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Page added on April 28, 2016

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Opec troubles herald oil’s peak day

General Ideas

On Sunday, April 17, the world’s largest oil producers gathered in Doha to discuss the possibility of freezing their levels of oil production to bolster prices in the global market for crude oil. Prices have been allowed to fall for almost two years due to supply consistently exceeding demand, and the major oil exporters want to bring a halt to this decline. The deal, which was largely anticipated to stabilise the oil market, collapsed.

At the meeting, Saudi Arabia’s Deputy Crown Prince, Mohammad bin Salman, 30, made it clear that he had taken over from the long-standing Saudi oil minister, Ali al-Naimi, as the most powerful voice on Saudi Arabia’s oil future.

Prince Mohammad refused to agree to a production freeze unless Iran – the only large oil producer not present at the meeting – agreed to the global deal. Iran is the world’s seventh largest oil producer and holds 4 percent of the global market.

Instead of simply refusing agreement, Prince Mohammad threatened that if a deal was not reached Saudi Arabia would increase its oil production from 10.6 million barrels per day to as much as 12.5 million barrels per day. Just the increase alone is more than half of Iran’s entire production capacity and larger than its total oil exports.

Read also: How one oligarch beat Russia’s crisis

Transformation

Prince Mohammad’s threats came a week before he unveiled his plan to detach Saudi Arabia from its reliance on oil. The plan, called “Vision 2030”, claims that Saudi Arabia will be able to live without oil by 2030. He wants to transform the state-owned Saudi Aramco from a strictly oil and gas company into an energy and industrial conglomerate.

Due to the decline in oil prices, Saudi Arabia is shouldering a budget deficit of 15 percent of gross domestic product. About 82 percent of its government revenue is earned through oil. Mining has been highlighted as a possible route to divestment from oil. Saudi Arabia holds 6 percent of the global uranium reserves and only 5 percent of its mining capacity is being exploited.

But the rippling in the world’s largest oil producer is just the tip of the iceberg. What the shift of focus in Saudi Arabia indicates – even if currently it’s just a bluff – is that the world is starting to adjust to the concept of oil not being its primary energy source.

Read also: BP eyes more spending cuts

The oil debate and all its accompanying analysis used to be dominated by peak oil supply and the inevitable date when it would all run out. No longer. There is more oil than the world knows what to do with and as soon as the wells start running low new reserves are found or new ways of reaching them are invented. The supply of oil is controlled by politics rather than geography and the gates of production are currently wide open.

Energy alternatives

More important is peak oil demand – the day the world uses as much oil as it ever will on one day. Without increasing demand, there is no point in increasing supply capacity. It’s unlikely that in my lifetime I will see the end of oil, but with the increasing availability of energy alternatives and rising pressures to develop environmentally sensitive forms of consumption, I am confident that peak oil demand will occur within the next 15 years.

As we get closer to that day, Opec will fall apart, as controlling supply will no longer provide any meaningful benefit. Either all countries have to agree to supply less than total demand and sustain prices, or all of them will flood the market to grab as much of the demand as they can.

In the wake of the financial crisis it’s playing out already – Saudi Arabia refuses to cut supply unless Iran does, because they know that whatever demand they don’t meet, Iran will.

This is just a taste of what is to come. The sustained orchestration of the oil market is only possible when demand exceeds supply capacity and, as soon as that tips permanently, the market for oil will fragment into a race to the bottom. Exploration will halt and profitability will be driven by innovative cost reduction rather than increased production.

IOL



21 Comments on "Opec troubles herald oil’s peak day"

  1. makati1 on Thu, 28th Apr 2016 6:35 am 

    Last paragraph says it all.

  2. joe on Thu, 28th Apr 2016 7:39 am 

    “From an oil and gas giant,to energy and industrial conglomerate”.
    Since both are the same thing, and the king of Saudi owns everything, then wheres the change? Oh, yeah big pension funds are about to jizz themselves at the prospect of getting into oil.
    I guess with all that cash the grandsons of ibn Saud will be able to buy off allot of ‘princes’, and pay to keep global jihad going as well.

  3. Go Speed Racer on Thu, 28th Apr 2016 11:20 am 

    ‘The world is starting to adjust, to oil not being its primary energy source. Oh really? Then what is the primary energy source? Thousands of hamsters, on those hamster wheels?

  4. Plantagenet on Thu, 28th Apr 2016 11:45 am 

    China has now become the number one buyer of SUVs—also known as gas hogs.

    Its hard to see how April 17 will be peak oil demand day, when Chinese and Indian consumers are buying millions of SUVs and the global consumption of oil is still growing rapidly.

  5. Plantagenet on Thu, 28th Apr 2016 11:47 am 

    The consumption of oil is still growing rapidly in India and China—-and global oil consumption is still growing, albeit more slowly, i.e. about 0.5-1% per year.

  6. Boat on Thu, 28th Apr 2016 12:17 pm 

    plant,

    The eia projects consumption at 1.2 for 2016. We are almost 5 months into the year so those projections should be pretty accurate.

    https://www.iea.org/oilmarketreport/omrpublic/

  7. Boat on Thu, 28th Apr 2016 12:39 pm 

    Plant,

    China sold 300,000 electric cars in 2015 and project 600,000 for 2016. Peak oil in 2030 due to electric cars?

  8. apneaman on Thu, 28th Apr 2016 1:25 pm 

    Boat, yabut the’re really big cars with tons of extra seating. The Chinese like to cram in as many riders as possible. Like sardines. Like airlines. Plus, the Chinese aren’t fussy like us. They’ll even ride on the roof and running boards. When you add it all up it takes a shit load of drives off the road.

  9. Boat on Thu, 28th Apr 2016 1:39 pm 

    ape,

    I’m all for getting rid of drives but no car roof or running board for me. If you drive 75 in a 65 on freeways you will be passed by most of the cars.

  10. Plantagenet on Thu, 28th Apr 2016 1:41 pm 

    Actually, the poor Chinese get crammed in like sardines. The rich Chinese are the ones buying the SUVs and moving to American style-suburbs and generally living an American life style. Same thing in INdia.

    AND thats a problem—as more Chinese and Indians get rich they use more oil and release more CO2 and cause more global warming.

    Get it now?

    Cheers!

  11. Plantagenet on Thu, 28th Apr 2016 1:44 pm 

    @Boat

    Yes, its possible that we’ll see peak oil consumption in 2030 due to the replacement of ICE cars with EVs. However, EVs don’t hold a charge very well when it gets cold in the winter, so chances are there will still be a lot of ICE cars sold in places with snow and cold temperatures.

    Cheers!

  12. Plantagenet on Thu, 28th Apr 2016 1:45 pm 

    @Boat

    By the way—have you ever been to China? A lot of the EVs in China are rickety go-cart sized tin cans. Definitely not street legal in the USA.

    Cheers!

  13. Boat on Thu, 28th Apr 2016 2:08 pm 

    ‘plant,

    Do you think that they are part of the count?

  14. Plantagenet on Thu, 28th Apr 2016 3:44 pm 

    I have no idea how the Chinese governed does it’s statistics, but they’ve been caught massaging the numbers in the past.

    Cheers!

  15. Survivalist on Thu, 28th Apr 2016 5:09 pm 

    Lol peak demand! Yeah ok as soon as more and more people who are eating more and more meat stop using more and more oil then we’ll see peak demand. Renewables might get you around Vegas looking at show homes for a couple hours but it ain’t gonna move much food and goods. Renewables aren’t gonna mine ore, plow fields or pour concrete.

    Robert Fisk on the latest dump of excreta to exit the mouths of the Saudi ruling clique.

    http://www.independent.co.uk/voices/saudi-efforts-to-modernise-their-economy-away-from-oil-are-just-pr-tactics-and-the-west-is-lapping-a7004691.html

  16. Wolfie52 on Thu, 28th Apr 2016 7:39 pm 

    Plant as I said, lose the “cheers” and the skeleton.

    Start learning, reading and get our more. You’re just a troll, as all can see when you comment on EVERY post here! When you do that you will find you don’t have time to post on here!

    Cheers!…idiot

  17. Harquebus on Thu, 28th Apr 2016 8:52 pm 

    A small surplus has crashed prices and reduced E&D. Imagine what will happen when, not if, there is a small shortage.

    As I have said before, the current glut is fueled by debt and that debt, the biggest bubble in history, is currently masking peak oil and its effects.

    “The truth is incontrovertible. Malice may attack it, ignorance may deride it, but in the end, there it is.” –- Winston Churchill

    Peak oil mates, peak oil. Those that deny it do not understand it.

  18. Davy on Fri, 29th Apr 2016 6:42 am 

    “Massive Oil Theft By Pirates Costs Nigeria $1.5 Billion Every Month”
    http://www.zerohedge.com/news/2016-04-28/massive-oil-theft-pirates-costs-nigeria-15-billion-every-month

    “Depressed oil prices, rampant corruption, and pipeline vandalism are only parts of Nigeria’s oil problem. It’s now losing a massive 400,000 barrels of crude daily to pirates in the Gulf of Guinea, an amount equal to the entire daily export capacity of its Forcados terminal.”

    “In March, Nigeria pumped 1.677 million barrels of crude, which was a decline on the previous month’s 1.744 million. According to a Financial Times analysis, the decline is set to continue over the coming years, largely because the reforms at the NNPC, pledged by new president Muhammadu Buhari to tackle long-time corruption and inefficiency, have so far not yielded any actual results.”

    “Vandals are responsible for an estimated 250,000 barrels in daily losses. Pirates are stealing at a rate of 400,000 barrels per day. That’s a 650,000-barrel shortage on the budgeted daily output. So–barring all conscious effort on the part of the Nigerian government—prices will have to rise more substantially than they have so far this year for Nigeria to feel any positive effect.”

  19. String900 on Sat, 30th Apr 2016 11:43 am 

    The comments are like wishful dreams to the Oil Santa Clause.

    If you old geezers are shareholders of Exxon, you’d better replace Tillerson with a Real Environmental INNOVATOR, or watch it slowly move into bankruptcy.

    2030 is 12 Generations of new battery tech. And and EV will use more electrons in winter, those will be Wind, Solar and Nuclear electrons.

    Once an EV is purchase, there’s never a gallon of gas ever purchased ever again for mobility. And with the luxury experience of an EV you’re going to see that market segment grow exponentially.

    Now is a good time to start moving portions, or all of your investments into SPYX and some into TAN. This is Peak Oil Demand, and although there might be one last oil peak, it’s downhill for ever forward.

    Get out now, as the future is unpredictable.
    — Risk Management

    And the sooner your son becomes an electrician and learns how to install solar, the better.

  20. String900 on Sat, 30th Apr 2016 11:50 am 

    There’s another driver to change.
    Good Policy to PRESERVER the Strength of America from a Global Warming Threat, showing the Failure of Capitalism to adjust to real world conditions.

    Oh, you might say Capitalism does adjust, with Boom and Bust Cycles, and you might be right. That would also cause boom and Bust Population Cycles.

    Capitalism is a SubOptimal Economic Solution.

    https://climatecrocks.com/2016/04/30/katharine-hayhoes-quick-climate-snap-for-earth-day/

  21. peakyeast on Sat, 30th Apr 2016 11:59 am 

    With losses like those mentioned by Davy in Nigeria – one should think they could employ a 100 soldiers to each ship and still make a profit from it.

    I find it positively strange that they dont something along those lines – which makes me think the losses dont mean anything to them.

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