Oil prices have plummeted over the past few years. More and more people are switching to heating systems that don’t use oil, such as natural gas, heat pumps, and wood pellets. There is still a big push for solar power. Electric cars are gaining market share and getting better. Is oil going to be worthless soon? Between falling prices and lots of alternatives, the party is pretty much over for big oil.
Uh, no.
The plummet in prices is due to lower demand and market manipulation by the Saudi’s. Once they put some of the shale producers out of business. Oil will be worth something again.
I simply don’t undersrand this idea that the Saudis are trying to put shale oil producers out of business. If the price goes back up, they’ll start drilling for shale oil again. The technology and equipment isn’t going anywhere. Some small companies may go bankrupt or get bought up but shale oil will be waiting still.
Is the oil era coming to an end? Yeah, I think so…I think it’s the beginning of the end game for oil used as we have for the past century or so. Are the current falling prices and indication of that? No, not even a little bit. As for electric cars gaining market share, it’s still minuscule at this point. As is solar power wrt electric energy generation (though oil isn’t that big a player in that arena either).
But no, oil won’t be worthless ‘soon’, and the party isn’t over quite yet for Big Oil™. You’ll know it’s nearly over when you see the price rise and stay up for long periods of time, and then spike up even higher. When people think that the price of oil is too high and that the alternatives are viable THEN you will see a real switch over, and then the price of oil will plummet. I doubt it will ever be worthless, but we’ll use it for different things in the future than burning in the tanks of our personal transport.
Lower prices for oil only make it more difficult for alternative fuels to compete.
It’s a risk that the Saudis think is worth taking. It certainly hurts them in the short term. They had to double the price of subsidized gasoline the other day (although it doubled from, IIRC, 16 cents/liter, but still) and they are apparently hemorrhaging cash and really hurting the rest of OPEC. I worry that this will destabilize some of the other OPEC members to the point where bad things may happen.
Also, keep in mind that if the shale producers go out of business, it’s not as simple as turning the switch back on. Presumably when a company goes out of business, it liquidates its assets. If the price goes back up, they have to go out and raise all that capital again at higher prices, since presumably there will be more demand. I am sure that there are other technical reasons that would cause a small player to be forced out permanently. Not sure about companies like ExxonMobil, etc.
FWIW,
Rob
Exactly.
Personally, while I doubt the Saudi’s would shed many tears of some US oil companies went out of business, I think their actual targets are several nation states that depend on the price of oil being at a certain (high) price point to balance their budgets. Iran and maybe Russia spring to mind, though there are several who are being hammered by the low price of oil.
The end of the available oil, thus the oil era, has been predicted to be 30 years, for the last 130. That is for the last 130 years over and over again the oil era has been predicted to last only another 30 years. Our great grandchildren will see the same predictions.
Where do you think they liquidate their assets to? Bigger oil companies that can afford to sit on the equipment until it becomes profitable. It’s not a matter of any specific company re-capitalizing, SOMEONE is getting that shale oil when it’s worth it. At most they delay some projects and exploration. I can’t imagine they would want to wreak havoc on the oil business to prevent shale from coming to market for a some short period. Shale oil is pretty easy to bring back online
That is my thinking as well. If we are going to talk about what Saudi Arabia thinks of as a threat Iran and Russia probably rank a lot higher than shale oil production. With sanctions against Iran set to end, this is a perfect way to mess with their comeback.
Iran makes the most sense. Low oil prices hurt Saudi Arabia. They cripple Iran. Less money for Iran is less many they can use to fund Shia uprisings in Saudi Arabia. The Saudis have far lower cost of production and the cash reserves to hang on for a few more years of this. Having said that, the crippling of non-OPEC producers like U.S. shale, Canadian tar sands, Russia, the North Sea, alternative fuels, etc are a nice secondary benefit for Saudi Arabia.
Also, the U.S. shale industry absolutely will come back quickly. That’s kind of the entire point of it: short life cycle manufacturing like process as opposed to the massive mega projects of the past.
As I’ve mentioned before in some of these threads, the Saudis are manipulating the oil markets by… doing nothing? To the extent that the Saudis are to blame for the low oil prices, it’s only by not cutting their own production to accommodate all the new supply, as many North American producers apparently thought they would. While there certainly is some political dimension to it, I don’t think you need a grand geopolitical conspiracy to explain why they might not want to reduce their market share simply to maintain the health of the rest of the global petroleum industry.
Dire predictions of collapse in the supply of oil have been very common over time, but predictions of the collapse in demand for oil (which is what’s being discussed here) have been generally less common. Though maybe that’s just because it doesn’t make for good dystopian fiction.
Anyways, I don’t think the “end of oil” is coming per se, but I think we could be entering a protracted era of generally lower and generally less volatile prices. The volatility in the petroleum markets really since the early 1970’s has generally been driven by uncertainty over supply, but the unconventionals have demonstrated that above a certain price point the supply of recoverable oil is (at least over the near-to-mid term) practically unlimited.
I think a lot of what really happened with the recent crash is that when prices were high enough to make the unconventionals economic, the North American producers in particular went absolutely hog-wild with bringing on as much new production as they could. I think that was partly because they were counting on the Saudis (or really just anyone else) to cut their own supply to stabilize prices, but also because there was ambiguity as to the ability of the oil industry as a whole’s ability to bring on more production in the face of higher demand. Now that ambiguity is gone, and as prices creep back up there should be recognition that the unconventionals create something of a price ceiling, and so hopefully we’ll see more caution on the part of oil producers and investors and fewer huge price swings. Of course betting on the oil industry to act rationally in its own interests or demonstrate any sort of long-term thinking isn’t always a safe bet…
That is correct, however i don’t think the demand for oil is going away anytime soon.
No, but demand deterioration is expected at a rate of about 1-2% per year over the next 30 years.
What’s your source? That’s certainly not in line with the IEA’s projections. Demand grew roughly 1.5% in 2015 and is expected to slow to about 1.2% growth in 2016. Beyond the near term, I think I’ve read that demand is projected to grow another ~10 mmbbl/d in the next couple of decades and plateau.
Yes, the oil era is coming to an end. The same way the coal era came to an end. We’ll still be using lots of oil - possible more than ever, we’re also using more coal than the Victorians - in many decades to come, but it won’t be a defining element of the economy. Just another commodity with mostly local importance and plenty of alternatives. Oil usage has already been slowly declining in the West for a number of years. Demand will continue to increase in the developing world for some time to come, but they’ll be able to leap frog the electrification more easily, the same way they leapfrogged to for instance mobile phone, and in any case the developing world can’t be price drivers.
The Saudis had several goals. Only one of which was to target the Shale producers. They very likely also did not anticipate the speed at which the US shale producers drove innovation and managed to reduce costs.
Like Longhorn and the Financial Times article I linked said, shale will probably bounce right back in if/when prices go back up. If targeting them was a goal I don’t see the long term benefit.
Low prices, efficient usage, and alternative energy are extending the oil era.
If SA had expected shale to produce oil at $90/barrel (which seems to have been the cost in 2013), they could have driven them out and protected their market share by selling at around that price, which would still have left SA with a very good profit. But then the shale producers managed to cut their production cost substantially in a very short time, so now they’re apparently able to produce at $50/barrel. If $50 rather than $90 is to be the new ceiling that leaves traditional OPEC producers kinda fucked, but that’s not possible because at $50 most of the worlds producers (USA, Canada, Russia, Norway, Venezuela, Nigeria) are in the red.
Perhaps they also expected research and development of shale technologies (& of alternative energy technologies) would have dried up. They got that wrong as well.
But the message has been sent-- start it up again, and the price will plummet again.
No way. Saudi Arabia isn’t that much in charge of the price. This drop is mostly because of the Chinese economy. Like Greasy Jack said above, SA is taking all the blame because everyone expects them to take the hit and slash production. And like Longhorn said, shale projects are a much more short term deal. Sure this drop in price will make investors a little more nervous, but this oil price is unsustainable.