Cheap oil – but for how long?

Back to global risks….

Leader in the Telegraph today, which ends as follows:

“This apparent glut in supply, however, means that capacity globally is quite small. It would therefore require only a relatively minor disruption to supply for the situation to reverse and prices to rocket. Rarely have both the geopolitics and economics of oil looked so fragile.”

The Future of Oil (and Predictions)

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Back in 2009 Deutsche Bank predicted that oil would reach $175 by 2016. Yesterday the price stood at $85.68, down 25% in five months. Goldman Sachs say that the price of oil may fall to $80 next year. But the only thing we can say with any precision about the price of oil in the future is that it will go up and down.

Hysteria about Peak Oil has now been replaced with complacency. But while the price of oil will always reflect demand and the supply of alternatives such as gas, the amount of oil that’s left will always depend on its price. If the price is high there’s an incentive to look for more oil and to develop new technologies to extract it.

Perhaps all this highlights a few things about predictions. First, predictions are generally extrapolations of recent past experience or data. Second, predictions ignore feedback loops. Third, predictions are blind to new technologies or inventions. Fourth, predictions they assume constant behaviour (which can be influenced by, among other things, regulation and pricing). Fifth, predictions contain at least one key assumption, which in the case of peak oil might be that we’ll need oil in the distant future.

Finally, there’s Ballard’s law of forecasting, which says that if enough people predict something it won’t happen.

Shell Scenarios for 2050










Shell’s latest set of scenarios for the world 2050 are now out and, interestingly, include a view out to 2100. Here are two overviews and here’s the link to the scenario book.

The first scenario, labelled “mountains”, sees a strong role for government and the introduction of firm and far-reaching policy measures. These help to develop more compact cities and transform the global transport network. New policies unlock plentiful natural gas resources – making it the largest global energy source by the 2030s – and accelerate carbon capture and storage technology, supporting a cleaner energy system.

The second scenario, which we call “oceans”, describes a more prosperous and volatile world. Energy demand surges, due to strong economic growth. Power is more widely distributed and governments take longer to agree major decisions. Market forces rather than policies shape the energy system: oil and coal remain part of the energy mix but renewable energy also grows. By the 2060s solar becomes the world’s largest energy source.

BTW, as an aside, the idea of ‘peak oil’ is increasingly redundant as an idea as it fails to take into account the impact of other energy sources. At the very least one should now add gas to oil in the context of ‘peak’.

The beginning of the end for oil in Saudi

I was talking with someone in Dubai yesterday and they pointed me in the direction of a great statistic, which is that by 2040 Saudi will be a net importer of oil. It’s so good in fact that if you Google: “By around 2040, Saudi Arabia will be a net oil importing nation”, Google tries to correct your search by changing “importing” to “exporting”.

Source of the graph is Chatham House (Burning Oil to Keep Cool: The Hidden Energy Crisis in Saudi Arabia by Glada Lahn and Paul Stevens) but IMF has also referred to this forecast.