Just came across a long and worthwhile report discussing the future of global energy, by European analysts.
(broken link removed to http://www.longfinance.net/images/reports/pdf/kc_toilforoil_2014.pdf)
It is written in the style of those big annual reports put out by BP, Exxon and the EIA that try to predict future energy supply, demand and prices.
The first highlight:
The report asks 'If I gave you $100B to spend, and your goal was to make energy to propel cars, would you go drill/frack for tight oil, refine it and put it conventional vehicles, or would you build RE tech and power EVs'? The answer they come up with was that onshore wind+EV blew away current tight oil (on a 20 year simple payback model), PV+EV fell a little short, and offshore wind+EV was somewhere in between. Significantly, extrapolating current costs conservatively (up for tight oil, down for RE), showed all wind and PV beating oil in 2025, and doing so decisively (what the kids would call stupidly) by 2035.
Note: This cost analysis DOES NOT include any subsidies or 'externalities', just costs in the global marketplace as it exists today!
IOW, if you were the leader of an oil importing country, you would clearly choose to spend money TODAY on RE and EV infrastructure/promotion over giving the cash to your state-run oil co to develop your shale resources.
As you might have heard from me before
I am a reformed 'Peak Oil' Doomer, and have been basically of the view that the world has had 'peak oil' scares several times before, resulting in a period of higher prices, followed by the development and fielding of new technology (e.g. offshore oil, artic oil, EOR), followed ultimately by a new period of low prices. So, IMO from a historical perspective, there is no reason to 'panic'.
In other words, until more convincing evidence came in than the hysterical ravings of the amateurish Peak Oil (PO) crowd, I assumed the Oil Cos would happily take our money (in whatever amount required) and go make us the oil we all crave, as they have for a century or more. Granted, the costs of new extraction technology (now and in the future) were unknown....we would need to wait and see. Maybe we are getting some glimmers now....
The second highlight:
The report linked above basically brings together a number of confluent topics, and paints a picture where the OIl Cos profits (and ability to develop the resources) are at a significant future risk. Basically, their production costs have gone up significantly in the last decade, seem likely to increase further going forward, further increases in price will lead to significant demand destruction, but not so much as to reduce their production costs so much as their profitability.
It basically analyzes the content of the most recent EIA report on the future of oil, and looks at its assumptions. Those are basically that conventional oil will decline (despite assuming v rosy future production for places like Iraq and Saudi) and unconventional (tar sands and fracked) oil will grow, that oil demand per world GDP $ will fall twice as fast as it has for the last decade, AND the price will be basically flat in real terms.
The EIA basically assumes that demand growth will be small, there will be enough unconventional oil to meet new demand and conventional oil decline and that the entire operation can maintain current profit margins, due basically to the inelasticity of the demand, i.e. there are no alternatives.
In this report, in contrast, the analysts think that the oil cos are between a rock and a hard place.
--On the one hand, there is the possibility of demand destruction occurring because of a global climate accord. This is the 'Carbon Bubble' scenario that lots of folks have discussed...if laws are passed requiring that FF gets left in the ground, the valuation of all existing FF companies drops >50% the next day. The EIA is not worried about the Carbon Bubble.
--On the other hand, no climate laws are passed, but price trends (up for oil, down for RE) eventually lead to large-scale defections to RE-fueled EVs, collapsing oil prices to close to or below production costs and destroying their business model. The EIA does not project more than 1% EVs in the global fleet by 2050, while EVs are currently >0.5% of vehicle sales in the US
.
The upshot....there is likely no middle path between these two scenarios. The price of RE keeps falling, oil production costs keep rising AND the odds of a climate accord also keep rising. Basically, the oil cos are eff'ed.
(broken link removed to http://www.longfinance.net/images/reports/pdf/kc_toilforoil_2014.pdf)
It is written in the style of those big annual reports put out by BP, Exxon and the EIA that try to predict future energy supply, demand and prices.
The first highlight:
The report asks 'If I gave you $100B to spend, and your goal was to make energy to propel cars, would you go drill/frack for tight oil, refine it and put it conventional vehicles, or would you build RE tech and power EVs'? The answer they come up with was that onshore wind+EV blew away current tight oil (on a 20 year simple payback model), PV+EV fell a little short, and offshore wind+EV was somewhere in between. Significantly, extrapolating current costs conservatively (up for tight oil, down for RE), showed all wind and PV beating oil in 2025, and doing so decisively (what the kids would call stupidly) by 2035.
Note: This cost analysis DOES NOT include any subsidies or 'externalities', just costs in the global marketplace as it exists today!
IOW, if you were the leader of an oil importing country, you would clearly choose to spend money TODAY on RE and EV infrastructure/promotion over giving the cash to your state-run oil co to develop your shale resources.
As you might have heard from me before
I am a reformed 'Peak Oil' Doomer, and have been basically of the view that the world has had 'peak oil' scares several times before, resulting in a period of higher prices, followed by the development and fielding of new technology (e.g. offshore oil, artic oil, EOR), followed ultimately by a new period of low prices. So, IMO from a historical perspective, there is no reason to 'panic'.In other words, until more convincing evidence came in than the hysterical ravings of the amateurish Peak Oil (PO) crowd, I assumed the Oil Cos would happily take our money (in whatever amount required) and go make us the oil we all crave, as they have for a century or more. Granted, the costs of new extraction technology (now and in the future) were unknown....we would need to wait and see. Maybe we are getting some glimmers now....
The second highlight:
The report linked above basically brings together a number of confluent topics, and paints a picture where the OIl Cos profits (and ability to develop the resources) are at a significant future risk. Basically, their production costs have gone up significantly in the last decade, seem likely to increase further going forward, further increases in price will lead to significant demand destruction, but not so much as to reduce their production costs so much as their profitability.
It basically analyzes the content of the most recent EIA report on the future of oil, and looks at its assumptions. Those are basically that conventional oil will decline (despite assuming v rosy future production for places like Iraq and Saudi) and unconventional (tar sands and fracked) oil will grow, that oil demand per world GDP $ will fall twice as fast as it has for the last decade, AND the price will be basically flat in real terms.
The EIA basically assumes that demand growth will be small, there will be enough unconventional oil to meet new demand and conventional oil decline and that the entire operation can maintain current profit margins, due basically to the inelasticity of the demand, i.e. there are no alternatives.
In this report, in contrast, the analysts think that the oil cos are between a rock and a hard place.
--On the one hand, there is the possibility of demand destruction occurring because of a global climate accord. This is the 'Carbon Bubble' scenario that lots of folks have discussed...if laws are passed requiring that FF gets left in the ground, the valuation of all existing FF companies drops >50% the next day. The EIA is not worried about the Carbon Bubble.
--On the other hand, no climate laws are passed, but price trends (up for oil, down for RE) eventually lead to large-scale defections to RE-fueled EVs, collapsing oil prices to close to or below production costs and destroying their business model. The EIA does not project more than 1% EVs in the global fleet by 2050, while EVs are currently >0.5% of vehicle sales in the US
.The upshot....there is likely no middle path between these two scenarios. The price of RE keeps falling, oil production costs keep rising AND the odds of a climate accord also keep rising. Basically, the oil cos are eff'ed.
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