Sunday, 23 April 2017

Peak Oil Demand

Oil prices are pretty low at the moment:
Oil price heading for fastest weekly fall in a month | The Week UK
Expert Commentary: How Much Further Can Oil Prices Fall? | OilPrice.com

Meanwhile, the Telegraph regularly reminds us that we are not going to run out of oil:
North Sea set to roll out the barrels again as UK oil industry is thrown an unlikely lifeline (Feb 2017)
The Earth is not running out of oil and gas, BP says - Telegraph (Nov 2015)
Why the world isn't running out of oil - Telegraph (Feb 2013)

A piece last month made that very clear:
We Will Never Run Out of Oil

And last week, the Cato Institue looked back at Jimmy Carter's stark warnings over oil - which never came about:
Four Decades of Carter's 'Moral Equivalent of War' | Cato @ Liberty
Jimmy Carter and the Energy Crisis that Never Happened - Foundation for Economic Education - Working for a free and prosperous world

So, it's not about 'Peak Oil' - it's about getting the price right and if the price is wrong, then we'll just invent our way through, as we've always done:
Why 'Peak Oil' Or 'Peak Gold' Or 'Peak Anything' Is 'Peak Nonsense' | Seeking Alpha

However, whilst coal is seemingly already on the way out:
UK generates a day’s electricity without coal - Financial Times
Britain goes 24hrs without using coal to generate electricity for first time since industrial revolution - The Sun

... we might be seeing not exactly 'the end of oil', but a peak in the demand for oil - although there is much debate going on:
Is peak oil demand for real? | Fuel Fix
The Fuse | Peak Demand Would Not Crash the Oil Industry - The Fuse
Coal demand to falter but oil use to keep growing through to 2040s: BP | Hellenic Shipping News Worldwide
There Is No Such Thing As Peak Oil Demand | OilPrice.com

The FT carried a full piece recently:

Big energy fears peak oil demand is looming

Electric cars, renewables and gas could end the era of rising crude consumption

In an attempt to improve the quality of Beijing’s polluted air, the authorities are planning to mandate that every new taxi in the city must be electric or gas-fuelled, China’s National Business Daily reported last month.
The prospect of “peak demand” for oil — an end to growth in global consumption — has been discussed in the energy industry for many years, without apparently coming much closer.
But some of the world’s leading oil companies now see peak demand and sustained lower crude prices as a risk that they need to prepare for.
Royal Dutch Shell has suggested the peak could come as early as the late-2020s. Statoil believes it could be between the mid-2020s and the late-2030s.
Not everyone agrees. The International Energy Agency, the watchdog backed by rich countries, thinks that unless there is much more intensive action by governments to tackle global warming, oil demand is likely to continue to grow out to 2040 and possibly beyond.
John Watson, chief executive of Chevron, told the CERAWeek energy conference in Houston last week that some of the forecasts of impending peak demand were just wishful thinking. “Demand is likely to continue to grow for our product for some time,” he added.
Some big oil groups, however, regard the threat of peak demand as another pressure forcing them to become more efficient.
Bernard Looney, BP’s head of exploration and production, argues that large oil companies face a new competitive landscape as a result of the US shale revolution, the falling costs of renewable energy, and governments’ efforts to combat climate change by curbing use of fossil fuels.
“There’s an abundance of hydrocarbons in the world . . . more hydrocarbons than the world needs, possibly,” he says.
“I don’t know how those [factors shaping the future of energy] are going to play out . . . Nobody does. But I think it would be very unwise to ignore them.”

Peak oil on the horizon

Through the past decade, as analysts and industry executives have discussed peak demand, global oil consumption has continued to rise, going from 84.5m barrels per day in 2006 to 96.6m b/d last year.
Spencer Dale, BP’s chief economist, has said electric cars alone are unlikely to have a “game-changing” impact, with 100m on the road by 2035 cutting just 1.2m b/d from global consumption.
Passenger cars, anyway, account for only about a fifth of consumption, and cost-effective alternatives are even harder to find for other uses of oil. Between 2015 and 2040, the IEA expects oil demand from passenger cars to drop slightly, while its uses as diesel for trucks, jet fuel and petrochemical feedstocks all grow strongly.
Forecasts of oil consumption, however, depend on the outlook for prices. The IEA projections are based on an expectation that oil prices could rebound to more than $100 per barrel in the 2020s.
But Philip Verleger, a visiting professor at the Colorado School of Mines, suggests higher oil prices could drive many more consumers towards electric vehicles and alternative fuels including liquefied natural gas for trucks.
“It’s a double-edged sword,” he says. “If prices stay low, then the IEA has a reasonable chance of being right [about continued growth in oil consumption]. But an awful lot has to go right for that forecast to be fulfilled.”
That is the Catch-22 for oil producers: their best hope for continued demand growth is if prices stay at levels that put their profit margins and cash flows under pressure.
Some big oil groups are therefore trying to future-proof their operations against a world of peak demand and sustained lower prices.
Shell last week announced a $7.25bn sale of most of its assets in the oil sands of western Canada, which are one of the highest-cost sources of crude.
Ben van Beurden, Shell’s chief executive, says that in cash terms its Canadian oil sands business is making money at current crude prices, but the scale of the investment that it has made in the Athabasca project means that its returns are relatively low.
Other big oil groups are also reshaping their portfolios for a more competitive market. Chevron and ExxonMobil of the US are stepping up their investment in low-cost US shale, particularly in the Permian Basin of Texas and New Mexico.
BP, meanwhile, is increasing its production of gas, which the company expects to be a faster-growing market than oil as countries such as India opt for it as a relatively clean energy source compared to coal. Some big oil groups, most notably Total, are making investments in renewable energy.
Shale oil production in the Permian Basin in the US
Above all, preparing for a world of peak oil demand means driving down production costs.
In a commodity market with almost no product differentiation, the only way oil producers can compete is by having the lowest-cost crude. Eni of Italy says it has reduced the average break-even price of its new projects to just $30 per barrel.
Eldar Saetre, chief executive of Statoil, said the company had cut the break-even price of its “next-generation portfolio” of new projects from about $70 to “well below $30”.
Some of the cost-cutting comes from forcing down the prices charged by suppliers, but the large oil producers say the majority of their reductions in expenses stem from working smarter and more efficiently, using standardised components, and investing in technology including automation.
“We have these unmanned [offshore oil platforms],” says Mr Saetre. “Unmanned, very slim, lean . . . You don’t need a helicopter deck. You don’t need living quarters.”
Patrick Pouyanné, chief executive of Total, said 65-70 per cent of the savings the company has made are structural. BP said for it, the figure is about 75 per cent.
Those steep cost cuts are enabling the big oil groups to survive. Mr Pouyanné talks about being “optimistic” with crude at $55 per barrel — not much higher than this week’s price of about $51 — and plans to approve 10 new large projects over the next 18 months or so.
If the IEA’s scenario of continued oil demand growth and higher prices in the 2020s is realised, those projects could turn out to be hugely profitable. The risk is that would accelerate electric car sales and more investment in alternative energy, and bring forward the point of peak demand.

Big energy fears peak oil demand is looming - Financial Times

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