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Page added on December 2, 2020

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Has peak oil been and gone?

Has peak oil been and gone? thumbnail

If I had of said to most of you reading this a year ago that 2020 would see negative oil prices, the world economy collapse and record highs in the stock market, you would have laughed me all the way to a padded cell. The same can be said for oil, in 2019 energy analysts had no concept of peak oil on the radar. Forecasts for oil demand destruction were almost nonexistence bar the improbable chance of a new technological innovation that would act like a meteor to fossil fuels as it did to the dinosaurs.

But here we are now with growing numbers of energy analysts forecasting that from here on out; oil demand is going to continue to decline. The most recent improvements in oil prices have been linked to the return to normality, driven largely by the introduction of a workable vaccine for COVID-19. But are we truly going back to the same economy that we had pre-pandemic? Would we even want that to happen? Probably not.

The pandemic has created permanent changes in people behaviors, the ability to work from home and subsequent reduction in travel and transport needs. But this isn’t the only price pressure that oil is facing over the next decade or two, batteries and the electric vehicle have seen increased popularity, especially with constant developments in battery technology. An it gets worse, recently the price parity milestone, the point at which batteries reach $100 per mile has been met by multiple manufacturers.

We can’t forget about regulation either, more and more restrictions are being added with many coming from multiple angles. Restrictions on internal combustion engine sales, financing restrictions for fossil fuel-based energy providers, tighter emissions protocol, the list goes on, even bans have been put in place in certain cities.

It all really comes down to timing, we can look to when coal, and natural gas switched the rains from the shift in price parity, or when whale blubber was phased out by vegetable oil, but 2020 is a year like no other.

So far estimates put a range between 2028 and 2040 with the most commonly applied date range in 2035 for oil to be surpassed by batteries. With estimates like this it certainly paints the picture that while oil prices are recovering, oil demand likely will never fully recover to the glory days.

Chart

Source: S.Dale, ‘Peak oil demand and long run prices’, pp-7

In the image above which has long since dated and doesn’t account for the doubling down on environmental factors as apart of the 2020 pandemic, we were already seeing forecasts that suggested peak oil demand was close. Today’s estimates shorten that timeline, with even the most bullish on oil being less optimistic over the longer term.

Only time will tell.

fx street



9 Comments on "Has peak oil been and gone?"

  1. Zeke Putnam on Wed, 2nd Dec 2020 8:48 pm 

    Population increasing at 1.5 million a week makes such articles just plain stupid.

  2. Antius on Thu, 3rd Dec 2020 7:10 am 

    Declining ERoEI of all fossil fuels is gradually crushing prosperity. Average disposible prosperity in Europe, Japan and America, has been falling since about 2003.

    People are getting poorer. Poorer people can afford less, which is exactly why oil demand has been falling in most developed countries. It isn’t electric cars or renewable energy that is reducing oil demand. It is growing poverty.

  3. Hello on Thu, 3rd Dec 2020 7:28 am 

    >>> Average disposible prosperity in Europe, Japan and America, has been falling since about 2003

    Have a link for that?

  4. Antius on Thu, 3rd Dec 2020 7:50 am 

    ‘Have a link for that?’

    Check out Tim Morgan’s Surplus Energy Economics:
    https://surplusenergyeconomics.wordpress.com/

  5. Cloggie on Thu, 3rd Dec 2020 10:13 am 

    And I found this one:

    https://deepresource.wordpress.com/2019/12/27/european-golden-decade-2010-2020/

    “European Golden Decade 2010-2020”

    German economy grew with 30%, with a stable population.

    Young people these days do not start a career and family, but instead have a trip around the world.

    Be careful with interpreting data and income per household. Households have become much smaller.

    Most flying is done for touristic reasons and is a perfect indicator for real wealth. Here are the data for Amsterdam, elsewhere similar:

    https://nl.wikipedia.org/wiki/Luchthaven_Schiphol#Passagiersaantallen_en_aantal_vliegtuigbewegingen

    Between 1980 and 2019 a 7-fold increase.

    Exponential growth.

    Give me a break about “falling income”.

  6. Antius on Thu, 3rd Dec 2020 1:13 pm 

    Cloggie, you could have fooled me.
    https://www.macrotrends.net/countries/DEU/germany/gdp-per-capita

    Where exactly was this European golden decade?

    German GDP per capita peaked in 2008, the year of the global financial crisis. This was a direct consequence of the peak in conventional oil production.

    1. Conventional oil production peaked in 2005.

    2. By 2006, declining oil production led to tightening supplies, which led to sharply rising oil prices.

    3. Oil powers 97% of global goods transportation and is the feedstock for polymer production. Rising oil prices pushed up the price of all goods and services.

    4. The Fed and other central banks noticed the rising prices (inflation), which they invariably interpret as the economy ‘overheating, I.e. an excess of M1 money supply. So they pushed up interest rates.

    5. Increased interest rates, makes it impossible for marginal debtors to service debts and many default. Trillions of dollars of assets are down valued, bank lending ceases, companies fold, jobs are lost and trade volumes decline as disposable income dries up along with capital investment. The export dominated German economy, fares better than financial service economies, but growth essentially stops.

    6. Low interest rates and quantitative easing should foster a recovery, but with oil prices still high, demand for real goods continues to decline in the developed world and global trade volumes decline overall.

    Hence the stagnation of the export dependant German economy since 2008.

  7. Antius on Thu, 3rd Dec 2020 1:15 pm 

    Hello has crashed the comments section
    With an overlong link.

    Please remember all to use Tiny URL.

  8. Cloggie on Thu, 3rd Dec 2020 2:20 pm 

    Antius, in this case you have fooled yourself.

    GDP is not Brutoinlandproduct (Gross domestic product).

    The data in my link are official German government data.

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