Peak Oil is You
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Page added on November 8, 2015
The Energy World Is Flat
In The Energy World Is Flat: Opportunities from the End of Peak Oil, Daniel Lacalle and Diego Parrilla explore 10 forces that drive the future of energy. Both authors have extensive experience in the energy field. Lacalle’s background is in energy portfolios as an economist, energy sector analyst, and fund manager. Parrilla is a hedge fund manager with experience in commodities and trading.
The expression “the energy world is flat” means that although geopolitical or other events may cause energy prices to spike in the short term, energy prices invariably return to normal levels over the long term — hence, the term flat. Past spikes in energy prices have been offset by such events as the building of storage buffers, switching to alternative energy sources, new oil and gas discoveries, and technological innovations. The authors discuss the internet revolution of the late 1990s and the subsequent dot-com bubble. They see the same general lessons learned from the global flattening caused by the internet revolution as applying to global energy.
Recent events have lent special importance to The Energy World Is Flat. When the book was published earlier this year, oil prices had just dropped by half. Besides inflicting earnings declines throughout the energy industry, the price collapse had major implications for fracking, natural gas production, oil sands development, liquefied natural gas (LNG) construction plans, and transportation, including railroads and pipelines.
Lacalle and Parrilla call the following 10 forces “flatteners,” devoting a chapter to each:
- Geopolitics, the two sides of the energy security coin
- Energy reserves and the resources glut (no peak oil or peak gas)
- Horizontal drilling and fracking
- The energy broadband
- Overcapacity
- Globalization, industrialization, and urbanization
- Demand destruction — transportation, electricity, and industrial
- Demand displacement
- Regulation and government intervention
- Fiscal, monetary, and macroeconomic factors
Some chapters are brief, but two (on Flatteners 9 and 10) are quite long, together occupying almost a third of the book. The following comments address flatteners of particular interest.
In the chapter on energy reserves and the resources glut, the authors discuss the size of world energy resources since the beginning of the Industrial Revolution, including current proven and probable oil as well as estimates of other likely oil deposits. The authors review costs of production, including such unconventional production as oil sands and deep offshore drilling. They also discuss the concept of “peak production,” detailing the history of predictions going back to the early 1970s and concluding that neither oil nor gas is facing a peak.
Horizontal drilling and fracking account for a major increase in US oil production. Lacalle and Parrilla, however, say very little about the environmental impact of fracking. They touch on methane, a standard emission from shale oil wells, but never mention Jeremy Grantham’s comment that methane, a greenhouse gas, is estimated to be 72 times as harmful as carbon dioxide. Nor do the authors address the huge amount of water required by fracking, the acid content of that water, or the short life of shale oil production. Thanks to the new technology, US production has replaced a substantial amount of imports from Saudi Arabia, but the authors pass over most of the safety and environmental concerns about fracking. A typical fracking operation also involves explosives, 50,000 gallons of hydrochloric acid to dissolve limestone, 1,000 gallons of antibacterial solution to kill microorganisms that destroy pipe, and two million pounds of sand to prop the fractures open. Finally, the cost of a shale oil well averages $6.3 million in the Bakken Formation, compared with about $500,000 for a vertical well of similar depth. Shale oil production declines very quickly — at least 30% a year and sometimes twice that rate. All of this results in a breakeven cost for shale oil wells in the range of $60 a barrel, making the process unprofitable at today’s oil prices.
The chapters on demand destruction and demand displacement focus on various aspects of energy efficiency and also address the replacement of conventional energy consumption with such substitutes as electricity in all types of vehicles.
The book’s final chapter offers a number of investment suggestions:
- Natural gas will be a winner in terms of sales volume but not necessarily price, so one should be cautious when considering natural gas as an investment.
- As Warren Buffett has stated, “Buy a good asset at a fair price rather than a fair asset at a good price.”
- Avoid “value traps” in energy (i.e., stocks that are cheap for good reason).
- Look for scarcity; stocks with low demand growth often perform well.
- Timing is very difficult — indeed, practically impossible — so be prepared for unanticipated movements.
- The energy industry is procyclical; without the energy industry, there is no industrial or economic growth.
On the whole, The Energy World Is Flat contributes materially to our current understanding of an important commodity group and investment sector. It can be profitably read in conjunction with two other classics in the field. Anthony Sampson’s The Seven Sisters: The Great Oil Companies and the World They Shaped (Viking Press, 1975) describes the seven leading oil companies that discovered and developed oil in the Middle East, especially Saudi Arabia, which was the world’s largest oil producer until recently. Daniel Yergin’s Pulitzer Prize–winning The Prize: The Epic Quest for Oil, Money, and Power (Simon & Schuster, 1991) is a history of the oil industry and its geopolitics.
23 Comments on "The Energy World Is Flat"
makati1 on Sun, 8th Nov 2015 7:35 pm
Tooting their own horn at the beginning, trying to convince the readers that these guys are smarter then we are and should be believed, is a bad sign.
This is nothing more than pimping a book.
Boat on Sun, 8th Nov 2015 8:26 pm
The expression “the energy world is flat” means that although geopolitical or other events may cause energy prices to spike in the short term, energy prices invariably return to normal levels over the long term
So what does short term mean. The last Iraq war caused the high price of oil for 6 years. Is that short?
The next short will be much shorter as fracking will take off much quicker if prices spike.
adamc18 on Mon, 9th Nov 2015 2:39 am
Not least because the Paris global climate talks are due to begin in around two weeks, is this not a pretty narrow little book? It does not appear to have a chapter on CO2 emissions or another one addressing the increasing public pressure to ‘keep it in the ground’. But in a world where ‘investment opportunities’ (for the 1%) matter more than the survival of the planet, maybe that is to be depressingly expected.
GregT on Mon, 9th Nov 2015 3:05 am
There is no political solution
To our troubled evolution
Have no faith in constitution
There is no bloody revolution
We are spirits in the material world
(Are spirits in the material world
Are spirits in the material world
Are spirits in the material world)
Our socalled leaders speak
With words they try to jail you
The subjugate the meek
But it’s the rhetoric of failure
We are spirits in the material world
(Are spirits in the material world
Are spirits in the material world
Are spirits in the material world)
Where does the answer lie?
Living from day to day
If it’s something we can’t buy
There must be another way
We are spirits in the material world
(Are spirits in the material world)
(Are spirits in the material world…)
https://www.youtube.com/watch?v=8wtQvbA0WC4
GregT on Mon, 9th Nov 2015 3:19 am
“So what does short term mean. The last Iraq war caused the high price of oil for 6 years. Is that short?”
As long as you continue to make shit up in your own mind Boat, you will never come anywhere near close to realizing the truth.
Revi on Mon, 9th Nov 2015 7:08 am
Ironically it took low prices to create Peak Oil. There is a lot of oil around at $100 and more a barrel. Maybe not so much at $50 and below. It seems like capitalism works until it doesn’t any more. When a commodity becomes too expensive to get it stops showing up. Wait about 6 months and we’ll see what happens. I have a feeling that the oil world will get a little less flat…
rockman on Mon, 9th Nov 2015 7:21 am
“…or another one addressing the increasing public pressure to ‘keep it in the ground’.” Do you mean to the public pressure that has led the world consuming 9% more oil in the last 10 years? Do you mean the public pressure that has caused global natural gas production to increase 20% in the last 10 years? Do you mean the public pressure that has caused global coal consumption to increase 18% in the last 10 years?
Yes indeed: great success keeping it in the ground. More “victories” for the environmentalists…just like the “defeat” of the northern leg of Keystone XL. LOL.
claman on Mon, 9th Nov 2015 7:59 am
Greg, there is a catch 22 to being spiritual.
Pretty soon you’ll find your self enslaved by materialistic forces invading your land, and if you wanna defend yourself, you will have to become materialistic your self.
If you don’t defend your self, you will soon be not spiritual beings, but the ghosts of of a conquered society.
Life on earth earth can or should not be seen as either spiritual or materialistic, but as a functional combination of the two. Which one that dominates, can only be decided from a day to day analysis of the over all situation.
Spirituality is a luxury only people living in a peacefull environment can allow them selves. The rest of the world has to fight to make att least some of their spirituality survive the blows of reality.
apneaman on Mon, 9th Nov 2015 9:08 am
claman, the Swedes have not been in a fight for what? 200 years. They must be very spiritual. They can always invoke the spirits of their Viking ancestors. Maybe they should since we may decide not to show up and spill our blood to liberate Europe for a third time. I do not believe the muslim hordes recognize “neutrality”.
claman on Mon, 9th Nov 2015 9:28 am
Apne, the swedes also (as a 10 million inhabitant country) build their own 4.g figther jets, U-boats and battle tanks.
Oh yes , they are “very spiritual”, but with a sligth touch of reality to it.
Russia is only 130 miles away from the swedish borders.
Maybe this strong sence of reality has kept them from wars.
As I know it Canada hasn’t been in a war of their own since it was made.
Davy on Mon, 9th Nov 2015 9:33 am
Clam, you are so right life is a mix of the spiritual and material. Being anti-spiritual is just another spirituality. Being anti-materialistic is a failure to understand the duality of life.
We are spiritual mater. We are material. I find the most spiritual people cherish the material the most. I buy and use products of value and with a future. I shun materi of low quality and with built obsolescence. This is my modus operandi living this MO is another story in a surreal modern world of multiple levels of abstraction. Many of which are delusions and deceptions.
claman on Mon, 9th Nov 2015 9:45 am
Spirituallity seen as gaya-theory is bound to lose as a society philosofy if every body took that stand.
It is good though as an inspirational source about our attitudes to the biosphere, which is deeply needed as things have turned out.
apneaman on Mon, 9th Nov 2015 9:55 am
Well claman, there was the war of 1812 and many who were born and raised here fought were wounded or died fighting in it, but most Canadian soldiers have died fighting for those in Europe who were unwilling or unable.
LIBERATING NORTHWEST EUROPE
1944-1945
Allied forces, including First Canadian Army, liberated Northwest Europe in a hard-fought campaign.
In September 1944, First Canadian Army swept north along the coast of the English Channel liberating the heavily-fortified ports of Boulogne and Calais. At the same time, the British captured the Belgian port of Antwerp, desperately requiring its docking facilities to bring in supplies. However, the Germans occupied both banks of the 70-kilometre long Scheldt River estuary linking Antwerp to the sea. Most of this territory was in the Netherlands. In a month-long campaign beginning 6 October, the Canadians fought in appalling conditions over open, flooded ground to capture the approaches to Antwerp. They lost over 6300 killed or wounded in the process
http://www.warmuseum.ca/cwm/exhibitions/chrono/1931liberating_e.shtml
Much blood in WWI as well
Vimy overshadows little-known story of Canadian victory that helped end the Great War (with video)
“It has often been said that Canada came of age as a nation on Vimy Ridge. After all, it was there in April 1917 that the four Canadian divisions fought together for the first time as a corps and achieved a great victory.
But the fixation on Vimy since it was chosen 90 years ago as the backdrop for a stunning monument to commemorate the fallen and the survivors of the Canadian Expeditionary Force on the Western Front has overshadowed the fact that it can be reasonably argued that Canadians played equally important roles in the eventual Allied victories at the Somme and Passchendaele and perhaps elsewhere as well.
About 67,000 Canadians died and about 250,000 were injured between 1915 and 1918 in an area not much larger than New Brunswick. One of the largely unknown, but pivotal clashes fought by the CEF took place 16 months after Vimy along a defensive barrier constructed by the Germans known as the Drocourt-Queant Line, which was the northernmost edge of the Hindenburg Line.
About 5,600 Canadians, many of them from British Columbia, Alberta, Saskatchewan, Ontario and Nova Scotia, died during two days of ferocious fighting for control of the Drocourt-Queant Line, which intersected the road that still runs today from Arras to Cambrai. By the end of the Canadians’ bloody assault — which was part of the larger fight known as the 100 Days Offensive — they had punctured German lines around Cambrai that had been considered invulnerable and the enemy fell back suddenly in disarray, ultimately retreating behind the Canal du Nord.”
more
http://ww1.canada.com/battlefront/vimy-overshadows-little-known-story-of-canadian-victory-that-helped-end-the-great-war
Personally, I would never go do such a thing (I am no pacifist, far far from it, but I’ll fight when and if they invade my turf)
All I can say is those young boys in both the great wars believed they were fighting for a righteous cause. Young men are easily convinced to do such things. In two days it will be rememberance day and on that day, I always remain silent regarding war and propaganda and sheeple being used by TPTB. On that day, I keep my opinions about that stuff to myself and always honor those kids who went and those who died because they believed it was the right thing to do. Hell, I still go to the sad ceremonies (my little nieces will be in them this year) What do they do in Sweden on that day claman?
claman on Mon, 9th Nov 2015 10:13 am
The american religious right is about to marginalize them selves in the coming presidential election.
I hope that the left (and associates) will not fall into the same trap, but try to organize and accept some kind of compromising with TPTB.
One small stepp for the left, but a huge bounce for america.
claman on Mon, 9th Nov 2015 10:31 am
Apne, nobobdy is questioning the great contributions of the US and Canada in the great wars.
It’s just that The US saw and took their opportunities to use their total dominance after ww2, and then their glory somehow fated.
It took a while to fate completely, but the Iraqy war did it.
You can’t fall back on former glory anymore.
apneaman on Mon, 9th Nov 2015 10:43 am
Nothing glorious about it. Least not in this country.Big difference between honoring the sacrifice once a year and glorifying war. See many big budget glorifying Canadian war movies? Canada is not a militaristic country. Canada has a military and has and will fight, but it’s just not part of the national mind set. We prefer to take our aggression out on each other on the ice while wearing skates and wielding clubs. Very peculiar that.
claman on Mon, 9th Nov 2015 10:53 am
Apne,Not peculiar att all, the swedes will gladly take out their aggressions on the rink (hockey arena), as you may have noticed from time to time.
claman on Mon, 9th Nov 2015 11:09 am
Swedish victory goal Wm 2010 (sweden-Canada) https://www.youtube.com/watch?v=3Sh3lvATO2A
claman on Mon, 9th Nov 2015 11:22 am
Davy : “We are spiritual mater”.
Davy, thats a great sentence, and ‘ll keep it in mind.
Boat on Mon, 9th Nov 2015 12:10 pm
clanman,
.
I am a 1/2 breed Swede. My dad was full breed. My great grampa immigrated to Kansas to farm. There are a lot of Swedes in the area. The king of Sweden even dropped in once. lol Look up Lindsborg Ks. They have a hyllingfest every 2 years to celebrate their Swedish heritage. Little town of 2,400 grows to 30,000 for the weekend.
claman on Mon, 9th Nov 2015 3:21 pm
Sounds great boat, I’ll be there some day.
Craig Ruchman on Mon, 9th Nov 2015 4:42 pm
“There is a catch 22 to being spiritual. Pretty soon you’ll find yourself enslaved by materialistic forces invading your land, and if you want to defend yourself, you will have to become materialistic yourself.”
+1, I like that claman. We have a Pax Americana because we have a big materialistic economy and can afford a big military. Ironically though, our prosperity means we use up our resources first, so the tables will get turned again.
makati1 on Mon, 9th Nov 2015 7:13 pm
Craig, we print the money to pay for the military every year. Do a check on government income and the trillion dollar deficit. And even then the infrastructure of America is falling apart from neglect.
America is a war country. Has been since Columbus. It cannot exist without war. But like every other empire, it has come to it’s end. The money printing will not end until it all collapse’ in the near future. By then, it will have no friends left in the world to come to it’s aid. So be it.