The HSBC report further noted that global oil discoveries have been declining and that 81% of the world liquid production is already in decline.
Shale Oil and OPEC May Not Be Enough
Former Energy Information Administration (EIA) head Adam Sieminski warned of a decade of disorder:
“Maybe we are going to be less volatile now because shale can feed into rising demand. I’m thinking that the decade of the ‘20s is going to be one of difficulties. That’s why I call it the decade of disorder. We’re not getting enough capital investment now, I don’t know that shale is going to be able to do it all.”
There are some who suppose that OPEC has enough spare capacity to flood the market and keep oil prices in check. But Ed Morse, Citibank’s Global Head of Commodities Research, warned that OPEC may be pumping at maximum capacity and that there is a risk of a market squeeze due to under-investment by OPEC countries:
“Fear in the market has been that OPEC production will rise dramatically, however, there could be a supply gap emerging, which could point to a tighter market. We’re seeing more and more evidence that it’s not the international oil companies, it’s not the independent oil companies that are lagging new investments, but it’s OPEC countries lagging, particularly those five [Libya, Nigeria, Venezuela, Iran and Iraq].”
Plummeting Discoveries
But the risk isn’t just from lack of investment. On the topic of new global oil discoveries, in December, Norwegian research firm Rystad Energy reported that oil companies discovered less than seven billion barrels of oil and gas in 2017 — the lowest number on record. Rystad indicated that this would only replace 11% of 2017 oil and gas production, and that the last time the world discovered enough oil and gas to completely replace that year’s production was 2006.
Since the beginning of the shale revolution a decade ago, the world has discovered 110 billion barrels of oil. Meanwhile, consumption has totaled 360 billion barrels. This 250 billion barrel deficit between discoveries and consumption seems sure to grow in the years ahead, given recent oil discovery trends.
It is understandable why people would be complacent about this scenario. After all, didn’t the world face similar risks a decade ago, only to have shale oil save the day? But it isn’t clear that there is another “shale oil miracle” that is ready to save the day. There are indeed more high-cost oil resources out there that can be developed, but these projects take a long time to complete. That’s why we can look out two to three years and see an impending supply crunch. The longer investments in the industry remain depressed, the more unavoidable this scenario becomes.
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Based on all the doom and gloom from the Peak Oilers a few years ago, how could we be sleepwalking? Some of which you were involved in. Granted you were not as silly as the rest of them–there are some total loons there, so don’t pat yourself too much given the comparable. But you still had the wrong instincts on US and World oil production.
Well, at least you’ve learned your lesson on predicting systemic higher natgas prices! Remember, nothing stops the shale train!
https://www.youtube.com/watch?v=OyabiLNfjQw
[OK, the Saudis can crash the price. But it ain’t stopping because of peaker resource exhaustion, regardless of high prices, as the TODsters and ASPOers advocated 10 years ago.]
Oil peakers made serious mistakes, but there were ways they were mostly right. For one thing, the conventional way of producing oil in 1950 and the frequency of oil booms was pretty much ending by 2005. Lucky us that some enterprising oil producers developed the fracking method and that the price of oil was high enough to keep oil going until their methods improved. That’s definitely one for American free enterprise (and fracking may have kept us out of a major depression). It’s fortunate that fracking methods improved so much that oil producers using fracking could make a profit even at $47/barrel (well, sometimes workers had to be paid a little less, but never mind. Methods improved).
Peakers are still around, myself included, but I know better now. It’s not easy to make predictions.
The biggest threat to oil is clean tech and the growing international irritation with global warming, which we know we can no longer ignore. I’m not sure how one judges the timetable, but the efficiency and low cost of clean tech will eventually reduce oil’s role in the American economy. Still, experience tells us peakers that people will continue for some time to make money in oil and we have to be circumspect; but many of us are watching the new clean technology and it’s growing fast (and most of it is still first generation, with another one or two generations to go of serious improvements). I can’t predict how fast it will happen but oil will not be a major player 25 years from now. A good clue is that coal in many areas is now a fading business. And natural gas won’t be far behind (then again, maybe not if you’re a European and somewhat susceptible to the charms of Putin (or his threats)).
Going forward, flexibility will be the key. The U.S. will need realistic flexibility to make a safe transition. We’re no longer fully in control of our destiny. And China is now ready to take advantage of mistakes we’re already beginning to make (though if Europe isn’t careful, it will join us in those mistakes as well).
The global warmers may go the way of the peak oilers. It cannot be proven that temps today are any higher than during the 1930’s and they may be lower. Temps in the Little Ice Age that ended ~1850s were much cooler and were detrimental to agriculture and life in general. It’s definitely cooler now than during the Roman and Minoan warm periods but comparison to the Medieval warm period is still being debated.
Despite what the mainstream media says, apparent global temperature increases are being driven by “adjustments” and local heat island effects. Antarctic ice is stable or growing and a cyclical nature of the Arctic takes it back to levels last seen in 1974. Sea level rise is not accelerating and in fact its rise is among the slowest since the beginning of this interglacial period, say ~10-12,000 years. What happens to climate in the next 30 years may completely throw AGW into the dustbin of history, and cooling would be negative. The obvious fortune related to resources and technical developments of fracking may apply to coal. Africans hope so at least.
Interesting post.
It is the old cycle repeated: lower prices, lower investment, higher prices, higher investment.
Beyond the midterm, the wild card is solid-state batteries. If solid-state batteries work, then the outlook is for long-term decline in oil demand.
President Trump administration is allowing E15 sales for full year. This is great news given the projected supply pinch of petrol. Not so bad that the fuel is usually a dime cheaper per gallon, clean, less polluting, and allows better engine performance.
Just read the Japanese evaluation of fuel supply and mileage of vehicles. Come to find out we need higher octane fuel. So, again ethanol fits in nice with less expensive fuel and more efficiency. Not bad that the fuel will drop the carbon rating of gas vehicles by a large fraction. Also, we need to supply fuel markets with super premium E30 for next generation vehicles. IEA had ICE still at 58% of light vehicle fleet 2050, so we do need to accomplish better fuel supply.