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Page added on May 26, 2016

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Does The U.S. Have A Plan For The Post-Oil Era?

Public Policy

The world’s largest exporter of crude oil, the Kingdom of Saudi Arabia, recently announced a plan for its post-oil future. If a country almost synonymous with the oil economy can see the need for such a plan, how can the rest of the world, particularly the United States, the world’s largest consumer of petroleum, not see the necessity of such foresight?

The kingdom’s plan includes the sale of part of Saudi Aramco, the world largest oil company and currently wholly-owned by the Saudi government. The company controls all oil development in Saudi Arabia. That the Saudis want to sell part of the most valuable company in the world means they have a different view about the future of oil than those who will be buying. Commentators often report that markets rise because investors are optimistic or fall because they are pessimistic. But this is complete nonsense because for every buyer there is always a seller. Each side of a trade believes in a different future for the investment being traded.

Certainly, there are many reasons for selling a minority stake in Saudi Aramco. But one of them can’t be that the rulers of the kingdom have an unalloyed bullishness about Saudi capabilities and oil resources.

As recently as 2007 the U.S. Energy Information Administration (EIA) believed Saudi Arabia would be supplying the world with 16.4 million barrels per day (mbpd) of oil by 2030. (And, that was down from 23.8 mbpd projected for 2025 in a 2003 report.) In 2008 the Saudi king appeared to embrace a policy of 12.5 mbpd and no more.

Since then long-term projections for Saudi production have come down with a range of 10.2 mbpd to 15.5 mbpd for 2040 (in a 2013 EIA report) depending on which of three scenarios you choose. No explicit range has been included in subsequent EIA reports.

With the release of a new independent report on world oil reserves by a former BP insider, a report that suggests that conventional reserves are half what is being claimed, the issue of limits on oil production has resurfaced. (The report implies that Saudi reserves have been inflated as well.)

By including Canadian tar sands and Venezuelan heavy oil, world oil reserves increase back to about 75 percent of what is typically reported. But that number makes no adjustment for the much greater difficulty and expense of getting these unconventional resources out of the ground and then turning them into something we call oil. The financial debacle taking place in the tar sands under the current low-price regime is clear evidence that those resources cannot be sustained without high prices.

The temporary glut we are experiencing now, however, does not disprove limits. It only shows that we can still have market cycles in oil just as we did in 2008 when oil fell from $147 per barrel to around $35 in six months. By 2011 oil was back above $100, where it stayed with only brief forays under that price, until the end of 2014. This period has so far given us the highest inflated-adjusted average daily prices for oil ever.

For those who believe the United States does seem to have energy policies relevant to a post-oil world, I would answer that this is not the result of some grand design, but rather due to a hodge-podge of programs, many of which are conflicting. Even as the U.S. tax code continues to provide substantial subsidies for oil and natural gas production, it also provides substantial subsidies for renewable energy such as solar and wind. But these renewables subsidies are really about producing electricity.

Subsidies for liquid fuels, the kind that replace fuels from oil, have been reduced. The federal subsidy for ethanol ended in 2012. Subsidies for biodiesel and other biofuels continue.

While ethanol was always really an energy carrier and not an energy source–it takes about as much energy to produce corn ethanol as it yields–biodiesel is believed to have a positive energy balance. Even so, converting the U.S. vehicle fleet to biodiesel isn’t on the cards, and doing so would require so much farmland to grow the necessary oil crops that we might be able to drive, but probably not eat–an absurdity of the first order.

Now granted, a post-oil society doesn’t necessarily mean a no-oil society. Oil supplies may decline gradually after a future peak in production. We won’t, as the critics say, “run out.” That’s just a canard meant to prevent people from understanding the serious implications, not of running out, but of having less each year.

There is the option of moving to electrified transportation which I support. But most people think of this as a move toward electric cars. The entire car fleet in the United States currently takes about 14 years to turn over. But, of course, we’d only get replacement of all vehicles with electrics over this period if we started selling 100 percent electric-only vehicles now. Moreover, certain types of transport–emergency services, farm equipment and rural transport–will likely require liquid fuels for a long time to come.

Because we are only very gradually increasing the number of electric-only cars available for purchase, it would likely take two to three decades for a complete transition away from oil-fueled vehicles. It would be much wiser to electrify and vastly expand public transportation, something that isn’t on the policy radar in the United States.

There are certainly local efforts to expand bicycle lanes and pedestrian areas to reduce dependency on motorized transportation. But those efforts can hardly be called coordinated and rapid.

If we had absolute clarity on future oil supplies, we’d know how quickly we must make the transition away from oil. But we don’t have anything approaching that. Instead, we have competing estimates and timelines, and–here’s the important part–we Americans have chosen to embrace the optimistic forecasts without understanding the risks, because doing so takes the pressure off of us to make the necessary changes. (And, we do this in spite of the fact that supposedly ample U.S. production is now once again in decline.)

The Saudi move toward a post-oil economy ought to be one of the strongest messages ever that the world is moving closer to a peak and decline in world oil production. The kingdom’s actions are telling us that the world’s largest crude oil exporter feels it must start today to plan and implement a post-oil economy.

Will we Americans (and others who haven’t yet) take the hint seriously?

OilPrice.com



9 Comments on "Does The U.S. Have A Plan For The Post-Oil Era?"

  1. Rick Bronson on Thu, 26th May 2016 5:27 pm 

    Slowly all projects for Saudi Arabia is becoming a vaporware and even 11 million b/d seems to be an impossible thing.

    If they can ramp up, why would they sell 5% stake in Aramco.

    Yes USA has a plan. If the Oil price goes higher again, it will not be the Shale that comes up.

    Instead it will be a rash of Electric, Plugin & Hybrid vehicles that will hit the market to reduce the oil consumption.

  2. makati1 on Thu, 26th May 2016 6:02 pm 

    Some things to plan for:

    http://www.doomsteaddiner.net/blog/2016/05/26/you-too-can-have-a-bigger-graph/

    LMAO

  3. makati1 on Thu, 26th May 2016 6:03 pm 

    Rick, if oil prices go much higher it will collapse the economy and no one will be buying any cars or anything that is not food, clothing and shelter.

  4. Truth Has A Liberal Bias on Thu, 26th May 2016 6:38 pm 

    Plan A was invade Iraq.
    Plan B was Shale Oil.
    Plan C is Trump.

    People who spend a long time winning at a rigged game get stupid. ‘Merika is now full blown retard. Next comes famine. 9 meals away from total chaos and anarchy (bad anarchy, not that good pretend anarchy that immature and unworldly idealistic kids in high school are always talking about).

  5. makati1 on Thu, 26th May 2016 8:59 pm 

    Truth, I think Plan C is civil war in America, but Trump may be the one to set it off. We shall see.

  6. Davy on Fri, 27th May 2016 6:06 am 

    “U.S.-China Economic Poker Game Looms With Market Calm at Stake”
    http://www.bloomberg.com/news/articles/2016-05-26/memo-for-u-s-china-meeting-don-t-rock-each-other-s-markets

    “China wants to loosen the yuan’s link with the dollar while averting an exodus of capital. The Fed wants to gradually move away from near-zero interest rates, with almost all officials penciling in at least two quarter-point hikes this year. The past nine months have made clear how the two sides’ goals can conflict, with the withdrawal of U.S. stimulus encouraging Chinese outflows and a surprise August yuan devaluation generating market ructions that put a pause on a Fed rate move.”

    “A Fed-induced surge in the U.S. currency would put pressure on the yuan, lighting a match under money outflows that have eased significantly after a record $1 trillion left in 2015.”

    “If the Fed does end up raising rates more than expected that will clearly increase the pressure on China’s FX market,” said Louis Kuijs, head of Asia economics at Oxford Economics in Hong Kong.”

    “The depreciation of the yuan against the dollar is very likely for the rest of the year,” said Iris Pang, a Greater China economist at Natixis SA in Hong Kong. “Capital outflow would become the new-normal of China, and China has to accept this fact.”

  7. Cloud9 on Fri, 27th May 2016 6:49 am 

    Based on Home Land Security’s recent purchases of arms and ammunition, I would surmise that the government has a plan for dealing with a post oil era. Bloomberg posted a chart a while back that projected that depletion rates would out distance replenishment rates in 2017. If this is correct, the paradigm of endless growth may shatter at any moment.
    I suspect that when Venezuela’s misery index gets high enough, The U.S. will make them an offer they can’t refuse.

  8. Anonymous on Sat, 28th May 2016 4:21 am 

    Oilprice’s writers are as retarded as RigPorn’s. If the ‘sauds’ are preparing for a post-oil economy, they sure have a funny way of showing it. Like, liquidating what they do have at rock-bottom prices? And as fast as they can pull it out of the ground? Good plan….

    “Now granted, a post-oil society doesn’t necessarily mean a no-oil society”.

    Of course it doesn’t. The 1%, the cops, the military, the prison system will have, maybe not *all* the oil they need, but they will have a lot more than everyone else. Which is to say, they will have pretty much all of it, and you will little or no access at all.

    Plan B…

  9. ERRATA on Mon, 30th May 2016 10:34 am 

    http://phys.org/news/2014-01-ultra-high-volumetric-energy-density-lithium-sulfur.html

    “…is approaching the theoretical limit,”
    What is the theoretical maximum possible density of energy in the battery?

    Are attempts to build batteries with high energy density, are not the same “alchemy” as an attempt to create (invent) armored super-steel (much stronger than the current) conducted in the 50s of the twentieth century?

    1. http://phys.org/news/2014-01-ultra-high-volumetric-energy-density-lithium-sulfur.html
    2. https://en.wikipedia.org/wiki/Energy_density

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