Peak Oil is You
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Page added on August 15, 2015
Peak Oil Is Near Not Because of Dwindling Supply, But Disappearing Demand
Given the stagnation in household incomes across the wealthier global economies, oil is facing pressure as never before to remain competitive given the plethora of cheaper – and more reputationally acceptable – alternatives. JL
Amory Lovins comments in Medium:
Demand is going away — not incrementally but fundamentally. Like whale oil in the 1850s, oil is becoming uncompetitive even at low prices before it becomes unavailable even at high prices. U.S. gasoline demand has been falling since 2007 as more people drive thriftier vehicles fewer miles; the same is true in rich countries as a whole.
Why would anyone want to be in the oil business? Like airlines, it’s a great industry but a bad business. Here are the most obvious challenges to its business model:
- Oil companies are extremely capital-intensive; they can’t charge a high enough price to pay for Arctic oil because to deliver energy at a given rate takes more capital investment than photovoltaics do.
- They have decadal lead times and high technological, geological, and political risks.
- National oil companies own about 94 percent of global reserves and can take or tax away the major oil companies’ remaining 6 percent at any time, holding their most basic assets and expected profits at risk.
- Resource owners force major oil companies into riskier and costlier plays even as investors demand lower risks and higher returns.
- The industry is politically fraught, unpopular, interfered with, and reputationally damaged by its worst actors.
- Its service companies (like Schlumberger and Halliburton) and the national oil companies are becoming formidable competitors.
- Its permanent subsidies are coming under greater scrutiny and criticism.
- It must sell its products at world oil prices that are highly volatile and beyond its control.
- Much of the reserve base underlying its market valuation is unburnable for climate reasons, potentially wiping trillions off balance sheets.
- The costly Arctic, deep-sea, and otherwise remote reserves that until a year ago got half the new investments by the biggest oil companies are also economically stranded assets — at least four times costlier than demand-side competitors and increasingly challenged even by some supply-side competitors.
What a recipe for headaches! No wonder savvy investors are starting to shift their money into assets with rapid growth, wide benefit, solid public acceptance and even enthusiasm, modest risk, and durable value. Energy efficiency and renewables lead the pack. Increasingly they poach investment, momentum, and people from major companies’ deep talent pools. Even my own nonprofit organization’s CEO is a ten-year Shell veteran.Yet I think these widely recognized challenges are easier to handle than others the industry is only just starting to realize. Having advised oil companies for 42 years, I’m worried that many don’t yet grasp how their competitive landscape is being transformed far faster than their cultures can comprehend or cope with.Most importantly, their demand is going away — not incrementally but fundamentally. Like whale oil in the 1850s, oil is becoming uncompetitive even at low prices before it becomes unavailable even at high prices. U.S. gasoline (and electricity) demand has been falling since 2007 as more people drive thriftier vehicles fewer miles; the same is true in rich countries as a whole. Now major developing countries like China are shifting their energy strategy so quickly toward efficiency and renewables that global “peak oil” — in demand, not supply — could occur in this decade, not many decades in the future as the industry assumes.Over decades, oil reserves unburnable for climate reasons could well be smaller than reserves unsellable for competitive reasons: oil companies are even more at risk from market competition than from climate regulation. They can run their supply-side supertanker into the giant iceberg of energy efficiency and sink without even knowing what they hit. It wasn’t on their chart because they weren’t properly tracking it, let alone exploiting it. If their costly deep-sea and Arctic projects go upside-down at $90 a barrel and their whole business swoons at $50, how will they do at, say, $25, which is what it costs to get a greatly expanded U.S. transportation system completely off oil, or at $18 and falling, or what it costs to save a barrel by making well-designed automobiles that need no oil? What if oil companies’ biggest challenge weren’t falling price but vanishing demand?That’s not hypothetical. In 1975, the U.S. government and captains of industry all insisted that the energy needed to make a dollar of GDP could never go down. A year later I heretically suggested it could drop by 72 percent in 50 years. So far it’s dropped by 54 percent in the first 39 years — partly through shifts in the structure of the economy, but more because we used smarter technologies to wring far more work from our energy.Yet my team found in 2011 that far more powerful technologies and design methods, enlightened regulation, and maturing financing, marketing, and delivery channels then available could save nearly twice what I originally thought, at one-third the real cost. We showed how the U.S. could run a 2.6-times bigger economy in 2050 with no oil, coal, or nuclear power, $5 trillion cheaper, with no new inventions nor Acts of Congress, led by business for profit. Now, four years later, many of those assumptions look conservative.Most of the cubic mile of oil the world burns each year provides mobility. Yet four-to-eight-times more efficient carbon-fiber electric cars are already on the market from BMW and VW, with more on the way. New ways to manufacture carbon-fiber structures can make autos two or three times lighter but safe, at roughly the same cost, because the carbon fiber is paid for by simpler automaking and fewer batteries or fuel cells. “Feebates” — rebates for efficient new autos, paid for by fees on inefficient ones — can raise electric vehicles’ market share tenfold. Add tripled-efficiency heavy trucks and three-to-five-times more efficient airplanes, and the U.S. can save $0.9 trillion in net-present-valued cost by 2050 — all sped by the military revolution in fuel-frugal planes, ships, and land vehicles. Leveraging savings in the civilian oil use that’s over 50 times larger, those innovations will ultimately displace our warfighters’ missions in the Persian Gulf and South China Sea — aka Mission Unnecessary.Meanwhile, Gen X and Gen Y often don’t even want to own a car, because it’s cheaper and easier not to. Smartphone apps can seamlessly combine many different modes, including ubiquitous on-demand mobility services, to offer a better experience at roughly $11,000 per year lower cost than owning a car that sits idle 95 percent of the time.Next, emerging driverless autos will cut energy cost per mile 90 percent and total cost 40 percent — the next step in the mobility/IT mashup that will gravely disrupt both auto and oil companies. Autos are pivoting from PIGS — Personal Internal-combustion-engine Gasoline Steel-dominated vehicles — to SEALS — Shared Electrified Autonomous Lightweight Service vehicles. The U.S. can also get the same or better access to where we want to be, with 46 to 84 percent less driving, at lower societal cost and higher developer profits, by combining smart growth, IT-mobility integration, and charging real-time driving costs per mile, not per gallon. And new policies that treat autos without favoritism and design cities around people instead of autos are spreading rapidly in China and other developing countries to achieve cleaner air, vibrant commerce, rich social interactions, happier residents, and far lower total cost and risk.Oil companies’ shift toward natural gas won’t save them, because gas isn’t sufficiently different. It too has volatile prices, and resolving all eight of fracking’s main risks would require great luck. So fracking creates an important story about abundant and affordable energy for the long term — but that story is less about gas than about its physical hedges, efficiency and renewables, that are outpacing and outcompeting it.Oil-company leaders generally think it will take over a half century to replace their extraordinary infrastructure. They forget that the pace of transformation is set not by incumbents but by insurgents, who may not need their infrastructure (think electric cars) and are uninhibited by their business models and legacy assets — physical or psychological. Actually, incumbents have even less time than insurgents grant them, because capital flees before customers do. Capital markets, moving at the speed of Twitter, keenly sniff out the scent of disruption. If they think you’re in or headed for the toaster, they don’t wait for the toast to get done before they decapitalize you and invest in your successors. This is already happening to the oil and electricity sectors — yet many don’t even realize it.Stanford innovation lecturer Tony Seba reminds us of disruption’s brutal speed by comparing two photos looking down New York’s Fifth Avenue in the Easter Parade. In 1900, you must look hard to find the first car. In 1913, you must look harder to find the last horse. The horse-and-buggy industry thought it had many decades to adapt. Henry Ford thought differently, and won.Today’s technologies move much faster — reinforced by even more disruptive forces like new business and financial models and breakthrough design methods, all stirred vigorously with IT. These new axes of transformation all reinforce and accelerate each other. They don’t add; they multiply or exponentiate in a yeasty mix with crowdfunding and crowdsourcing, innovative public policies and development patterns, shifting tastes and values, and Silicon Valley culture. No oil company moves that fast.The oil industry has unique and important skills and assets. I hope those that society may need later will survive the coming shakeout. But it’s hard for cultures good at a few big complex projects to get good at doing many small projects instead; to put their hearts into options that many of their people don’t really believe in; and to shift rapidly to the utterly unfamiliar. Customers don’t care. They increasingly realize they’ll get better services (mobility, hot showers, cold beer, and so on) by buying radically less (or no) fuel, using it far more productively, and even producing and trading home-grown energy like solar power. It’s generally a smart strategy to sell customers what they want before someone else does. All the rest is detail.
27 Comments on "Peak Oil Is Near Not Because of Dwindling Supply, But Disappearing Demand"
Kenz300 on Sat, 15th Aug 2015 8:04 am
Quote — “U.S. gasoline demand has been falling since 2007 as more people drive thriftier vehicles fewer miles; the same is true in rich countries as a whole.”
Electric vehicles are the future along with bicycles and mass transit.
Safe, clean and environmentally sustainable transportation options.
No more WARS for OIL.
Westexasfanclub on Sat, 15th Aug 2015 8:07 am
Of course Peak Oil is ALWAYS caused by the demand side. At 500$ a barrel you could produce infinite amounts of synthetic oil from nuclear and make money.
ohanian on Sat, 15th Aug 2015 9:12 am
“Resource owners force major oil companies into riskier and costlier plays even as investors demand lower risks and higher returns.”
Wow! Apparently OIL industry is so special that only in the oil industry has investors demand lower risks and higher returns.
penury on Sat, 15th Aug 2015 9:40 am
“Electric vehicles are the future along with bicycles and mass transit.” Walking is the future. The economies of the world are bankrupt. I understand that people think that as long as the Fed keeps printing there can be no currency crisis well guess what, there can be and will be. As h. Stein said “that which cannot continue, will not.”
Truth Has A Liberal Bias on Sat, 15th Aug 2015 9:53 am
World oil demand is growing.
https://www.iea.org/oilmarketreport/omrpublic/
As usual America thinks it’s ‘the world’
ennui2 on Sat, 15th Aug 2015 10:06 am
Lovins = polyanna
steve on Sat, 15th Aug 2015 11:11 am
“Walking is the future. The economies of the world are bankrupt.” I hear ya penury…I have been investing in shoes for some time….although I have a bike that I purchased in 1988 and still runs…what problem do you have with bikes? It does not take that much energy to make a bike and they can be stamped out of useless automobiles and last lifetimes if taken care of properly…old people don’t like bikes for some reason I just don’t get it….
rockman on Sat, 15th Aug 2015 11:40 am
So “oil has becomes uncompetitive even at low prices”. So what exactly is beating oil? Sorry but I stopped reading at that absurd statement. From other responses I appear to have made a good decision to not waste my time. LOL. And no: we are not burning less gasoline since 2007 because of lower consumption vehicles. The ROLLING FLEET mpg has increased about 1 mpg since then. Yes: lots of better cars being sold. But with average car life no over 10 years most on thevoad get poorer gas miliage.
As westexas points out there is a huge shortage of $20/bbl oil and a huge surplus of $100/bbl oil.
BobInget on Sat, 15th Aug 2015 12:01 pm
Oil prices fell 60%, it’s true.
Could there be another reason besides erroneous claims of falling demand?
http://www.marketwatch.com/story/oil-demand-growing-at-fastest-pace-in-5-years-iea-2015-08-12
With four, count em, energy intensive oil wars currently in progress, let’s look for alternative reasons.
Could it be, our planet is in negative population growth?
http://www.worldometers.info/world-population/
(51,600,000 extra mouths to feed this year to 8/14/15) Soon 52 Million.
Ok, so maybe those extra births over deaths
isn’t a reason for lower oil prices.
How about mass migrations, climate changes, upsetting world food supplies? [oil=food]
Possible— short term dislocations cause commodity disruptions. Could 25 million war and climate refugees cause oil prices to diminish? Fifty thousand taking refuge in Greece and the UK monthly. Could this be a factor in lower oil prices? Most migrants are coming from Sudan, Syria, Iraq, Libya. The fact that those four nations are oil exporters always goes unspoken.
Genocide in Yemen.
Yemeni tribes people are expected to ‘die in place’. Should five million Yemeni do die of hunger before Christmas, few in the West will make a fuss. The US is actually HELPING Saudi Arabia in its campaign of genocide because so many other sources of oil are ‘missing in action’. KSA is, in a very real sense blackmailing the West by over pumping, over supplying crude oil.
In short, we are being ‘set up’.
The Saudis despise US and Israeli culture.
What could go wrong? Could a transparent oversupply by one or two OPEC members be responsible?
Unintended Consequences:
Low oil prices have lulled consumers into false confidence that if ‘gas’ prices do rise it will be gradual, over a period of years maybe decades.
Just-in-Time Deliveries:
China and the US import 15 Million barrels p/d combined. Throw in India, Taiwan, Vietnam add another ten million.
That’s roughly 25 million a day. Five nations.
(have we left anyone out?)
In USA, 15 million barrels Per Day consumption leaves Americans five million four hundred thousand short before sunset. Folks would need to walk home.
EIA: US consumption, 20,400,000 Barrels p/d
The question remains, is oil going out of style or is Magic Thinking?
Truth Has A Liberal Bias on Sat, 15th Aug 2015 12:08 pm
Oil is uncompetitive? Uncompetitive with what? Lol what a load of BS.
Equating decreased US demand for gasoline with a peak in world oil demand is stupid.
Boat on Sat, 15th Aug 2015 1:18 pm
Truth Has A Liberal Bias
World oil demand is growing.
https://www.iea.org/oilmarketreport/omrpublic/
As usual America thinks it’s ‘the world’
A few of us including US posters have been arguing that yes there has been a drop in global growth but there is still world growth and consumption including oil and it’s componants. Period.
Bob Owens on Sat, 15th Aug 2015 3:18 pm
Amory writes a nice article. Over-hyped, over-sold, but lots of things to think about. How much will come true? We can’t tell; no crystal ball. If we examine the evolution of the incandescent bulb to CFLs to LEDs, we see it took a rather long time to make that transition, and that only requires us to replace light bulbs. Remember when states were passing laws to keep incandescent bulbs in stores and ban CFLs? Point being: transitions are not easy and take a lot of time. The LED case was about the best we can expect for transitions to new tech. Autos will be more difficult, even with carbon fiber. Just look at how much effort is being poured into batteries without any breakthroughs. Caution is the word.
Roman on Sat, 15th Aug 2015 8:43 pm
So you save 11 grand a year by not owning a car. Then you spend it on consuming manufactured goods that take oil to produce. Same difference. Every dollar spent uses oil.
Makati1 on Sat, 15th Aug 2015 10:55 pm
Or, you can take that 11 grand and use it to prep for the future by buying land and developing it for permaculture. It takes a lot of “buying” to offset the loss of pollution caused by burning thousands of gallons of oil annually. And if you buy quality hand tools, kitchen implements, Textiles and trade goods, you are saving future pollution also. For example, a high quality hammer will last a lifetime. A cheap one, maybe one project.
Rich on Sun, 16th Aug 2015 1:04 am
I really enjoyed this article. A lot of stuff to think about, definitely added to my knowledge.
Wonder how Norway and the 900 billion dollar oil fund are handling the decrease in demand.
http://www.richtrek.com/2014/10/norweigen-oil-fund-economics-theyre-all.html
Will they tap the fund? thanks for the column
David W. Morris on Sun, 16th Aug 2015 6:16 am
In 10 to 15 years solar energy will be so cheap and the electric or hydrogen car will make oil obsolete. The utility companies will become dinosaurs.
Saudi Arabia and the whole of the middle east will be in turmoil.
Kenz300 on Sun, 16th Aug 2015 6:54 am
Oil companies need to begin their transformation into ENERGY companies or they will die. The coal companies are a good example. Coal companies stock value has dropped and they are going bankrupt.
It is time to diversify and stop fighting the change to safer, cleaner and cheaper alternative energy sources.
By investing in wind and solar they can help to ensure their survival.
Climate Change is real….. we need to deal with the cause (fossil fuels)
Listen Up: Pope Calls for the Replacement of Fossil Fuels, Renewable Energy and Solar Subsidies – Renewable Energy World
http://www.renewableenergyworld.com/articles/2015/07/listen-up-pope-calls-for-the-replacement-of-fossil-fuels-renewable-energy-and-solar-subsidies.html
shortonoil on Sun, 16th Aug 2015 8:17 am
“Saudi Arabia and the whole of the middle east will be in turmoil.”
Determining how the Saudis, or any oil producer is fairing is quit simple. You take their profit that was generated during the last high priced year (such as 2013) and divide by the number of barrels produced. That gives profit per barrel for that year. Then subtract the difference in per barrel price between now, and then. That gives present profit, or loss per barrel. The present spread in prices is now about $55. If you find a producer that was making $55/ barrel in 2013, they were making a 43% profit on their gross sales. The industry has historically turned a 5 to 10% profit on gross sales.
The Etp Model, which is a best case scenario, projects a downward trend in petroleum prices from 2012 forward:
http://www.thehillsgroup.org/depletion2_022.htm
Unlike economic models the Etp Model is constrained by physical limits imposed by the laws of physics. It eliminates the magical “IF” word so beloved by economists who want to present a “things aren’t that bad” story line. Common sense, and the Etp Model informs us that the petroleum industry is now in dire straits in the present price environment. The Etp Model also informs us that production must fall significantly in the near future as producers who are losing money on their production will soon be shutting in high cost production, or going out of business.
When producer run out of credit lines to finance their now money losing operations they will be shut in. It is not likely that the Middle East can escape turmoil for 10 years. It is not likely that anywhere can escape turmoil for the next 10 years. Petroleum is an the irreplaceable commodity that powers modern civilization!
http://www.thehillsgroup.org/
Davy on Sun, 16th Aug 2015 8:26 am
Descent of a petro-culture and complex global economy will take all down with it. There will be no substitution for a new BAU part 2. This is a paradigm shift of growth to descent. Demand and supply are going to operate differently in the future. Economist will have to rethink their soon to be useless growth theories. They are going to need to start contemplating a global economy in descent. Increasingly the status quo of the widespread cornucopianisim everywhere will have to give way to a descent reality. I imagine cornucopianism will just be swept away like leaves in the fall. We have seen it before as an old reality is shattered in a few weeks or months with nothing left.
I am seeing demand and supply destruction in a cycle downward. The momentum of growth is uneven and stagnating. Our system built on growth will descend without growth. That is one thing that is undeniable. The greenie and techno’s will quickly find their dreams just dreams. The status quo browns will see their petro culture dissolve in front of them. There will be no AltE future. There will be no techno future of marvelous breakthroughs. We will be a salvage society in a hybrid arrangement of new and old if we are lucky. If we are not it will be apocalyptic drop to the Stone Age.
Decisions made now are vital at the global and local because time is running out. I am not optimistic for the global but I am not fatalistic for my local either. Most of all I am enjoying life now as best I can like a terminally ill patient with some quality of life left. At your local level your situational awareness is going to be influenced with decisions made right now. Do some reality testing with descent in mind. Location is one of the most vital elements of this testing. If you are in Las Vegas move out now period.
Demand and supply will and are descending. How quick is anyone’s guess because this is uncharted water with so many collapse variables at play. It is global and it is an overshoot condition with the potential for a bottleneck. Trying to predict an outcome to that condition is dubious. Better to do testing and gather facts. Start focusing locally and move away from being an obsessed global citizen glued to the TV.
It is too late for the global. Sure stay tuned but quit worrying about what Russia does and start wondering about your location and what makes it tick. How many of you really know your local? I am talking do you know your local if you strip away the status quo? Where will you go for food? Do you know where a doctor lives? These are the questions that are important. Not whether ISIL has executed more Christians.
meld on Mon, 17th Aug 2015 3:59 am
@Kenz, don’t you think if there was any money to be made in the renewables industry the oil companies would have diversified years ago. They know the truth and they are going to pump until the last fool is left holding the drill.
Renewables are a joke, we would have been better off not even developing them and saving the energy to do something else, like more videos of a cats being funny, at least it would have been mildy humorous for a a few seconds
Kenz300 on Mon, 17th Aug 2015 7:11 am
The transition to safer, cleaner and cheaper alternative energy sources continues to grow around the world. The Climate Change deniers are losing the battle.
Global Renewable Energy Roundup: China, Kenya, Turkey, India Seeking More Renewables – Renewable Energy World
http://www.renewableenergyworld.com/articles/2015/08/global-renewable-energy-roundup-china-kenya-turkey-india-seeking-more-renewables.html
————————
Climate Change is real….. we need to deal with the cause (fossil fuels)
Listen Up: Pope Calls for the Replacement of Fossil Fuels, Renewable Energy and Solar Subsidies – Renewable Energy World
http://www.renewableenergyworld.com/articles/2015/07/listen-up-pope-calls-for-the-replacement-of-fossil-fuels-renewable-energy-and-solar-subsidies.html
Makati1 on Mon, 17th Aug 2015 7:12 am
KenZ, you might read:
“Dozens of reasons Wind power will not outlast fossil fuels”
“900 Tons of material to build just 1 windmill”
http://ricefarmer.blogspot.fr/
Just two reasons renewables are not renewable without oil.
Westexasfanclub on Mon, 17th Aug 2015 8:05 am
There will certainly come the point when more and more win energy will be used to produce wind turbines (the german industry for example already uses 1/3 of its primary energy in form of electricity). And there are more efficient wind turbine designs that in the future might be used.
But it still is a hard race. One of most advanced countries concerning renewals ist Germany. About 1/3 of its electricity will be produced by renewals this year. About 1/3 of that is produced by wind. All together electricity in Germany weighs for about 1/4 of the primary energy consumption. So only 2-3% of the primary german energy consumption is produced by wind turbines.
There’s still a very long way to go.
Davy on Mon, 17th Aug 2015 8:33 am
West Tex, exactly, honorable work by the Germans to diversify their energy needs but it is proving not to scale in time nor cost. If it were the AltE percent penetration in the energy market would be significantly greater.
They have done the easy part soon the difficult step will be grid modifications and attitude changes. We are likely to have an economic slowdown that is going to stop large investments in their tracks. AltE is a huge investment with upfront costs with years of payback. How long can we afford to make long term investments before the balance is tipped towards deficiencies of capex. We are very close now.
Westexasfanclub on Mon, 17th Aug 2015 10:01 am
Yes, Davy, it doesn’t look splendid for a growth orientated world. Basic needs like energy and food though might be solved out of the box of the classic financial and economic model – IF there’s still enough fossile energy to pull it that way. For some reason Kunstler called Germany the upcoming first green dictatorship. Not a rosy future but with light bulbs, mass transit and supermarkets still working?
I was always impressed how the Soviet Union, when attacked in 1941, moved much of their industrial assets thousands of miles east, started to produce advanced weaponry and went to counterattack nazi-Germany two years later. That strategy wasn’t based on money and economy but the pure will to survive.
If things are starting to fall apart, advanced civilizations y Europe, Asia and America will be able to cope with the situation, though it won’t be BAU and no’t enven be pleasant.
Davy on Mon, 17th Aug 2015 12:36 pm
WEST Tex said “Kunstler called Germany the upcoming first green dictatorship. Not a rosy future but with light bulbs, mass transit and supermarkets still working?”
Tex, they are still a car culture and surrounded by lots of people. Mass transit will help but it is not an answer. They do have great people oriented cities and good rural countryside and farm land. They have good diversity of power generation with a significant AltE presence. Germans are very efficient with power use.
I lived and worked there in 85 for a year. Learned some German and saw Europe. I would put them in the high success category but still a mixed bag of issues. One serious problem for Germany is population density.
Apneaman on Mon, 17th Aug 2015 12:58 pm
Oil Majors’ $60 Billion Cuts Don’t Go Far Enough as Crude Slides
“The $60 billion of oil-industry spending cuts this year aren’t likely to be enough to meet sacrosanct dividend commitments as crude languishes near a six-year low.
The world’s biggest producers will need to trim investments by a further $26 billion, according to Jefferies Group LLC. Capital spending will have to fall 10 percent next year, Banco Santander SA says.
Oil companies are bracing for “lower for longer” prices as a global supply glut persists, dragging crude to the lowest close since March 2009…”
http://www.hellenicshippingnews.com/oil-majors-60-billion-cuts-dont-go-far-enough-as-crude-slides/