After one of the most dramatic stretches in its history, the oil industry is slowly recovering. March and April saw the toxic combination of depressed demand, excessive supply, limited storage capacity, and intense financial speculation that turned prices on one index negative. Although concerns about a second wave of coronavirus infections remain high, demand is now back on the rise, and supply is in check.
But that doesn’t mean that the industry is out of the woods. For now, though, the greatest source of uncertainty for oil producers is structural in nature, not cyclical. In fact, there is an increasing sense that peak oil—the moment when oil production reaches its point of maximum before starting a structural decline—has finally arrived. Since the 1950s, there has been plenty of speculation about an imminent shortage of crude oil. Such speculation has proved consistently wrong, as all predictions tended to underestimate both the true amount of global oil reserves and the ability of technology to overcome physical constraints.
Now, the coronavirus pandemic, which appears to be accelerating trends—greener economies and decreased mobility—that until February seemed to be at least one decade away, might finally break the mold. This time, though, peak oil could come on the demand side of the market rather than on the supply one. Such change would mark a shift from perceived oil scarcity to oil abundance that could radically transform the structure of the oil market—even more than the shale revolution itself.
Over the last 60 years, oil demand has grown almost unabated, first in advanced economies and then in emerging economies. At the moment, global oil demand is almost five times as high as it was in 1960. In the past, particularly until the U.S. shale gas revolution, the challenge was always how to satisfy a growing demand in the face of an apparently rigid supply—especially when the energy-thirsty Chinese economy started to rise to prominence 20 years ago. However, even before the coronavirus outbreak, a number of structural factors were expected to weigh down oil consumption, from energy-efficiency gains in emerging economies and the mass commercialization of electric vehicles to sociopolitical pressure to reduce carbon emissions and the retrenchment of globalization.
Nevertheless, despite the widespread consensus that such trends existed, there has always been a high degree of uncertainty about the timing and shape of the oil-demand plateau. Small changes in the assumptions about the numerous factors that determine long-term oil demand—such as population growth, economic activity, mobility, or energy efficiency—can generate very different paths.
Last year, for example, the International Energy Agency (IEA) released two possible scenarios for long-term oil demand. In its sustainable development scenario, which was predicated on a sharp tightening of climate policies, oil demand was expected to start declining substantially in the next decade and to drop by more than 30 percent by 2040, to around 70 million barrels per day. In the other scenario, which is based on current policies, oil demand keeps growing for the next 10 years, before stabilizing in the subsequent decade as a result of downward pressure on energy consumption due to electrification balanced out by higher energy consumption from the poorest regions of the world. To be sure, in this scenario, the world would still consume a significant amount of crude oil even after the plateau—around 100 million barrels per day, close to what it is currently consumed.
Given the variety of long-term demand scenarios, energy companies have typically brushed off peak-demand arguments. However, COVID-19 might change that if it permanently transforms individuals’ behavior and societal priorities.
Mobility is the No. 1 factor that could change the calculations. Although tourist activity is likely to rebound and return to pre-crisis levels in a couple of years, especially if a coronavirus vaccine is found, remote work arrangements might drastically reduce commuting mileage for millions of workers. According to some estimates, in the eurozone, over a quarter of jobs can, at least in theory, be performed from home. Similar estimates apply to the United States, too. In Europe, the average one-way work commute is just over 9 miles, whereas in the United States it is above 11 miles. Imagine the gasoline saved if millions of people stop commuting.
Moreover, COVID-19 might lead to a significant decline in business trips in favor of videoconferencing that would not only reduce operational costs but could also lead to productivity gains thanks to more time spent at the desk than in an airport. Some industrial activities might even be reshored to reduce vulnerability to shocks that affect business partners located elsewhere around the globe, particularly for the production of goods in sensitive sectors such as health or national security. The shortage of face masks, which had primarily been produced in China, during the early days of the pandemic forced governments not only to find new suppliers but also to suddenly encourage the conversion of some domestic firms into mask producers. And new digital technologies that tend to reduce reliance on low-skilled workers will lower the incentives for companies to slice and dice their production around the world. The Fourth Industrial Revolution could significantly compress the length of global value chains.
Finally, the positive impact of the lockdowns on air quality might incentivize greener behavior in the future. In April, when around 4 billion people were stuck at home, air pollution suddenly dropped across the world, suggesting to policymakers a clear direction for seriously reducing carbon dioxide emissions. Voters might strongly push in this direction. Clearly, the solution is not shutting down entire economies. But governments might introduce tax incentives to induce companies to rely more on flexible arrangements for those jobs that can be efficiently performed remotely. Moreover, the cycling routes that were built across the major cities to reduce the use of public transportation may well remain permanently.
All these behavior changes would have a big impact on oil demand. In the United States, around 80 percent of demand for crude oil is fuel-related—petroleum, diesel, or jet fuel. It would be enough to see oil demand permanently dropping by 5 million barrels per day (5 percent below the pre-coronavirus global demand), due to changed transportation habits, to force a drastic supply adjustment. Let’s not forget that Russia and Saudi Arabia fought a price war back in March over the unwillingness of OPEC+ to agree cuts of just around 2 million barrels a day, whose effect was the collapse not just of oil prices but of financial markets more generally.
Nobody knows whether peak demand is actually right around the corner. At least in the short term, the health crisis might actually boost oil consumption if people shy away from public transportation to avoid potential infections. A survey in China conducted by the market research firm Ipsos showed that the share of bus and metro rides had fallen by 57 percent but that made by private car had doubled.
Yet, unlike in the past, energy companies are taking the peak demand scenario very seriously. According to the IEA, this uncertainty, coupled with the economic losses caused by the current recession, will lead to a 30 percent contraction in global energy-related investment in 2020. American producers, in particular, are keen to downsize their investment plans as they need the benchmark West Texas Intermediate price for oil close to $50 per barrel to cover the costs of activation of new fields.
Marketwise, the price implications will be sizable. The average life of U.S. shale wells is around 18 months. With drilling activity at new fields having been partly curtailed, prices might drift upward by 2022, when production in North America is likely to have come down as a result of a lack of investment. But over the long term, the trends might go the opposite way. In an extreme case involving a rapid drop in oil demand, like the one envisaged by the IEA’s sustainable development scenario, prices will likely come down, creating a hyper-competitive environment in which only the most cost-efficient producers survive—and American shale firms will not necessarily be among them. In other words, absent major geopolitical tensions, over the next five years oil prices might follow an inverted U-shape trajectory: first up toward $60 per barrel and then down to $40. Countries will not only fiercely compete to gain shares of a shrinking market, but politics in the region could also shift as many generous welfare programs are drastically revised down.
Clearly, vast changes in the energy economy are not something that will happen overnight. But COVID-19 might speed up the process. And, as in March, when oil prices went negative, producers may discover that their biggest asset is a liability.
ANAL REAPER on Tue, 14th Jul 2020 9:39 pm
The fucking chinks need to be nuked. Fucking gooks!
Fuck all you faggots.
Abraham van Helsing on Wed, 15th Jul 2020 1:29 am
Fossil fuel companies, the most worthless companies in the world:
https://www.wattisduurzaam.nl/10116/energie-beleid/duurzaam-rendement/stranded-assets-carbon-bubbles-kodak-moments/
(Chrome > right-click > translate to English)
They have 2200 billion stranded assets on their balance sheets. 75% of oil, gas and coal reserves will need to stay in the ground if the Paris Accords are being taken seriously.
Peak Conventional Fossil Demand will need to prevail over Peak Conventional Fossil Supply. There is no more buffer space to absorb endless supplies of CO2.
SocialRevolutionComing on Wed, 15th Jul 2020 11:31 am
I want out today. I usually go out only for groceries shopping nearby. Today I drove a bit around and went into Wal-Mart.
It is ten time worse then I thought. WOW are we fucked.
zero juan on Wed, 15th Jul 2020 11:37 am
Lunatic:
SocialRevolutionComing said I want out today. I usually go out only for grocer…
the board lunatic Davy said the lunatic on Wed, 15th Jul 2020 11:21 am
SocialRevolutionComing on Wed, 15th Jul 2020 12:26 pm
We are going to have to tell the truth to people about peak oil. We cannot continue rationing oil with this dumb covid hoax. We are losing to much precious oil now. COVID hoax is not helping.
SocialRevolutionComing on Wed, 15th Jul 2020 12:36 pm
Look at the dumb bitch,who she thinks she has something important to say. So many stupid people who think they know everything with overinflated ego and self esteem.
Meghan Markle’s first major speech since stepping down as Royal | 9 News Australia
https://www.youtube.com/watch?v=s0coskCZlhA
You cannot build and maintain a society with such stupid people.
zero juan on Wed, 15th Jul 2020 1:15 pm
Idiot
SocialRevolutionComing said Look at the dumb bitch,who she thinks she has some…
SocialRevolutionComing said We are going to have to tell the truth to people a…
Today, some people want us to manufacture planes, cars, and trains and then compete with Europe and America, but this is not the purpose for which we were created. When Allah created us as 'peoples and tribes' [as the Quran says], He endowed us on Wed, 15th Jul 2020 1:22 pm
Arabs with thought and guidance and He created the other peoples as students who follow our guidance. They are the ones who should work.
muzznews
CONVICT-19
SocialRevolutionComing on Wed, 15th Jul 2020 1:33 pm
The question of the meaning of the song was effectively settled when May wrote on his website that “Hammer to Fall is really about life and death, and being aware of death as being part of life”, and that “the Hammer coming down is only a symbol of the Grim Reaper doing his job!”
https://en.wikipedia.org/wiki/Hammer_to_Fall
Yeah
Here we stand or here we fall
History won’t care at all
Make the bed, light the light
Lady Mercy won’t be home tonight
You don’t waste no time at all
Don’t hear the bell but you answer the call
It comes to you as to us all
Yeah, we’re just waiting for the hammer to fall, yeah
Oh every night, and every day
A little piece of you is falling away
But lift your face the Western way
Build your muscles as your body decays, yeah
Tow the line and play their game
Yeah, let the anesthetic cover it all
‘Til one day they call your name
You know it’s time for the hammer to fall
Rich or poor or famous
For your truth it’s all the same
(Oh no, oh no)
Oh, lock your door but rain is pouring
Through your window pane
(Oh no)
Hey yeah, baby, now your struggle’s all in vain, yeah…
For we who grew up tall and proud
https://www.youtube.com/watch?v=AlI0r1iWMP8
Abraham van Helsing on Wed, 15th Jul 2020 11:06 pm
Peek into my backdoor homies.
Cloggie on Thu, 16th Jul 2020 4:50 am
Solar scheme in the Netherlands: the government allocates public land for solar panels, the public can buy and own solar panels and get the electricity delivered locally and as such receive local energy security. The first 2 solar panels are for free. The public funds its own “power stations”, how is that for socialism, the national one?
https://solarmagazine.nl/nieuws-zonne-energie/i21926/vrijopnaam-en-greenspread-starten-bouw-4-kilometer-lang-zonnepark-bij-a58-etten-leur
Davy on Thu, 16th Jul 2020 5:25 am
“The public funds its own “power stations”, how is that for socialism, the national one?”
cloggo, this is a great idea if it is truly a micro grid with a separate system. If it just grid feed then it is just another feel good green gimmick.
Davy on Thu, 16th Jul 2020 7:05 am
I pretended to put up a solar pane; myself cloggo as you might recall. It made me feel REAL GOOD about myself, even though, I have to admit, there is no solar panel on my farm. But, you and I both like virtue signaling, must be because neither of us have any virtue to signal.
stupid cloggnatzi
JuanP is up on Thu, 16th Jul 2020 7:28 am
JuanP on Thu, 16th Jul 2020 7:05 am
“I pretended to put up a solar pane; myself cloggo as you might recall. It made me feel REAL GOOD about myself, even though, I have to admit, there is no solar panel on my farm. But, you and I both like virtue signaling, must be because neither of us have any virtue to signal. stupid cloggnatzi”
anon on Thu, 16th Jul 2020 8:22 am
um, oil peaked in 2008.
since then it’s been a barrage of bullshit and civilizational self-delusion, insanity, and disintegration. hasnt anyone been paying attention?
dissident on Thu, 16th Jul 2020 5:53 pm
Indeed. “Decades of wrong predictions” is total propaganda drivel. The prediction of the US peak was right on target and the global production of conventional crude and condensate in 2005 was very close to the “roughly 2000” prediction.
Non conventional oil is a slight moving of the goal posts. It will never approach any substantial fraction of the conventional reservoirs that have been depleted. And it is routine for fake stream media hacks to confound Green River kerogen deposits with Bakken type regular oil reservoirs trapped between shale-like rock that requires fracking to access.