The notion that demand for crude oil will soon peak has largely replaced the idea from a decade ago that crude oil production was about to peak for geological reasons. This new idea is that we will no longer need oil (or at least a lot less of it) because consumers will choose alternatives to oil.
But actual oil consumption numbers suggest that peak demand for oil won’t happen soon, and when it does happen it will do so at a demand millions of barrels per day (BPD) higher than current demand.
Proponents of peak demand expect that exponential growth in electric vehicles (EVs), and to a lesser extent an increase in biofuel production will send oil demand into permanent decline. In fact, nearly a year and a half ago Bloomberg suggested that at a continued annual growth rate of 60%, electric vehicles could displace two million BPD of oil by 2023. At a 30% growth rate, two million BPD would be displaced by 2025.
I addressed the key problem with the Bloomberg scenario here. In a nutshell, the article treated oil demand as stagnant, which resulted in the assumption that in 2023 the displacement would take place from current demand levels. In other words, if 2016 demand was 95 million BPD, the Bloomberg scenario presumed 2023 demand at 93 million BPD (and falling every year).
The flaw in the scenario is that for over 30 years average oil demand has grown each year by more than a million BPD. Over the past decade, oil demand has grown each year by 1.1 million BPD. Over the past five years, 1.4 million BPD. Last week the bible of energy statistics was released — the BP Statistical Review of World Energy 2017 — and it showed that oil consumption grew by 1.6 million BPD last year:
Oil consumption in 2016 represents a new all-time high in global oil demand and occurred despite the fact that global EV sales grew at a 41% rate in 2016 to reach nearly 800,000 vehicles (Source: InsideEVs). The growth over the past decade also took place during a time that global biofuel production increased by over a million BPD. (I can recall many who suggested ten years ago that growth in biofuels would lead to peak oil demand).
Underlying oil demand is growing for several reasons. The population is growing, the middle class is growing, automobile sales in developing countries are growing at a blistering pace, and the number of miles driven is reaching all-time highs.
The implications are clear with respect to the peak demand argument. While many proponents are pushing the notion that peak demand is imminent, growth in EVs thus far hasn’t even been able to slow down oil demand growth.
What peak demand will actually look like — assuming EV sales continue at exponential growth rates — is for oil demand growth to first slow down. What we may see is that in contrast to Bloomberg’s scenario of 2023 demand being two million BPD less than current demand, it might only be five million BPD higher than today’s demand (instead of seven, which assumes the growth rate of oil remains consistent). In fact, oil demand today is close to two million BPD higher than it was when Bloomberg made its forecast in February 2016.
The bottom line is that even in a best case scenario for EV growth rates, demand for oil rose by 1.6 million BPD last year, and it’s projected to increase by 1.4 million BPD this year. It will take a few years of rapid EV growth to halt the growth rate for oil, and what that means — and what many peak demand proponents don’t get — is that peak demand for oil is going to be millions of BPD higher than current demand, and it’s almost certainly going to take place beyond 2023.
Posted in Forbes
It was clear from his statements while campaigning that if Donald Trump won the presidential election, it wasn’t going to be good news for renewable energy. President Trump has spent his time in office so far undoing environmental regulations and trying to fulfill his campaign promise to revive the coal industry. The latest move in that direction was President Trump’s announcement that the U.S. will pull out of the Paris Accord on climate change.
The intricacies around the Paris Accord could cover several posts. But the optics of this are terrible for the U.S. on the world stage. Opponents of the agreement cite the costs to the U.S. economy. Trump himself stated that the agreement is unfair to the U.S. and that he hoped to negotiate a better agreement.
If you disagree that the world needs to take action to prevent the unabated rise of carbon dioxide emissions, then you need read no further. I am not going to argue that case in this article. But if you at least agree that there is a risk associated with failing to curtail emissions, let’s first consider historical and current emissions.
According to the 2016 BP Statistical Review of World Energy, since 1965 the U.S. has emitted 264 billion metric tons (BMT) of carbon dioxide. This was nearly 24% of the world’s total carbon dioxide emissions during that time and represents the most of any country in the world. In comparison, over that same time span, the European Union emitted 209 BMT, China emitted 169 BMT, and India was way down the list with only 39 BMT.
So the U.S. ranks first among countries responsible for the current inventory of atmospheric carbon dioxide. But the direction of trends in recent years suggests that this won’t remain the case. China’s annual emissions exceeded those of the U.S. in 2006, and by 2015 had increased to 67% higher than annual emissions in the U.S. India’s emissions have doubled in the past dozen years, and on the current trajectory will reach U.S. emission levels toward the end of the next decade.
In fact, carbon dioxide emissions in the Asia-Pacific region are nearly double the combined emissions of the U.S. and the European Union, and they are rising rapidly:
It seems pretty clear that the Asia-Pacific region will be the most important driver of carbon dioxide emissions in the near future, and that it is imperative to rein them in. But the Paris Accord was not going to accomplish this. The treaty was non-binding, and analysis by the International Energy Agency concluded that the agreed upon measures fell far short of what was needed to achieve the treaty’s goals.
But it is also clear that the atmospheric concentration of carbon dioxide reached its current level above 400 parts per million (PPM) with significant contributions from the U.S. and the EU. So this is a problem in which there are multiple responsible parties, and it will require cooperation among all of them if there is any hope of coming up with a solution.
Thus, the U.S. must not abdicate leadership on this issue. We must take responsibility for our historical emissions while helping developing countries avoid taking the same high-emissions path to development. Not only do we need to maintain a seat at the negotiating table, but we need to let the rest of the world know we are serious about addressing the problem. We can’t give other countries the excuse of not meeting their commitments that the U.S. decided not to participate.
Further, there may be other real costs to the U.S. for abandoning the agreement. Some countries may opt not to trade with a country that isn’t a participant. We could also lose our advantage in the cleantech industry to other nations. It wouldn’t be the first such industry the U.S. has lost.
Our long-term future is in clean energy. It will be a shame if we have to depend on other countries for that energy. By abandoning commitments to clean energy, that’s exactly what we risk.
Posted in Forbes
Last month the Energy Information Administration reported that retail gasoline prices heading into Memorial Day weekend averaged $2.40 per gallon nationally. This marked the second-lowest price ahead of the Memorial Day weekend since 2009.
The EIA included a graphic displaying gasoline prices over the past decade.
Unmentioned in the story was the primary reason that Americans are paying much less today for gasoline than they were just a few years ago. But let’s take a trip down memory lane to review.
Starting in the first half of the previous decade, oil prices went on a steady climb as crude oil and finished product imports topped 12 million barrels per day (BPD). The average price of West Texas Intermediate (WTI) rose every year from 2001, and by July of 2008, it rose above $140 per barrel (bbl). The price would get a brief reprieve in response to the 2008 financial crisis, but by 2011 the price returned to the $100/bbl level.
But this was also when a surge of new oil production was coming online in the U.S. Between 2008 and 2015 U.S. crude oil production rose by nearly five million BPD. Production grew faster than demand, and prices began to weaken in 2014. The decline in price was exacerbated in 2014 when OPEC decided to defend market share, pumping another two million BPD into an already oversupplied market.
Without fracking, U.S. net imports would likely still be over 12 million BPD, and we would be paying $100/bbl to OPEC. In 2008, the first year that the shale oil boom caused U.S. production to begin rising, U.S. net imports had declined to 11 million BPD (down from 12.5 million BPD in 2005). The average price of Brent crude (the benchmark for many internationally traded crudes) was $97.26/bbl. The U.S. economy paid $390 billion for crude oil and finished product imports in 2008.
By 2016, the average price of Brent crude had fallen to $43.55, and net imports had fallen to 4.9 million BPD. In 2016 the U.S. paid out $78 billion for oil and finished products — a decline of $312 billion. There are multiple factors behind these savings for U.S. consumers, but the primary reason is the huge surge of U.S. oil production brought on by fracking.
Gasoline is where most consumers are reaping the benefits. The national average price for unleaded gasoline on Memorial Day was about $1.30/gal cheaper than it was just three years ago. U.S. consumers use about 140 billion gallons of gasoline a year, which means consumers are saving about $180 billion a year just on gasoline.
Add in the savings in diesel, jet fuel, heating oil, and the 27.5 trillion cubic feet (Tcf) of natural gas we used last year, and fracking is easily saving Americans several hundred billion dollars a year on their energy costs. That’s money that would have mostly gone overseas to OPEC, but that is now freed up for consumers to spend or save as they wish.
Posted in Forbes
A good friend of mine works in the Bakken oil fields in North Dakota. I thought it might be interesting to interview him to give readers some insight into what life is like in one of the leading shale plays in the U.S.
To avoid getting him into trouble with his employer, I will only use his initials to protect his identity. He is “WW, ” and I am of course “RR.”
RR: What brought you to North Dakota?
WW: I first came up during the initial oil boom a few years ago. There were numerous jobs for anyone willing to work hard. I started out as a transloader. My company owned a facility where shippers could transfer a load of oil that had been brought from the field by truck to a railcar. The company had crude storage tanks, and it stored crude oil on site and ultimately moved it to a train. From there, it could be shipped to either coast (e.g., Delaware or Washington state). It seemed like BNSF was always the rail carrier; they appeared to have a monopoly up there on rail shipment.
RR: But then the bust came, and like many others, you left. But now that things have started to pick back up, you are back. What has changed?
WW: Activity is picking back up, but it’s still well short of where it was during the previous boom. Housing was an expensive nightmare before. A two-bedroom trailer that rented for $4,000 a month during the last boom can now be rented for $800. So the cost of doing business for many of these companies has gone down a lot.
RR: You are doing a different job this time around, right?
WW: Yes, I am a water transfer specialist. I provide water to drillers that are carrying out hydraulic fracturing operations.
RR: What exactly does your job entail?
WW: A frack job requires substantial volumes of water. We contract that water from various locations. For example, we could buy it from a farmer who owns a lake. It could be from a well or a river. We also have strategically located water depots to help with the water demand.
My job is to transport the water to the well site. We use drainage ditches whenever we can, but the job generally requires running a hose of 8 to 12 inches in diameter from the water source to the oil well. We could require two miles of hose, or we could need twelve miles. If we have to run the hose across farmland, we will pay that farmer something like $10,000 to $20,000 for the temporary use of his land. It’s usually $1 per linear foot, and the line may cross his land for a few weeks or a few months. For perspective, there’s probably savings of a million dollars or more versus trucking all that water in.
Once the water has been moved to the well site, we temporarily store it in something we refer to as a Poseidon. It’s basically like a large, above-ground swimming pool that can hold several hundred barrels of water per inch of level. It has 12-foot steel plate walls and can take up an acre of space. During the frack job, we can use 60-80 barrels of water a minute. A single frack stage may require 1.5 hours at this rate to complete. A well may have 35 stages, and depending on whether everything is going according to plan, we can get about five stages done in a 12-hour shift.
[RR notes: Apparently the Poseidon comes from a company called Poseidon Concepts. One of the company executives was charged with securities fraud a few years ago for overstating revenues. The company went bankrupt, but the assets were acquired by Rockwater Energy Solutions in 2013. Also, according to the description provided by WW, a single fracking stage would require about a quarter million gallons of water. At 35 stages, that’s nearly nine million gallons of water for the entire well].
RR: What kind of things can go wrong?
WW: On my end, we have to make sure the lines don’t freeze. We achieve that by rapidly transferring the water. In cold weather, we deploy heater units for the water. But there are many companies working together to complete the frack job, and if any of them have a problem, there could be a delay.
RR: What are the roles played by the different companies?
WW: You will have a company in charge of the overall frack. Someone like Baker Hughes or Halliburton. Then there are the companies like mine that are supplying the water. There will be a company delivering sand. There will be wireline operators in charge of the explosives downhole (for perforating the casing prior to the frack). Everyone has to be in constant communication.
RR: Does your company also handle the wastewater?
WW: No, different companies do that. One thing that may not be common knowledge is that sometimes the wastewater comes back up “hot,” or radioactive from background radiation within the earth. That requires special handling.
RR: Interesting. That sounds like an idea for another article. Thanks for taking the time out of your day to speak with me about your job. I certainly appreciate it.
Posted in Forbes
Note: This article originally appeared on Forbes.
OPEC’s 172nd ordinary meeting will take place next week in Vienna, Austria. At that meeting, the cartel will decide whether to extend crude oil production cuts that were enacted following the group’s meeting last November.
News reports indicate that both Saudi Arabia and Russia are for extending the production cuts for another nine months. I would argue that they have little choice, and even then growing U.S. shale output threatens to negate those production cuts.
OPEC is finally beginning to recognize this.
OPEC’s outlook for non-OPEC supply growth this year has changed dramatically over the past year — but especially since January. In August 2016 OPEC was projecting that non-OPEC supply would decline by more than 100,000 barrels per day (BPD) in 2017. By the time the group announced production cuts in November, it had changed its forecast to one of growth in non-OPEC production to just over 200,000 BPD.
Given the International Energy Agency’s forecast at that time of 2017 crude oil demand growth of ~1.5 million BPD, OPEC was confident the production cuts — totaling ~1.8 million BPD between OPEC members and some large non-OPEC members — would quickly bring the oil market back into balance.
But OPEC just put out a new forecast in which they now project non-OPEC growth of 950,000 BPD this year — led by U.S. shale oil production. Thus, in less than a year OPEC’s view of non-OPEC oil production growth has increased by over one million BPD.
Likewise, the Energy Information Administration’s (EIA) latest Short-Term Energy Outlook has turned more pessimistic about global crude oil inventories. Just a few months ago the EIA expected inventories to start dropping this year. Now, they expect supply and demand to be in balance for the rest of 2017, and for production to again pull ahead of demand in 2018. This is primarily due to U.S. oil production that they project will rise by ~1 million BPD by next year.
Posted in Forbes