Peak Shale Will Send Oil Prices Sky High

[Geoff Guenther + 317]

19 hours ago, BenFranklin'sSpectacles said:

incredible wealth, power, industrial capacity, and R&D capability are being thrown at eliminating oil demand to fight a perceived existential threat.  The results of this effort are already trickling into markets; in the next 5-10 years, we'll see the flood.  Any spike above $60/bbl will be short lived.

With the cost of renewable energy coming down much more rapidly than everyone predicted I believe your $60 cap is reasonable.

There will still be lots of money to be made in oil, though, and not just because of all of the legacy plants.  With oil/gas as a reserve backup during an energy transition the spikes will be absolutely enormous. People will start talking about oil and tulips again because they are wishing they bought calls at $200/bbl.

[Gerry Maddoux + 3,627]

33 minutes ago, Geoff Guenther said:

With the cost of renewable energy coming down much more rapidly than everyone predicted I believe your $60 cap is reasonable.

There will still be lots of money to be made in oil, though, and not just because of all of the legacy plants.  With oil/gas as a reserve backup during an energy transition the spikes will be absolutely enormous. People will start talking about oil and tulips again because they are wishing they bought calls at $200/bbl.

About 90% of solar panels are manufactured in China. The future of their supply depends totally on how they respond to the seemingly constant spew of zoonotic viruses from that area. If they go back to business as usual--wet markets plain sight or black market--they are going to lose the solar market and it will either go somewhere else (Vietnam, S Korea) or default back to home countries. If the latter becomes the norm, the price will be too high to compete. 

I don't model prices. Others on this site do. Models can be manufactured based on what has happened, attenuated by the exogenous forces one can see, not what one can imagine. I can imagine several scenarios in my mind about the future of "Made in China" solar panels. Most of them aren't good.

Additionally, all models assume giant solar farms without considering unintended consequences--again you can't model what you can't see or imagine. Some of these are going to be built in close proximity to three major fault lines: Hayward, Calabasas, San Andreas. Along that chain are some 35,000 old oil wells that mainly produce sour oil--laden with H2S. The transmission lines are going to have to deal with the Santa Ana winds and wildfires.  

Hmmmm. What could possibly go wrong? 

[Old-Ruffneck + 1,235]

16 minutes ago, Gerry Maddoux said:

Hmmmm. What could possibly go wrong?

Down in the Southwest the massive solar farms are already wreaking havoc on eco-system. There is little said about this on main stream news because doesn't fit the narrative of going "green". 

[Geoff Guenther + 317]

18 minutes ago, Gerry Maddoux said:

I don't model prices. Others on this site do. Models can be manufactured based on what has happened, attenuated by the exogenous forces one can see, not what one can imagine. I can imagine several scenarios in my mind about the future of "Made in China" solar panels. Most of them aren't good.

If modelling was accurate we wouldn't have unforeseen occurrences like the 2008 run-up of commodities and the resultant near-depression. No one disputes that all the signs were there, but modellers aren't paid to detect risk that hasn't happened in the last 20 years. They model based on what the best available numbers are. We talk about Black Swan events, but it's been 80 years since the west actually experienced one and 100 years since we last switched energy sources.  

Solar will probably drop to $10/MWh over the next 10 years, even if it's built in the US. This will have drastic consequences for managing reactive power, especially as battery power is still lagging. NG is normally paid for on a daily basis and much of the profit from gas generators will be lost. Concerns about how supply energy for the 6 peak hours from sun-down to midnight in the US South are not misplaced.  CCGT is not designed to spin up and down during peak periods.

I'm 100% pro-transition. It's probably as exciting as the new frontier wildcatter boom was in Texas a century ago. The transition will be anything but painless but there's no stopping it, so let's do it and have fun on the way.

 

[Old-Ruffneck + 1,235]

3 hours ago, Geoff Guenther said:

I'm 100% pro-transition. It's probably as exciting as the new frontier wildcatter boom was in Texas a century ago. The transition will be anything but painless but there's no stopping it, so let's do it and have fun on the way.

I am pro NG and nuclear. Solar arrays are damaging the desert southwest and natural habitats for many living creatures are getting destroyed by the placement of all the panels, then the massive shade on the desert floor is cooling the earth. Getting rid of nuclear waste is getting better because able to use more of the material thru tech. Waste now is half of what 70's reactors are. Or we could drop it in Chernobyl. 🙂

[0R0 + 6,251]

3 hours ago, Geoff Guenther said:

If modelling was accurate we wouldn't have unforeseen occurrences like the 2008 run-up of commodities and the resultant near-depression. No one disputes that all the signs were there, but modellers aren't paid to detect risk that hasn't happened in the last 20 years. They model based on what the best available numbers are. We talk about Black Swan events, but it's been 80 years since the west actually experienced one and 100 years since we last switched energy sources.  

Solar will probably drop to $10/MWh over the next 10 years, even if it's built in the US. This will have drastic consequences for managing reactive power, especially as battery power is still lagging. NG is normally paid for on a daily basis and much of the profit from gas generators will be lost. Concerns about how supply energy for the 6 peak hours from sun-down to midnight in the US South are not misplaced.  CCGT is not designed to spin up and down during peak periods.

I'm 100% pro-transition. It's probably as exciting as the new frontier wildcatter boom was in Texas a century ago. The transition will be anything but painless but there's no stopping it, so let's do it and have fun on the way.

 

I base models going back to as far as data is available. I avoid conventional economic theory because it is modeled by Fisher-Keynes based assumptions, which do not apply in an open economy with a floating debt money financial system operating largely in the space between countries rather than within any one of them. The crude models I use showed up every recession since 1970 without a false signal yet, and work well to let you in or out of the stock market with a few months to a year of warning or lead time. The debt market model as well as the crude economic model showed the credit distress and the breakdown of business margins long before the crisis hit. Nothing that happened was a surprise, only that regulators and central banks didn't react in time or correctly.

The regulatory background before and after the GFC were nothing short of sabotage. Essentially, any meeting of IMF or BIS aims at destroying the goose that lays the golden eggs whether they intend to or not because the participants are ignorant of how financial markets operate.  E.g. the idea that there is a fair value onto which you can mark an institution's book was particularly insane. The only possible reason for a transaction - which is what sets a market price - is a DISAGREEMENT about the value of the asset, the value to the seller was lower than the trade price, and higher than the trade price for the buyer. It is not a fair market value for marking up everybody. The volatility based asset pricing models used by banks as estimates for "fair value" are not the actual value. Imposing such artificial marks on assets means that they can't be traded because banks can not disagree on their value and mark an asset up above the price they paid. It is particularly foolish to apply this to debt assets because they are generally illiquid and have enormous variations in terms even when they have identical internal yields and maturities and are issued by the same debtor. 

 

[BenFranklin'sSpectacles + 762]

On 2/25/2020 at 7:13 PM, Old-Ruffneck said:

Seriously?? Using Wikipedia to get proven reserves? and can only extract half?? YA!! OKAY!!!!

It's a back-of-envelope calculation to show roughly what we're dealing with.  If you don't like it, quote better numbers and show that they alter the conclusion. 

[BenFranklin'sSpectacles + 762]

On 2/25/2020 at 1:34 PM, Rasmus Jorgensen said:

The thing is that as demand starts to disappear so will supply and when supply starts to contract then the snowball effect will really kick in. For a long time I have maintained that marginal offshore will be the first victim of LTO and demand destruction. After that, my guess is that LTO is next. 

Coronavirus may just have accellerated the trend quite a bit. NB! rather inconvinient for me - I was planning to move money into precious metals after Trumps re-election, capitalizing a little but more on the stock market untill the election... 

What does that snowball look like? 

[BenFranklin'sSpectacles + 762]

On 2/25/2020 at 10:05 PM, 0R0 said:

Mining materials at a high clip, shipping them, constructing new factories, constructing renewable+storage electricity, all rapidly. It is a throughput problem. Not a problem of size if the transition is done as economics allow over some 20 years. 

The amount of minerals we're talking about mining and shipping is a tiny fraction of total oil demand.  Even assuming most of these mines don't implement new, efficient technologies - which is what's happening - I don't see how that can create a significant spike in oil demand. 

Meanwhile, every mine that comes online is a pile of factories producing alternative vehicles, which slashes oil demand.  Even if the net effect is positive, I don't see how it's enough to matter. 

[0R0 + 6,251]

2 minutes ago, BenFranklin'sSpectacles said:

The amount of minerals we're talking about mining and shipping is a tiny fraction of total oil demand.  Even assuming most of these mines don't implement new, efficient technologies - which is what's happening - I don't see how that can create a significant spike in oil demand. 

Meanwhile, every mine that comes online is a pile of factories producing alternative vehicles, which slashes oil demand.  Even if the net effect is positive, I don't see how it's enough to matter. 

Estimate the money involved in each stage of capital expansion in the EV and renewables supply chain. Take 1 Mob/d per $1 Trillion. The EVs and the renewables don't reduce demand until an accumulation of product and installations of significant size is in place. That is a matter of years of added demand ahead of the demand destruction. That much more oil and NG (2X to 4X) demand if the transition period is artificially compressed to 1 decade. 

[BenFranklin'sSpectacles + 762]

On 2/25/2020 at 9:32 PM, 0R0 said:

I am talking about the rush causing the key minerals to rise in price such that financing of the buildout will weigh on the economies building this for a decade of financial stress after a decade of stretching economically to put the capital in place. 

 I do agree that AFTER the next two decades, perhaps as early as 2035, then yes, there will be the situation you speak of after all these economies go broke. There will be a built in resource to be recycled within their region.

The US will do exactly as everyone else is doing, just do it later, when best practices are established and materials are cheaper. Do it on a commercial basis rather than a national/regional effort.

The US will continue policing its own trade routes with its trading partners who pay to play or just happen to be actually strategic. The proponent of the new neo-isolation did not dump so much money into reviving and modernizing the Navy to decorate domestic dry docks.  If you noticed, India is being "groomed" as a potential development target for its young demographics and "work for food and shelter" labor. 

The point is that the US would have a way to ship to and from its chosen trade partners. Others would not.

Totally agree. I have seen the math from the first Tesla roadster. it was cheaper to maintain than my old Towncar.  At least till the batteries wore out. The replacement cost more than 1/2 as much as the car unless it was under warranty. True that given a low enough interest rate and a low enough capital cost per MW capacity the financials work great and long term costs are a fraction of FF, particularly if they are running out. That is why I don't expect us to run out of oil, but for it to become eventually obsolete. I figured a 20 year transition as discussed in a study from Finland's geological survey, which is on this forum by which time, ~2040-2050 or so, you would be at the tipping point where oil and most NG are redundant and their pricing and economies of scale collapse. Some years afterwards you have an economy of nearly free energy and petrochemicals produced from electrogas and hydrogen for powering air flight (if we dare, think Hindenburg) and long range cars. 

I don't disagree about the whole thing happening. Where it is an issue is compressing the transition into a short period of a decade. That means that you need a new set of mines for each of the minerals, among them Neodymium which is very rare outside China. That would be about 3-4 times as large a mining capacity as is currently present for each of the key elements and at least double what would be necessary from economic considerations if you had 20+ years of transition. Thus the pricing would be 4 fold more expensive on the mineral inputs. Second is that the only practical way to build all of that mining, transport and installation of renewables + storage and EVs would be by powering it all with huge amounts of gas and oil initially and for a long time  into the transition. Meaning that oil and gas may also be double or even quadruple the price they would obtain without this headlong rush into renewables. You would also be diverting an entire generation of engineers and techs to do the job from the myriad other work that the markets demand from them. 

So the short politically forced transition would raise the cost of the effort by 4 X and result in a benefit for those who follow when the mines are built up and the oil and gas are cheap and their cost to transition is 1/4 of that of the forced buildout, presumably Europe Japan/Korea and China footing the high cost  bill and the US following. Due to the high saving demographics of these countries, there is a good chance that the financing would be possible at negative real rates, though China will likely flip to negative savings before it had completed building up its renewables system. 

This is not what happens in the US. Demographics in the US flip to higher interest rates as the center of gravity of the boomers retires just as US Millennials crest into their major spending wave. The US will be bidding interest rates higher That may cut off the capital flows from the renewables transition investment towards financing US demand at an above 0 real rate vs. a seriously negative real rate elsewhere. 

So I am expecting that towards the end of a decade long rush to transition to renewables by policy rather than economics, all of these countries and much of their industries would be broke. And there would be a retirement crisis of huge proportions. AFTER that, everyone would have "free" energy. 

Cont....

I see your point, but I think you're overstating the effect.  Three reasons:

1) "Increasing production 4X" sounds daunting until we consider how small current production is.  We know where the minerals are, we know how to extract them, and we have an enormous oil/mining industry that can divert resources.  E.g. all the iron we won't be using for ICEs frees miners to produce lithium, cobalt, etc instead.  The additional quantities of lithium, cobalt, and rare earth elements will be a blip compared to current mining capacity.

2) The switch to "circular" economies will decrease demand for mines.  There will be plenty of knowledge and capital looking for projects. 

3) Technology moves fast.  E.g. in a few short years, Tesla has already figured out how to minimize/eliminate cobalt in its batteries.  I've also seen methods for using aluminum windings in motors instead of copper, ways to build powerful motors without rare earth elements, etc.  The second someone thinks a price spike will occur, alternatives appear.  This will be no different. 

We can try to model this precisely, but our assumptions will always bake in current conditions.  The market is more dynamic than that. 

As for the enormous cost you're assuming, these new technologies are profitable.  That means the money we won't be spending on oil can be funneled into capital projects.  The net result is minimal additional expense. 

[BenFranklin'sSpectacles + 762]

2 minutes ago, 0R0 said:

Estimate the money involved in each stage of capital expansion in the EV and renewables supply chain. Take 1 Mob/d per $1 Trillion.

I assume you're basing that 1MMbpd/$1 Trillion on past data.  Are you averaging that across the entire economy, or did you look at mining, specifically? 

[BenFranklin'sSpectacles + 762]

On 2/26/2020 at 8:49 AM, Geoff Guenther said:

With the cost of renewable energy coming down much more rapidly than everyone predicted I believe your $60 cap is reasonable.

There will still be lots of money to be made in oil, though, and not just because of all of the legacy plants.  With oil/gas as a reserve backup during an energy transition the spikes will be absolutely enormous. People will start talking about oil and tulips again because they are wishing they bought calls at $200/bbl.

How does that $200 spike occur?

[surrept33 + 609]

45 minutes ago, BenFranklin'sSpectacles said:

3) Technology moves fast.  E.g. in a few short years, Tesla has already figured out how to minimize/eliminate cobalt in its batteries.  I've also seen methods for using aluminum windings in motors instead of copper, ways to build powerful motors without rare earth elements, etc.  The second someone thinks a price spike will occur, alternatives appear.  This will be no different. 
 

I agree that supply chain pressures for resources will cause investments in substitutes, but there are some limits, and for some usages the substitutes have theoretical reasons why they would decrease performance or increase costs.

I kind of like the factsheet here:

http://css.umich.edu/factsheets/critical-materials-factsheet

Luckily for much of "critical materials" that are of highest concern, strategic funding by governments to encourage supply diversification is a easy way out of such problems - this already happened to some degree after the lessons of the 2010-2011 trade war between China and Japan. For a lot of rare earths especially, they are used in sufficiently small quantities that opening a relatively small number of new mines would fix it at relatively modest cost.

Edited February 27, 2020 by surrept33

[0R0 + 6,251]

16 minutes ago, BenFranklin'sSpectacles said:

I see your point, but I think you're overstating the effect.  Three reasons:

1) "Increasing production 4X" sounds daunting until we consider how small current production is.  We know where the minerals are, we know how to extract them, and we have an enormous oil/mining industry that can divert resources.  E.g. all the iron we won't be using for ICEs frees miners to produce lithium, cobalt, etc instead.  The additional quantities of lithium, cobalt, and rare earth elements will be a blip compared to current mining capacity.

2) The switch to "circular" economies will decrease demand for mines.  There will be plenty of knowledge and capital looking for projects. 

3) Technology moves fast.  E.g. in a few short years, Tesla has already figured out how to minimize/eliminate cobalt in its batteries.  I've also seen methods for using aluminum windings in motors instead of copper, ways to build powerful motors without rare earth elements, etc.  The second someone thinks a price spike will occur, alternatives appear.  This will be no different. 

We can try to model this precisely, but our assumptions will always bake in current conditions.  The market is more dynamic than that. 

As for the enormous cost you're assuming, these new technologies are profitable.  That means the money we won't be spending on oil can be funneled into capital projects.  The net result is minimal additional expense. 

Again, you are missing the sequencing problem. You can't displace the demand for oil and NG until AFTER the supply chain is set up. If you compress the transition, then the throughput you need is about double, meaning about double the capital and double the oil and gas demand. 

The mines take 3-7 years to setup. The production 1-2 years. Installations can take anything from a few months to several years. The main car companies are taking forever to get going and have produced underwhelming product at very high prices. So the demand fall happens AFTER a demand rise. You can estimate it. 

 

[0R0 + 6,251]

24 minutes ago, BenFranklin'sSpectacles said:

I assume you're basing that 1MMbpd/$1 Trillion on past data.  Are you averaging that across the entire economy, or did you look at mining, specifically? 

It is a general rule of thumb and it is backlooking and not specific to mining, which is actually more energy intensive than the general economy. If you are in the rush transition scenario then it is only existing resources that are available to build anything. There are no savings till everything is aligned and has been operating for a time. You build the mines and the factories with existing ICE heavy equipment, and workers scurrying about in gas guzzler trucks. The mines will use electric downhole equipment, but will fire it up with diesel generators. 

You can't apply future conditions before that future arrives. It would be great if you could build a mine with equipment made from that mine's output. But time is a sequence and the mine's output is not available till it is completed. 

[Geoff Guenther + 317]

49 minutes ago, BenFranklin'sSpectacles said:

How does that $200 spike occur?

We've already had months that have traded in the $150 range. Lots of uncertainty and fear in the market seems prices skyward. I remember analysts predicting that $200 oil was destined to be the "new normal". Ha!

Spikes are sometimes due to real shortages and sometimes due to financial speculation in a constrained market. The majority of spikes I've seen in electricity have been due to shortages, but there are a few famous cases of gaming those markets as well.

I should also point out that I expect some oil and gas producers to collapse at inconvenient times. With fewer participants an open market can stop functioning efficiently. 

Edited February 27, 2020 by Geoff Guenther

[surrept33 + 609]

Things I think can send oil back above $100/barrel for a while, each one could happen independently of each other, but if multiple scenarios happened, I think the likelyhood increases:

1. Not enough reserve replenishment in conventional oil fields. Basically: old oil fields dying and not enough investment in new fields or production enhancing technologies to replace the lost supply. This would most likely over a longer time span and potentially take a while to fix, but before it would happen, shale/short cycle well activity would probably spike first and OPEC would probably relax any supply constraints.

2. North American shale wells reach an apex in production and start decline in overall output due to completion/production issues. This would effectively remove some of the spare barrels from the market. I think how much this could affect oil prices depends on how big the effect was, and how much OPEC had the ability to replace the spare barrels by relaxing supply constraints.

3. Geopolitical risk causing reduction in production from the middle east that occurred for a sustained amount of time.

Of course, all this has to be measured against demand growth and possible demand shocks as wells. Compared to price shocks in the past, any mismatch between supply and demand could be softened because the world is increasingly more and more technologically ready to substitute other things for oil for it's various usages (even with natural gas!)

Edited February 27, 2020 by surrept33

[BenFranklin'sSpectacles + 762]

19 hours ago, 0R0 said:

It is a general rule of thumb and it is backlooking and not specific to mining, which is actually more energy intensive than the general economy.

This is a problem.  If we were talking about a generalized increase in economic activity, your method would make sense.  Because we're talking about transitioning a specific industry, we need to know that industry's oil intensity as well as the new technologies that will be implemented. 

Mining is "energy intensive", but that energy doesn't necessarily come from oil.  In particular, we're talking about new mines, which run newer technology.  If we don't know the oil intensity of new mines, specifically, then your estimates are useless.  For all we know, you could be off by a factor of 5. 

I could stop there, but there are more problems with your analysis.  First, there's a trend towards energy efficiency in mining.  E.g. "Highly electrified" means underground equipment that runs on electricity instead of ICEs.  This allows a cascade of changes through the mine's design, which slashes total energy consumption.  That's one technology.  Another is the introduction of renewables, which is happening now.  In general, mining companies are gunning for energy efficiency, and they'll have a chest of new technologies to accomplish it.  This alone could counter increased emissions from greater mining activity. 

Next, you're assuming that every dollar invested will be an additional dollar invested.  That won't be the case.  We're currently drilling for oil, mining minerals, building factories, and manufacturing things.  We don't need more things; just different things.  There might be a transient increase in activity, but it will be far more muted than you predict because, for every new thing we start producing, we'll stop producing an old thing.  That's true regardless of how quickly the transition occurs.  E.g. when VW created their electrification roadmap, they cannibalized resources from older programs.  E.g. Tesla didn't build the Fremont factory; they purchased it and installed new equipment.  E.g. major automakers won't build new facilities; they'll convert existing facilities to produce electric vehicles - which is barely different than converting them from one vehicle model to another.  Of all the "economic activity" that will be generated, most of it will cannibalize existing economic activity, and most of what remains won't be oil intensive.  There will be a few new mines.  The increase in oil consumption from those mines will be lost in the noise of fluctuating oil demand. 

Finally, let's look at the energy intensity of the minerals we'll need.  A vehicle needs a handful of things:
1)  Steel and aluminum:  no change here.  All vehicles require this. 
2)  Plastic: No change here.  All vehicles require this. 
3)  Battery-grade graphite: competes with thermal coal, and coal consumption is plummeting.  We should expect a continued decline of activity here. 
4)  Copper: motors require more, but new electrical architectures are dramatically reducing the amount of wires in vehicles.  The net effect is as yet unknown.  Also, aluminum can be substituted. 
5)  Misc. minerals in small quantities: demand for these will increase. 

Of all the minerals that go into a vehicle, the only ones definitely increasing are on the order of 1% of the vehicle's weight.  As Elon Musk once commented, lithium is like a salt you sprinkle on top of the battery; there's very little of it.  The same is true of rare earth elements in motors.  Why, then, is so much capital investment required?  It could be all the R&D, which isn't oil intensive.  Or it could be the specialized nature of equipment used for these minerals, which increases capital costs.  Again, not oil intensive.  Or maybe it's because they must be refined with electricity-intensive processes, which again, is not oil intensive.  Until we know for certain where all this money is going, your conclusion is suspect. 

On that note, your hypothesis fails to explain how oil demand has flat-lined in the US and decreased elsewhere even as GDP has increased.  Until you explain that counterexample, you're unequivocally wrong. 

 

20 hours ago, 0R0 said:

Again, you are missing the sequencing problem. You can't displace the demand for oil and NG until AFTER the supply chain is set up. If you compress the transition, then the throughput you need is about double, meaning about double the capital and double the oil and gas demand. 

The mines take 3-7 years to setup. The production 1-2 years. Installations can take anything from a few months to several years. The main car companies are taking forever to get going and have produced underwhelming product at very high prices. So the demand fall happens AFTER a demand rise. You can estimate it. 

 

Yes, you can displace oil demand before new facilities have been set up.  The supply chain already exists, and it's already being retooled.

These activities you claim must happen sequentially have already been happening simultaneously for years - which is how EVs, PHEVs, and CNG/LNG powered vehicles are already entering the market.  If the spike you predict is going to happen at all, then it's already happening.

E.g. you're assuming all new production requires new facilities, which requires an increase in construction activity.  This definitely isn't the case.  When companies need to increase production, capital investment is the absolute last thing they do.  When forced to resort to capital investment, greenfield development - with its massive construction activity - is a last resort.  First, they scavenge operations for greater efficiencies.  Then they pay overtime.  Then they run extra shifts, Then they upgrade equipment.  Then they implement new technologies.  Then they expand existing facilities.  Then, when all else has failed, they build a new facility.  Lithium, copper, rare earth elements - the world already produces these things, and the existing supply chain will absorb a surprising amount of demand before new facilities are required.  That means oil demand destruction begins immediately. 

All these options imply greater oil consumption though, right?  Yes, but far less than the greenfield development you're predicting - and all of it offset by immediate demand destruction.  In fact, when companies scavenge for efficiencies and implement new technology, oil consumption tends to decrease.  See my earlier comment about oil consumption decreasing as GDP increased.

To summarize all this:
1)  Your claimed sequencing problem is a mathematical artifact of how you modeled the transition, which is wrong.
2)  You're looking at the economy from an extremely high-level, low-resolution perspective.  To make any sort of useful prediction, you need to understand the details.

[BenFranklin'sSpectacles + 762]

21 hours ago, Geoff Guenther said:

We've already had months that have traded in the $150 range. Lots of uncertainty and fear in the market seems prices skyward. I remember analysts predicting that $200 oil was destined to be the "new normal". Ha!

Spikes are sometimes due to real shortages and sometimes due to financial speculation in a constrained market. The majority of spikes I've seen in electricity have been due to shortages, but there are a few famous cases of gaming those markets as well.

I should also point out that I expect some oil and gas producers to collapse at inconvenient times. With fewer participants an open market can stop functioning efficiently. 

$150/bbl oil happened under different economic and geopolitical circumstances.  There was a credible threat of a massive war in the Middle East grinding world economies to a halt with no viable plan for replacing them. 

Today:
1)  Oil alternatives exist, and the world is rapidly transitioning to them.  Any price spike would trigger unprecedented demand destruction. 
2)  The Western world is rapidly approaching the point where it doesn't need Middle Eastern oil.
3)  Strategic oil reserves are at record highs. 
4)  Production in stable nations (US, Canada, Russia, etc) can be increased to plug supply gaps. 

There's a lot working against a repeat of the $150/bbl oil scenario.  I grant that a massive war in the Middle East that took many MMbpd offline could cause that spike, but I doubt even a major Middle Eastern war would cause such a disruption - at least, not before the West weaned ourselves off their supply.  Barring that, would financial speculation really be enough to spike prices?  At this point, what would it take to surmount the overwhelming evidence that we're swimming in oil? 

[Douglas Buckland + 6,308]

“To summarize: incredible wealth, power, industrial capacity, and R&D capability are being thrown at eliminating oil demand to fight a perceived existential threat.  The results of this effort are already trickling into markets; in the next 5-10 years, we'll see the flood. Any spike above $60/bbl will be short lived.”

Unless, of course, the ‘perceived existential threat’ is shown to be just that, a perceived as opposed to a real threat. The world, as a whole, has not fallen for this green bullshit...yet. 

There is still hope that common sense can prevail.
 

 

[Gerry Maddoux + 3,627]

13 minutes ago, Douglas Buckland said:

Unless, of course, the ‘perceived existential threat’ is shown to be just that, a perceived as opposed to a real threat. The world, as a whole, has not fallen for this green bullshit...yet. 

There is still hope that common sense can prevail.

Well put. Who knows? The IMO-2020 mandate may well turn around climate change--it is a big deal, not matter that the media has more or less ignored it. I mean, it still boggles my mind: 60,000 ships cutting back from 3.5% sulfur to 0.5%. 

[Bob D + 562]

On 2/15/2020 at 7:32 AM, Douglas Buckland said:

 

On thing has bothered me these past 5 years. If the international market is flooded with oil, why do we (collectively) keep producing and putting even more oil into an over supplied market and guaranteeing a low price? Wouldn’t it make more sense to sell what you have in storage, at the present price, dry up the surplus, get the price back up to a reasonable level and get back to work?

This is simple Doug as I watched in 08, 16 and it's unfolding today.
Forget the majors - they don't count as they are diversified and can withstand the down price cycles.

Mid-Majors, Small Caps, Private Equity Backed E&P's all struggle to be cash flow positive.
The adage is as follows ... You can either keep drilling and die slowly or stop drilling and die immediately.

 

[surrept33 + 609]

29 minutes ago, Gerry Maddoux said:

Well put. Who knows? The IMO-2020 mandate may well turn around climate change--it is a big deal, not matter that the media has more or less ignored it. I mean, it still boggles my mind: 60,000 ships cutting back from 3.5% sulfur to 0.5%. 

 

What do you mean turn around climate change? I figured the net effect of reducing the SOx emissions would be to remove the global cooling effect that belching out sulfur into the atmosphere tends to perform. Of course, SOx pollution is horrible for human health and causes acid rain, so there are other benefits for the IMO for making that change.

Edited February 28, 2020 by surrept33

[Tom Kirkman + 8,860]

22 hours ago, 0R0 said:

You can't apply future conditions before that future arrives. It would be great if you could build a mine with equipment made from that mine's output. But time is a sequence and the mine's output is not available till it is completed. 

 

1 hour ago, BenFranklin'sSpectacles said:

To summarize all this:
1)  Your claimed sequencing problem is a mathematical artifact of how you modeled the transition, which is wrong.
2)  You're looking at the economy from an extremely high-level, low-resolution perspective.  To make any sort of useful prediction, you need to understand the details.

 

Some good, intellectual debating going on in this thread.  Above is just a sample of members submitting their viewpoints along with their reasoning, and other members submitting alternative viewpoints along with their alternate reasoning.

No name calling, nobody being a pain in the butt, nobody being obnoxiously disruptive.

Wonderful to see this, as a moderator.

Carry on, all and sundry.