in spite of reduced global investments, renewables still hold a lot of promise. Some of the major integrated oil and gas companies such as Shell, Total and Statoil have actually been slowly and steadily increasing their renewable related investments. Shell is investing big time in biofuels, while Total, with its stake in Sunpower, is investing substantially in the solar sector while Statoil is placing its bets on wind energy. This shows that renewables are a phenomenon that many believe can give oil a run for its money.
Is Saudi Arabia sensing an end of oil age?
“No one can set the price of oil – It is up to Allah”, this is what Saudi Arabia’s oil minister Ali Al Naimi had to say while speaking to CNBC recently. OPEC, which holds around 40 % of the world’s crude output, is showing no signs of reducing its production levels, even if Iran starts pumping more oil after sanctions are lifted should the international nuclear deal with P 5+ 1 counties prove successful. Many see this move by OPEC as a means to protect its market share and drive US shale players out of business. But is the decision of OPEC (especially Saudi Arabia) part of a much bigger game? The Saudis, who lead OPEC, would obviously be very interested in delaying ‘Peak Oil Demand’ after which global demand for oil would start declining steadily, along with Saudi oil revenues.
According to Bank of America and Merrill Lynch commodity researchers, if crude prices stay in the range of $50 – $70, peak oil demand would be pushed beyond 2030. This delay in peak oil demand would definitely hurt renewables and anyone who is investing in them. As per Alex Thursby, Chief Executive at the National Bank of Abu Dhabi, “Renewable energy technologies are far further advanced than many may believe: solar photovoltaic (PV) and on-shore wind have a track record of successful deployment, and costs have fallen dramatically in the past few years. In many parts of the world, indeed, they are now competitive with hydrocarbon energy sources. Already, more than half of the investment in new electricity generation worldwide is in renewables. Potentially, the gains to be made from focusing on energy efficiency are as great as the benefits of increasing generation. Together, these help us to reframe how we think about the prospects for energy in the region.”
Yes, OPEC has sensed the end of its glory days. And it is obvious that Saudi Arabia, with 85% of its export revenues coming from petroleum exports does not want the oil age to end anytime soon.
What can we expect?
If we look at China, the second biggest global consumer of oil, we find that its oil consumption rate constitutes about one third the world’s total consumption rates and shows no signs of slowing. In fact, EIA even predicts steady growth of China’s oil production reaching 4.6 million barrels per day in 2020 and 5.6 million barrels per day in 2040.
China has also invested heavily in building its strategic petroleum reserves and plans to expand them to 500 million barrels by 2020.
Now take India, a country that is considered by many as the next solar investment hotspot. India has been investing heavily in building its own strategic petroleum reserves and its public sector undertaking, Oil and Natural Gas Corporation Limited (ONGC) is planning to invest about $62 billion on its discoveries in Krishna Godavari Basin block KG-D5.
These are two of the world’s fastest growing economies that are investing heavily in renewables but also safeguarding their oil and gas aspirations. Moreover, when we analyze past oil price trends, we find that volatility related to geopolitical equations, speculations, wars, economic sanctions and climate change have always kept the global energy markets guessing about the future. The world is still myopic when it comes to energy. Yes, it wants to embrace renewables but not at the cost of oil. Whatever happens to oil prices in the coming years, one thing is certain: that the age of oil isn’t ending anytime soon, at least not in the next 30 years.
By Gaurav Agnihotri of Oilprice.com
10 Comments on "How Much Longer Can The Oil Age Last?"
shortonoil on Mon, 11th May 2015 4:34 pm
Agnihotri obviously has an opinion, that is, that the oil age will last another 30 years. The reality of the situation is a little more dire. Oil producers income has declined by $1.3 trillion per year in the last year. E&D cost per barrel of new oil brought on line has increased over 300% since 2000. Discovery rates have plunged to almost nothing. We have a calculation that indicates he is a bit optimistic. The data supports it.
http://www.thehillsgroup.org
sunweb on Mon, 11th May 2015 6:09 pm
“With little or no pollution, renewables like solar, wind and biofuels are viewed by many as a means to curtail the rising greenhouse emissions and replace oil as a sustainable alternative.” All the things in our world have an industrial history. Behind the computer, the T-shirt, the vacuum cleaner is an industrial infrastructure fired by energy (fossil fuels mainly). Each component of our car or refrigerator has an industrial history. Mainly unseen and out of mind, this global industrial infrastructure touches every aspect of our lives. It pervades our daily living from the articles it produces, to its effect on the economy and employment, as well as its effects on the environment.
Solar energy collecting devices and their auxiliary equipment also have an industrial history. It is important to understand the industrial infrastructure and the environmental results for the components of the solar energy collecting devices so we don’t designate them with false labels such as green, renewable or sustainable.
This is a challenge to ‘business as usual’. If we teach people that these solar devices are the future of energy without teaching the whole system, we mislead, misinform and create false hopes and beliefs. They are not made with magic wands.
These videos and charts are provided by the various industries themselves, I have posted both charts and videos for the solar cells, modules, aluminum from ore, aluminum from recycling, aluminum extrusion, inverters, batteries and copper.
Please note each piece of machinery you see in each of the videos has its own industrial interconnection and history.
http://sunweber.blogspot.com/2015/04/solar-devices-industrial-infrastructure.html
Speculawyer on Mon, 11th May 2015 6:34 pm
Oh, the oil age will probably last for at least another 100 years. Likely much more than that.
It will change though. As it becomes more scarce, we will stop using oil for many tasks that can be done cheaper with other techniques. That process already started in the 1970s when we got rid of most oil-generated electricity because that was too expensive of a way of generating electricity.
We have lately been reducing automobile oil usage by making cars much more efficient with lighter-materials, aerodynamics, turbochargers, etc. In the past 10 years, we’ve moved onto hybrids that significantly reduce oil usage by cars.
And now plug-in hybrids and battery electrics are further reducing oil usage. They are probably the next big conversion over the next 20 years as oil prices go up and battery prices come down. We also are switching some heavy duty trucks to natural gas since that is so much cheaper per BTU than gasoline/diesel.
Maritime and aviation will be the hard problems though.
GregT on Mon, 11th May 2015 6:47 pm
“The Most Influential Climate Science Paper Today Remains Unknown to Most People”
“How much time do we have before the burning of fossil fuels pushes the climate system past tipping points? In a worst-case scenario, about 11 years at current rates of fossil fuel use, according to the paper.”
“What they found was stark: To have a 50-50 chance of keeping temperature rise below 2 degrees, humans would have to stick to a carbon budget that allowed the release of no more than 1,437 gigatons of carbon dioxide from 2000 to 2050.”
“To have an 80 percent chance of avoiding that threshold, they would have to follow a stricter budget and emit just 886 gigatons.
The paper found that by 2006, nations had already spent a quarter of that amount, or 234 gigatons. Meaning, the planet’s carbon budget would be exhausted by 2024—11 years from now— if emissions levels stayed the same, or even earlier if they continue their upward trend.”
http://insideclimatenews.org/news/20140213/climate-change-science-carbon-budget-nature-global-warming-2-degrees-bill-mckibben-fossil-fuels-keystone-xl-oil
Apneaman on Mon, 11th May 2015 8:35 pm
The Impossibility of Growth
“The inescapable failure of a society built upon growth and its destruction of the Earth’s living systems are the overwhelming facts of our existence. As a result they are mentioned almost nowhere. They are the 21st Century’s great taboo, the subjects guaranteed to alienate your friends and neighbours. We live as if trapped inside a Sunday supplement: obsessed with fame, fashion and the three dreary staples of middle class conversation: recipes, renovations and resorts. Anything but the topic that demands our attention.”
http://www.monbiot.com/2014/05/27/the-impossibility-of-growth/
Perk Earl on Tue, 12th May 2015 3:05 am
“Meaning, the planet’s carbon budget would be exhausted by 2024—11 years from now— if emissions levels stayed the same, or even earlier if they continue their upward trend.”
By 2024 or earlier, AP? That sounds about right, but you just know whatever ‘carbon budget’ there is will get spent with the foot of BAU on the accelerator, G-forced back into the seat, hair shooting backwards from the air blowing past, yelling, “Tally Ho!”, fist pumped into the air through the sunroof, music blaring. Humankind just doesn’t slow down for anything.
JuanP on Tue, 12th May 2015 8:45 am
“If we look at China, the second biggest global consumer of oil, we find that its oil consumption rate constitutes about one third the world’s total consumption rates and shows no signs of slowing.”
When I read stuff like this I wonder whether my English language reading comprehension is insufficient to understand its meaning or whether this sentence simply has no meaning. What is an oil consumption rate and how is China’s one third of the world’s?
penury on Tue, 12th May 2015 1:34 pm
Which will come first? The end of the oil age? or the end of human supremacy? Not being a betting person I will say the rule of man will be the first to go. There are currently too many variables which are showing failure to think that BAU will be able to be extended for the next 30 years.
Apneaman on Tue, 12th May 2015 1:50 pm
Is there any carbon budget left? I personally doubt it and what does that really mean? We have already locked in a major die back and possibly extinction. I guess it’s possible that the end of the oil age might prevent our extinction, but so many self reinforcing feedbacks have been triggered that it would be iffy. These are massive forces that are hard to comprehend for most people; similar to distances in space between galaxies – mind blowing shit.
Survivable IPCC Projections Are Based On Science Fiction
http://www.envisionation.co.uk/index.php/blogs/nick-breeze-blogs/111-survivable-ipcc-projections-are-based-on-science-fiction
Davy on Tue, 12th May 2015 2:38 pm
Ape Man, it reminds me of the WWII flicks where the platoon walks into a mine field after one of them has a leg blown off. All stop and look around at each other. It must be an eerie feeling to be surrounded by death. In reality that is where we are at.