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Yergin: Why the oil-price collapse changes everything

General Ideas

It was not long ago that $100 per barrel oil was accepted as the new normal. China’s strong economic growth (and energy demand) would continue apace, and OPEC and Saudi Arabia would continue to play the traditional role as swing producer in support of oil prices. Events have proved otherwise.

Oil markets have entered a new period. Now it is supply, not demand, which is the key the factor, making not-so-distant discussions of “peak oil” seem very far gone. China’s economy, while still growing, has slowed. And by leaving oil prices to the market, OPEC has effectively ceded the role of de facto swing producer to a country that hardly expected it—the United States.

Markets never cease in their ability to upend current expectations and confound established thinking. That is certainly the case for the world of energy in a year that has seen the rapid creation of new realities and overturned assumptions.

This is indeed a time of great turbulence and transition for energy. A convergence of major developments over the past year—led by the rapid oil-price collapse—has disrupted some of the most fundamental assumptions that were the basis for the long-term planning and investment that are essential to meeting the world’s ever-growing need for energy.

All of this amounts to what one might call an “era of new realism” for the energy industry—a period of recalibration and transition that calls for new thinking and ideas for managing and leading through the current cycle.

A turning point, or point of no return?

The theme for IHS CERAWeek 2015—our annual conference of global energy, policy and financials leaders that I am honored to chair—is this “turning point.” It foreshadows profound changes throughout the energy spectrum, from oil-and-gas production to power generation, renewable energy and regulatory decisions.

It reflects a time of fundamental shifts and long-term considerations, such as how North America will adapt to its new role as the emerging swing producer, and to what degree are the critical choices facing the power industry, and what to expect later this year from the U.N. Conference on Climate Change.

Understanding these new realities and what they will mean for markets, geopolitics, investment, costs, the environment and strategy will be key to the energy challenges ahead. Harnessing the knowledge and foresight required to meet those challenges and seize the opportunities for the future will be the task of the global group of energy, policy, technology and financial leaders gathering this week at IHS CERAWeek 2015 and into the future.

By Daniel Yergin, vice chairman of IHS and author, most recently, of “The Quest: Energy, Security, and the Remaking of the Modern World.” He is the chair of this week’s IHS CERAWeek conference in Houston, bringing together more than 2,500 energy thinkers from 50 countries.

CNBC



7 Comments on "Yergin: Why the oil-price collapse changes everything"

  1. Bandits on Tue, 21st Apr 2015 5:40 pm 

    “OPEC has effectively ceded the role of de facto swing producer to a country that hardly expected it—the United States”. fool, fool, fool. The USA imports oil and a lot of it. What are they gonna do….not import…

    Once a jackass always a jackass. There are no “swing” producers anymore, unless economic suicide is an objective. Over priced, unconventional oil production is being removed from the market. What is left is being purchased and burned at an “affordable” price. This very fact creates a feedback loop of production costs and economic stability being unable to compromise effectively.

    The failure of “economic growth” and declining EROI to support unconventional production is a clear indicator of peak oil, not the opposite as Yergin suggests.

  2. Perk Earl on Tue, 21st Apr 2015 6:13 pm 

    “There are no “swing” producers anymore, unless economic suicide is an objective.”

    Yeah, I think we found that out recently when prices fell of a shelf and all producers kept the throttle wide open, because the alternative was to be even worse off, i.e. like you say commit economic suicide.

    Depletion is reaching the point now in which feedbacks from lower net energy are squeezing every economy, forcing desperate fiscal counter measures. Push the production in hopes of lasting long enough for the high priced production to go offline, then hope price goes back up to fill the coffers again.

    But what if the price doesn’t go back up even after some marginal sources have tapped out? The squeeze is on even to the point a shill for the industry starts to recognize it.

  3. Plantagenet on Tue, 21st Apr 2015 7:30 pm 

    The current oil glut does indeed mark a huge change in the oil biz. Already ca. 100,000 oil workers have lost their jobs in the USA. Nonetheless, US and global oil production are both predicted to rise slightly in 2015.

    We live in interesting times.

  4. Davy on Tue, 21st Apr 2015 7:45 pm 

    Bandito said “This very fact creates a feedback loop of production costs and economic stability being unable to compromise effectively.” That was well said Bandito and in one sentence.

    IOW we are in the very beginnings of demand and supply destruction. Once set in motion this cycle of economic decay will grow into a vicious cycle of economic descent. This is not readily apparent now for multiple reasons but if one digs into the dynamics of this systematic relationship between oil production and economic oil consumption it begins to make sense.

  5. Perk Earl on Tue, 21st Apr 2015 8:10 pm 

    “IOW we are in the very beginnings of demand and supply destruction. Once set in motion this cycle of economic decay will grow into a vicious cycle of economic descent.”

    Yeah, Davy, up until now the lid has been kept on major contractions like the mortgage default/147 a barrel; since then desperately trying to eek out some growth, even if the definitions of what constitutes GDP have shifted in favor of street sold drugs and prostitution and the unemployment % has been isolated in a well defined corner.

    But once the fiscal damns begin to fail all hell will break loose on an exponentially rising set of defaults. Get yourself into a good position to make it through the bottleneck. Well, Davy you’ll make it there in the Mizz Ozarks but what about the rest of us?

  6. Perk Earl on Wed, 22nd Apr 2015 3:41 am 

    The silence is deafening.

  7. Kenz300 on Wed, 22nd Apr 2015 7:34 am 

    Bring on the new electric, hybrid, flex-fuel, hydrogen, CNG and LNG fueled vehicles.

    It is time to end the oil monopoly on transportation fuels.

    Electric vehicles are the future…..

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