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Page added on June 26, 2017

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Oil Industry To Waste Trillions As Peak Demand Looms

Business

ExxonMobil and its peers risk blowing $2.3 trillion on oil projects that will not be needed if the world hits peak demand in the next decade.

A new report from The Carbon Tracker Initiative analyzed what would happen if the oil market saw demand peak by 2025, a scenario that would be compatible with limiting global warming to just 2 degrees Celsius. The headline conclusion is that about one-third of the global oil industry’s potential spending – or about $2.3 trillion – would not be needed. In other words, the oil industry is on track to waste a massive pile of money if demand peaks in less than ten years.

Of course, the vulnerability to peak demand varies by company. Carbon Tracker surveyed 69 global oil and gas companies, and their exposures range from 10 to 60 percent of their potential spending. That is, 10 to 60 percent of their spending could be unnecessary or wasteful if demand peaks by the middle of the next decade. The latest report adds more detail to the “stranded assets” theory – the notion that large volumes of oil will be left in the ground because demand peaks, whether because of alternatives or climate regulation, or both.

Some medium-sized companies like Southwestern Energy and Apache Corp. topped the list with 60 to 70 percent of their potential upstream capex vulnerable in a peak demand scenario. As for the oil majors, ExxonMobil would be the most vulnerable to peak demand, with about half of its potential spending through 2025 unneeded. Other oil majors fare a bit better, although not by much. Chevron, Eni and Shell could see 30 to 40 percent of their capex spent on wasted projects.

Which projects are subject to redundancy largely comes down to economics. U.S. shale drilling has seen dramatic costs declines, pushing some higher-cost projects out of the range of viability in this scenario.

Intriguingly, Carbon Tracker concludes that there should not be any spending growth from 2016 levels. The global oil industry savagely cut spending between 2014 and 2016, a response to the plunge in oil prices. A large number of projects were scrapped, exploration and drilling dried up, and very few new greenfield projects moved forward. With spending still roughly stuck at a fraction of the pre-2014 level, Carbon Tracker says that it needs to be frozen today’s levels and not rise as many companies have planned.

Importantly, however, Carbon Tracker says that about two-thirds of the potential oil and gas production that could find itself unneeded in a peak demand scenario is controlled by the private sector. In other words, state-owned national oil companies from the likes of OPEC are much more likely to hold onto market share, while expensive projects under the control of the oil majors would run into trouble.

This matters because some large-scale projects, such as oil sands and deepwater, can produce for decades. If demand peaks, some of them might not be needed for the full potential lifespan that companies have planned.

The upshot is that that publicly-listed oil and gas companies need to be more transparent about their long-term strategies, which Carbon Tracker says makes “it difficult for investors to understand and test the degree of alignment with a 2D scenario. Companies may have already decided to put a number of high cost projects on hold, but more can be done to tell this story to their shareholders.”

Peak demand is a possibility that until recently, few had considered likely. But it isn’t just environmentalists – even some oil companies see threats looming on the horizon, although they differ widely on timeframes. Executives from Royal Dutch Shell have voiced some agreement with the Carbon Tracker scenario, predicting demand will peak in the next decade. BP, on the other hand, sees demand rising through 2040.

But, for now, there are only small signs that the oil majors are preparing for this eventuality. They have fought against shareholder resolutions calling for more disclosure of their vulnerabilities to climate change regulation, although there have been a few high-profile defeats recently.

At the same time, the oil majors are hedging their bets. There has been a huge exodus by the oil majors from the Canadian oil sands this year, as they divert money into shorter-term shale projects. They are also pouring money increasingly into natural gas, and in a few minor cases, renewable energy.

However, by and large, they are still planning to produce oil for decades to come. That may work out for them. But if oil demand hits a peak in the 2020s, they will waste hundreds of billions of dollars on projects that are no longer needed.

By Nick Cunningham of Oilprice.com

 

 



17 Comments on "Oil Industry To Waste Trillions As Peak Demand Looms"

  1. Midnight Oil on Mon, 26th Jun 2017 10:34 am 

    Where in the article did it state how much per barrel that axed would cost to bring to the market? Oh, suppose they didn’t pay attention to AdamB in his “devil in the details” rant.
    ETP strikes again.

  2. rockman on Mon, 26th Jun 2017 10:52 am 

    Of course all their assumptions is based upon: “…if the oil market saw demand peak by 2025, a scenario that would be compatible with limiting global warming to just 2 degrees Celsius.”

    OK then: all those here who believe the consumers of the world will VOLUNTARILY cut their oil/NG consumption to limit “global warming to just 2 degrees Celsius” post your agreement that the assumption is correct.

    Thanks in advance for expressing such bravery. LOL.

  3. twocats on Mon, 26th Jun 2017 11:34 am 

    “Which projects are subject to redundancy largely comes down to economics. U.S. shale drilling has seen dramatic costs declines, pushing some higher-cost projects out of the range of viability in this scenario.”

    yeah the economics of flip-that-acreage. Dig-or-Drop. Shale is just the latest in the new “hustle” economy.

  4. Apneaman on Mon, 26th Jun 2017 11:47 am 

    These unfortunates just got wasted by the cancer.

    Pakistan fuel tanker truck explosion kills at least 153

    “The explosion happened Sunday morning as hundreds of people from nearby villages, as well as workers at a mango garden — many of them driving cars or motorcycles — rushed to collect the fuel in pots, according to APP.”

    http://www.cnn.com/2017/06/25/asia/deadly-oil-tank-explosion-pakistan/index.html

  5. shortonoil on Mon, 26th Jun 2017 12:55 pm 

    How handy; they can now blame it on Peak Demand as they go begging to the government to bail them out. Of course, “nobody saw it coming”:

    http://www.thehillsgroup.org/depletion2_022.htm

    As they hired every brain dead, lop-eared troll with two working fingers to suppress it for the last five years.

    We’ll cry them a river!

  6. Apneaman on Mon, 26th Jun 2017 3:32 pm 

    ” a scenario that would be compatible with limiting global warming to just 2 degrees Celsius.”

    That is not true. If the humans stopped everything today the world is going to see at least 2.65C – 3C – that’s the lowest estimate and does not take into account all the feed-backs. It’s inertia and it’s the reason why many scientists were warning 30 years ago. That door is closed to humans. The humans were never going to stop and I wish all the bullshitting about “fighting climate change” would stop.

    I think short is right that there are going to be bailouts of some sort. They bailed out the financial scum to keep the global system from crashing, so why not the oil scum to keep the system from crashing? No oil = no MIC and those bastards will do ANYTHING they have to so it keeps going and they remain in power. Last man standing – it’s what all of us are trapped in.

  7. rockman on Mon, 26th Jun 2017 3:42 pm 

    “…they can now blame it on Peak Demand as they go begging to the government to bail them out.” A rather odd statement following an article highlighting the $130+ BILLION being spent on expanding the petrochemical industry at the same time drilling budgets have surged: the number of active oil-directed rigs has more than doubled over the last year, from 316 to 722, in one of the most remarkable recoveries on record according to Baker Hughes. And as far the as the industry begging for a “bailout” from the federal govt consider it has just gone thru one of the deepest slumps during the previous two years before the surge in oil drilling. Also consider during that same time 100+ companies have filed for some form of bankruptcy protection. Which brings us to the following list of the companies that have been “bailed out” by the govt:

    ……………………………

    Before one starts HYPOTHESIZING about the govt bailing out the oil patch it might be a tad more credible to wait until it actually begins. Otherwise one might be accused of building a highly flammable straw man. LOL.

  8. Harquebus on Mon, 26th Jun 2017 7:23 pm 

    It is a mistake to value oil in currency which, can be created ex nihilo while crude oil can not.

  9. rockman on Mon, 26th Jun 2017 10:49 pm 

    “It is a mistake to value oil in currency…”. No, it wasn’t. It was stated as such to present a comparable statistic. Thus it conveyed the point exactly as meant.

  10. makati1 on Mon, 26th Jun 2017 11:25 pm 

    Why wasn’t oil valued in something that is also in limited supply, like … gold?

    Answer: Because America didn’t have a gold standard, or enough gold, and wanted to devalue its currency so it could fight wars of choice and plunder.

  11. deadlykillerbeaz on Tue, 27th Jun 2017 5:55 am 

    At one time, quarter eagles, half eagles, eagles and double eagles, minted US gold coins, were in circulation.

    Silver dollars, silver half dollars, silver quarters, silver dimes were all in circulation as minted US silver coinage.

    Not any are in circulation today. No gold coins in the banks downtown to hand to you from the teller’s drawer, no silver coins circulating, a means of exchange lost and gone.

    A stunning robbery in broad daylight, all of the money gone. No gold certificates, silver certificates, nothing, every cent stolen.

    Doesn’t really matter anymore.

    I’d rather have oil. If it takes 23 clownbux to have ten gallons of fuel, piece of cake.

    In 1970, $2.00 would have got me ten gallons of gas during a gas war, the only war we need.

    An increase in price of more than ten times, easy to see.

    Minimum wage in 1970 was somewhere near a 1.80 USD per hour of pure hell, you need at a minimum 18.00 per hour 2017 clownbux to equal the minimum wage in 1970.

    Plus some more.

    And more oil.

    The money doesn’t matter, whatever that is, the oil does.

    It can be a ten billion Reichsmark or 100 billion Zimbabwe bux, what does it matter?

  12. makati1 on Tue, 27th Jun 2017 7:12 am 

    DKB, it matters when you don’t have any to buy oil or anything else. That time is coming. Be patient.

  13. rockman on Tue, 27th Jun 2017 9:45 am 

    “In 1970, $2.00 would have got me ten gallons of gas…” In 1970 the inflation adjusted price of gasoline was around $2.10/gal, slightly more then the typical $2/gal in Houston today. The post war price steadily declined from around $2.50/gal thanks in large part to the Texas Rail Road Commission controlling the price of oil. It was after the TRRC (the only truly effective oil “cartel” in history) lost control that the price volatility set in.

    So the numbers make sense: the inflation adjusted price of oil is currently slightly above the historical norm leading to the gasoline price being slightly above its historical norm.

  14. joe on Tue, 27th Jun 2017 10:07 am 

    Can’t imagine they will limit GW to 2 degrees, Trump just pulled out of Paris Accord, its all smoke stacks go!
    We are putting our foot to the floor and blazing over the cliff……
    The real question will be why did the EUSSR spend so much subsidising solar for nothing? If I was merkel I would pay for a long holiday for every sodden wet rag head looking for a future in Europe that will never happen.

  15. Apneaman on Tue, 27th Jun 2017 11:54 am 

    American Cancer documentary

    Full Documentary -Treasures of the Earth: Power NOVA Documentary

    “Drill down to discover the treasures beneath our feet that power our world. Fossil fuels–coal, oil, and natural gas–powered the industrial revolution and allowed us to build a way of life that many cherish today. Personal cars, planes, lights, hot showers–all of these are gifts from our fossil fuels… but they have a dirty dark side in that they are polluting the planet. What is it about these natural resources that has allowed them to fuel our civilization? What secrets are locked in their molecules? Where did that energy come from, and can we find alternative energy resources that come in a cleaner form? The hunt is on for new treasures that might allow us to power our modern way of life without damaging the environment. Join NOVA as we explore the resources that both power and pollute, from modern-day oil prospecting in California, to a mega-city utility company struggling to keep the lights on during hot summer days, to China where an engineer strives to solve one of the greatest obstacles to the success of solar power. Travel the globe to see how our energy treasures are changing—and if they can keep the lights on.”

    https://www.youtube.com/watch?v=qKk1v3fINKE

  16. rockman on Tue, 27th Jun 2017 2:01 pm 

    “Can’t imagine they will limit GW to 2 degrees, Trump just pulled out of Paris Accord…”. Nothing in the Paris Accord REQUIRED any country to reduce its GHG emissions to limit warming to 2°. President Trump pulling out of a non-bidding agreement changes nothing IMHO.

  17. Harquebus on Tue, 27th Jun 2017 5:45 pm 

    “”A little bit of inflation is good.” No, even a little bit of inflation is deadly poisonous. For two reasons: It creates the business cycle. And it destroys the value of savings. Saving is the basis of capital creation.
    People who say that a little inflation is a good thing are dangerous fools.”
    “Soon it will be impossible for the Italian government to finance itself.”
    http://www.internationalman.com/articles/this-super-bubble-is-about-to-pop

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