Tag Archives: peak oil

Is Exxon going down?

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We saw the value of coal companies collapse a few years ago, and it doesn’t seem like they are coming back. Could oil be next?

The big picture: Today,ExxonMobil is not even in the top 40 most valuable companies in America. It’s losing money, cutting staff, and stretching to maintain an unsustainable dividend…

Exxon has lost 54% of its value this year alone. That’s some $163 billion. By contrast, Chevron is down 42%, or $95 billion, while NextEra is up 23%, or $26 billion.

Felix Salmon, The Week

This drop in value could be a result of the Covid recession, if you ask me, and oil could come roaring back in the medium term, if you ask me. But the longer term story is one of renewables slowly but surely taking over.

Oil is a product that our civilization wants and needs to function. I don’t really blame companies for producing that product. Governments should have put an appropriate tax on the negative social and environmental consequences of it a long time ago. But there is a special level in hell for Exxon and some of its past leaders, because they knew the reality of global warming decades ago, and their decades of propaganda war against the American public have a lot to do with what many people believe about climate change today, and the failure of our political system to prepare and meet the challenge for at least 20 years, if not 50 years.

BP Statistical Review of World Energy

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BP has put out its Statistical Review of World Energy 2020. I’m a little short on time so I’m going to quote CNN’s coverage of it. (At least I think this is the report CNN is referring to. I have noticed a trend recently where journalists talk about a “recent report” without naming it or linking to it.) At least, I’m going to try to quote it. WordPress’s block editor is getting harder and harder to use.

In a “business-as-usual” scenario, in which government policies and social preferences evolve in the same way as in the recent past, oil demand picks up slightly following the coronavirus hit, but then plateaus around 2025 and starts to decline after 2030.

In two other scenarios, in which governments take more aggressive steps to curb carbon emissions and there are significant shifts in societal behavior, demand for oil never fully recovers from the decline caused by the pandemic. That would mean that oil demand peaked in 2019…

”As difficult steps go, BP’s pirouette from traditional oil company to green energy giant ranks among the more challenging,” Susannah Streeter, a senior investment and markets analyst at Hargreaves Lansdown said in a note to clients.

CNN

What exactly is a “green energy giant”? Carbon capture might be a thing, eventually, but that seems like a risky bet as the only business strategy. If most things are going to electrify, it seems like the green energy giant will be the regulated electric utility business, at least in the United States, and it seems unlikely BP is trying to go there. They can try to supply that industry with things to burn, I suppose, like natural gas and liquid natural gas (coal and oil seem to be on their way out), but I am not sure that is a growth industry. Aviation might move toward hydrogen fuel cells eventually. There must be some tiny demand for rocket fuel. Chemicals, drugs, and plastics will continue to exist, of course, but I am not sure that would be a huge source of annual revenue growth for decades. They can manufacture solar panels, windmills, efficient transportation and electrical equipment of various sorts, get into the smart grid, smart buildings and materials, batteries, etc. But doing all sorts of little bits and pieces like this would seem to get them into industrial conglomerate territory, and there are plenty of companies already there. Maybe that is where they are headed – just make forays into lots of different markets and see if anything sticks.

debt as a measure of natural capital depletion?

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This sprawling article in Ecological Economics talks about human civilization as a “superorganism” that exists only to dissipate energy, fouling its environment in the process. What I found somewhat interesting was the links it tries to make between natural capital depletion and financial debt.

Simultaneously, we get daily reminders the global economy isn’t working as it used to (Stokes, 2017) such as rising wealth and income inequality, heavy reliance on debt and government guarantees, populist political movements, increasing apathy, tension and violence, and ecological decay. To avoid facing the consequences of our biophysical reality, we’re now obtaining growth in increasingly unsustainable ways. The developed world is using finance to enable the extraction of things we couldn’t otherwise afford to extract to produce things we otherwise couldn’t afford to consume.

Economics for the future – Beyond the superorganism

I’m not sure this article has a coherent story to tell, but I find it interesting to think what kind of indicators we might be able to look at to tell if an ecological reckoning might be around the corner. The prices of food and energy certainly come to mind. Financial debt, if it is indeed a measure of how much our expectations of the future are out of line with our capacity to innovate and to produce the energy and other materials and find the waste sinks we need to keep going. But there is clearly a lot of noise and short-term fluctuations in all these signals that might make it difficult or impossible to come up with any kind of useful predictive index.

HSBC on peak oil

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The idea of peak oil is definitely not dead, according to HSBC. While low demand and high supply have pushed down prices over the past several years, the market is headed back for an equilibrium, demand is growing, output from traditional fields is declining while investment in new discoveries and new technologies has dropped sharply in recent years. A crunch could be coming.

  1. The oil market may be oversupplied at present, but we see it returning to balance in 2017
  2. By that stage, effective spare capacity could shrink to just 1% of global supply/demand of 96mbd, leaving the market far more susceptible to disruptions than has been the case in recent years
  3. Oil demand is still growing by ~1mbd every year, and no central scenarios that we recently assessed see oil demand peaking before 2040
  4. 81% of world liquids production is already in decline (excluding future redevelopments)
  5. In our view a sensible range for average decline rate on post-peak production is 5-7%, equivalent to around 3-4.5mbd of lost production every year
  6. By 2040, this means the world could need to replace over 4 times the current crude oil output of Saudi Arabia (>40mbd), just to keep output flat
  7. Small oilfields typically decline twice as fast as large fields, and the global supply mix relies increasingly on small fields: the typical new oilfield size has fallen from 500-1,000mb 40 years ago to only 75mb this decade
  8. New discoveries are limited: last year the exploration success rate hit a record low of 5%, and the average discovery size was 24mbbls
  9. US tight oil has been a growth area and we expect to see a strong recovery, but at 4.6mbd currently it represents only 5% of global supply
  10. Step-change improvements in production and drilling efficiency in response to the downturn have masked underlying decline rates at many companies, but the degree to which they can continue to do so is becoming much more limited

oil discoveries at 70 year low

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Here’s a long article from Bloomberg called Oil Discoveries at 70-Year Low Signal Supply Shortfall Ahead. The basic thesis is that prices are so low companies have stopped looking for new oil, and ones existing supplies start to run out prices will rise.

Explorers in 2015 discovered only about a tenth as much oil as they have annually on average since 1960. This year, they’ll probably find even less, spurring new fears about their ability to meet future demand.

With oil prices down by more than half since the price collapse two years ago, drillers have cut their exploration budgets to the bone. The result: Just 2.7 billion barrels of new supply was discovered in 2015, the smallest amount since 1947, according to figures from Edinburgh-based consulting firm Wood Mackenzie Ltd. This year, drillers found just 736 million barrels of conventional crude as of the end of last month.

That’s a concern for the industry at a time when the U.S. Energy Information Administration estimates that global oil demand will grow from 94.8 million barrels a day this year to 105.3 million barrels in 2026. While the U.S. shale boom could potentially make up the difference, prices locked in below $50 a barrel have undercut any substantial growth there.

How soon will this have an effect? 2025 according to one source cited in this article, 2040 according to another. That seems pretty far out to me to make precise predictions. Hopefully we will have a cheap, reliable renewable energy source by then. But maybe we will have explosive population and consumption growth. Or maybe the world economy will tank. It’s just hard to say. I’m not snapping up oil stocks just yet.

peak oil is still nigh

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This Telegraph article suggests that OPEC expects oil prices to come roaring back relatively soon, and when they do there are worries that the drop in investment caused by the current low prices will make it impossible to keep up with demand. And market speculation can supercharge the up swing when it comes.

Mr al-Badri said the world needs an investment blitz of $10 trillion to replace depleting oil fields and to meet extra demand of 17m barrels per day (b/d) by 2040, yet projects are being shelved at an alarming rate. A study by IHS found that investment for the years from 2015 to 2020 has been slashed by $1.8 trillion, compared to what was planned in 2014.

Mr al-Badri warned that the current glut is setting the stage for a future supply shock, with prices lurching from one extreme to another in a deranged market that is in the interests of nobody but speculators…

The paradox of the current slump is that global spare capacity is at wafer-thin levels of 2pc as Saudi Arabia pumps at will, leaving the market acutely vulnerable to any future supply-shock. “In the 1980s it was around 30pc; 10 years ago it was 8pc,” said Mr Descalzi…

By the end of this year there may be a “small deficit”. By then the world will need all of Opec’s 32m b/d supply to meet growing demand, although it will take a long time to whittle down record stocks.

So to put it in stock and flow terms, there is a big stock built up right now, and demand is less than what can physically be supplied (these are flows), so prices are low. When (if?) the global economy picks up at some point, demand may be greater than what can physically be supplied. The stock will gradually get used up, and as investors start to realize it is getting used up and supply will not be able to keep up, prices will rise, maybe fast. High prices will eventually spur investment and the cycle will repeat. This is how it plays out all other things being equal. But some of the other things are renewable energy, maybe nuclear energy, carbon credits/taxes/caps, maybe approaching physical limits on the big Middle East oil reservoirs, food and water economics, public sentiment, and geopolitics, all of which can shift the economics at the same time fossil fuel technologies and markets are going through their gyrations. Interesting times.

shale bust?

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This article casts doubt on the U.S. government’s predictions of domestic oil and gas production. Granted, it is from something called the Post Carbon Institute which may have a point of view.

This report finds that tight oil production from major plays will peak before 2020. Barring major new discoveries on the scale of the Bakken or Eagle Ford, production will be far below the EIA’s forecast by 2040. Tight oil production from the two top plays, the Bakken and Eagle Ford, will underperform the EIA’s reference case oil recovery by 28% from 2013 to 2040, and more of this production will be front-loaded than the EIA estimates. By 2040, production rates from the Bakken and Eagle Ford will be less than a tenth of that projected by the EIA. Tight oil production forecast by the EIA from plays other than the Bakken and Eagle Ford is in most cases highly optimistic and unlikely to be realized at the medium- and long-term rates projected.

Shale gas production from the top seven plays will also likely peak before 2020. Barring major new discoveries on the scale of the Marcellus, production will be far below the EIA’s forecast by 2040. Shale gas production from the top seven plays will underperform the EIA’s reference case forecast by 39% from 2014 to 2040, and more of this production will be front-loaded than the EIA estimates. By 2040, production rates from these plays will be about one-third that of the EIA forecast. Production from shale gas plays other than the top seven will need to be four times that estimated by the EIA in order to meet its reference case forecast.

still more on oil prices and fracking

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This article from Planetizen puts the break-even price for hydraulic fracturing at something like $80-85 a barrel, higher than I had previously reported. The point is that they are getting down to the point where it would no longer be as profitable as it has been, and at some point it wouldn’t be profitable at all. It’s fun to try to piece together the reasons for this shift – slowing economies in Europe, Asia, and Africa, and as a result a rising U.S. dollar which means oil that might be holding steady in currencies around the world is still getting cheaper in U.S. dollars at the moment. I still think this is a short-term fluctuation masking a decades-long trend toward higher energy and food prices.