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Renewable Energy and Oil Price Deflation = Peakoil?

General discussions of the systemic, societal and civilisational effects of depletion.

Renewable Energy and Oil Price Deflation = Peakoil?

Unread postby MonteQuest » Mon 01 Dec 2014, 12:31:11

As we see the price of oil enter a deflationary spiral and the production curb that will result, it makes me think of future scenarios that may lead to oil production declines. How large must the renewable energy sector be in order to capture a material share of the energy mix and begin to displace oil and start to depress the oil price?

Some estimate that the renewable industry would need to be an order of magnitude larger (10X) than it is today to have this kind of impact. At the point where renewables start displacing a material share of the oil supply, would global energy deflation become inevitable, especially with a technology with a falling cost structure?

What effect would this have on oil production? Would it bring the peak? Would it take off the training wheels too soon?

Will big oil and investors wait until energy prices actually do deflate to abandon many plays, especially if those reserves represent a depreciating rather than an appreciating asset?
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Re: Renewable Energy and Oil Price Deflation = Peakoil?

Unread postby Revi » Mon 01 Dec 2014, 12:41:57

Everyone is saying the peak oil is dead, but I think it may rear it's ugly head once more around the time that the Bakken and the Eagle Ford peak, next year. World oil production is down, but the shale oil has been holding us up. Now it's become uneconomical to frack. We'll see. Wait and see...
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Re: Renewable Energy and Oil Price Deflation = Peakoil?

Unread postby dolanbaker » Mon 01 Dec 2014, 15:01:40

It appears to be that we're entering (or continuing to be in) a classic positive feedback situation, where rising consumption causes a rise in prices which in turn stimulate production until production exceeds demand. Demand declines due to the high prices causing a price collapse resulting in a rapid decline in production at the same time as demand begins to increase due to the lower prices.

The oil price is likely to continue oscillating for the foreseeable future.
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Re: Renewable Energy and Oil Price Deflation = Peakoil?

Unread postby MonteQuest » Mon 01 Dec 2014, 15:31:21

dolanbaker wrote:The oil price is likely to continue oscillating for the foreseeable future.


I wonder which will have the greater effect on production; field decline or price decline?
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Re: Renewable Energy and Oil Price Deflation = Peakoil?

Unread postby ROCKMAN » Mon 01 Dec 2014, 15:38:43

It occurred to me that everyone might not have those old charts etched deeply in their memories. Based upon Inflation adjusted oil prices steadily decreased about 25% in the two decades prior to the US oil peak in 1971. Of course it wasn’t strictly controlled by the market place: during that time when the US was the prime producer and exporter of oil the Texas Rail Road Commission used its power of proration to restrict how much oil could be produced from Texas wells. A restriction mechanism that has not been utilized since the early 70’s.

So the history of oil prices over the last 65 years: from that steadily declining price of the 60’s suddenly, over 12 months, oil prices increased 100% from $20/bbl (as it was during much of the 90’s) to over $40/bbl (as it was in 2003). And then over the next 6 years increased another almost 200% over the previous low trend to almost $60/bbl (as it was in 2005). And then suddenly, over a 12 month period, it increased about 100% in 1980 to $115/bbl (as it peaked in 2008 at $136/bbl). And then the price fell 65% in 1987 (and at its current price oil has fallen 45% from its recent peak in 2008.)

Some say history doesn’t truly repeat itself. Perhaps not but sometimes it does a damn fine imitation of it. LOL
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Re: Renewable Energy and Oil Price Deflation = Peakoil?

Unread postby dinopello » Mon 01 Dec 2014, 15:53:38

Oil is down, gold is down, the dollar is up relative to I think every other currency, interest rates near zero - Is this the Japanese style deflation mentioned in this 2007 thread?

Article from today about how the Fed is rattled by the lack of inflation
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Re: Renewable Energy and Oil Price Deflation = Peakoil?

Unread postby MonteQuest » Mon 01 Dec 2014, 16:58:07

ROCKMAN wrote:So the history of oil prices over the last 65 years: from that steadily declining price of the 60’s suddenly, over 12 months, oil prices increased 100% from $20/bbl (as it was during much of the 90’s) to over $40/bbl (as it was in 2003). And then over the next 6 years increased another almost 200% over the previous low trend to almost $60/bbl (as it was in 2005). And then suddenly, over a 12 month period, it increased about 100% in 1980 to $115/bbl (as it peaked in 2008 at $136/bbl). And then the price fell 65% in 1987 (and at its current price oil has fallen 45% from its recent peak in 2008.)


And what has production done lately as the price rose? Sure hasn't repeated history, now has it?

I know you know this Rockman, so perhaps I missed your point?

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Re: Renewable Energy and Oil Price Deflation = Peakoil?

Unread postby dolanbaker » Mon 01 Dec 2014, 17:10:14

You need to look at consumption as well as production, the global economy has all but stalled in recent years while production had crept up. I don't know but I expect that the supply lines are start to back up a bit with oil not being consumed quick enough.
This would cause the price to drop rapidly as the system can't cope with full tanks.
I'm sure someone more knowledgeable will add to this.
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Re: Renewable Energy and Oil Price Deflation = Peakoil?

Unread postby ROCKMAN » Mon 01 Dec 2014, 17:50:27

"And what has production done lately as the price rose? Sure hasn't repeated history, now has it?" Certainly not from a production stand point. We had that discussion here a while back about the huge surge of capex that went in to the late 70's boom with almost no response on the production side. At least this time the herd mentality has actually produced some positive results.

Obviously the dynamic is a function of much more then time. As Donlan points out we have to look at consumption. But even adding in those numbers doesn't tell the whole story. Two different worlds when consumption stays relative flat during times of steady or maybe slightly increasing prices and when consumption stays relatively stable as a result of significantly lower prices. Which, although it's a little early to tell for sure, might be a phase we're heading into now. I'll be surprised if China doesn't go into another feeding frenzy like they did when prices crashed at the end of '08.

But the point I was making isn't that deep. Just that the magnitude of the boom/bust cycle that we may be heading has been seen before. I think we won't know until the end of 2015 if we're heading into another potential long term doldrums as we did in the mid 80's.
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Re: Renewable Energy and Oil Price Deflation = Peakoil?

Unread postby MonteQuest » Tue 02 Dec 2014, 22:39:19

ROCKMAN wrote:"But the point I was making isn't that deep. Just that the magnitude of the boom/bust cycle that we may be heading has been seen before. I think we won't know until the end of 2015 if we're heading into another potential long term doldrums as we did in the mid 80's.


But the main point of this thread is will renewables drive down the price of oil as they garner a larger share of the energy mix? The returns on renewables seems to be out-performing the investments in oil.

Will renewables growth cut oil production through price decline?
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Re: Renewable Energy and Oil Price Deflation = Peakoil?

Unread postby ROCKMAN » Tue 02 Dec 2014, 23:19:25

"The returns on renewables seems to be out-performing the investments in oil. Will renewables growth cut oil production through price decline?"

Reasonable considerations. But there are others. The return on renewables will be a function cost vs revenue. While costs have been declining (or at least efficiency is improving) their output will compete with fossil fuel sources. And in the last 6 months those sources have become cheaper. The perfect example: what sales are going to be stimulated more by the 23% decline in the price of gasoline since April: e-cars or pickup trucks. In 2008 with NG (a significant source of electrical generation) prices heading above $10/mcf solar panels were looking like more viable options. And then the NG price fell 80% for a short while and still remains less than 1/3 of its peak price.

As far as gaining market share over fossil fuels we'll have to wait to see. If the world is truly heading into a significant recession there might not be much market share to capture of if some of the market disappears. Alt systems in place won't disappear and neither will fossil fuel systems. But ever system utilizing oil will become more affordable. And that could slow alt development. Consider the chatter about replacing ICE vehicles with compressed NG. A very expensive infrastructure build out. What happens to the confidence level for risking $billions with the prospect of a long period of reduced motor fuel prices?

I think an equally plausible question is will the price decline of cut into the growth of renewables?
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Re: Renewable Energy and Oil Price Deflation = Peakoil?

Unread postby MonteQuest » Tue 02 Dec 2014, 23:32:13

ROCKMAN wrote: I think an equally plausible question is will the price decline of oil cut into the growth of renewables?


I quite agree. Looks like a game of King of the Mountain is afoot. I think the high levels of debt, access to capital and subsidies are going to be big influences on how things play out, not to mention deflation across the board.
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Re: Renewable Energy and Oil Price Deflation = Peakoil?

Unread postby dashster » Wed 03 Dec 2014, 08:17:21

There is supposed to be a change in buying habits of cars/trucks/SUVs by US consumers as the price of gasoline moves. Surprising since the average time someone holds onto a new car in the USA increased from 49.8 to 71.4 months from first quarter 2003 to 3rd quarter 2011. That's a long time for gas prices to remain at a given price. But I suppose the changes aren't huge and the people causing them are the ones who trade-in their vehicles sooner than average.

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