Site icon The Business Year

Price Crash to Peak Oil

Electricity keeps the world turning.

Looking back over the last ten years one thing can be said for sure, mankind is hungrier than ever for power, and despite our best efforts this hunger is not being satisfied in the most sustainable manner.

The decade started out strong for the petroleum industry, coming out of the 2008 crash with crude prices soaring above USD100 a barrel.

It was a time of plenty, with massive new discoveries being made left, right, and center as the high prices per barrel justified large investments in exploration.

From African frontier markets to the Atlantic depths and Canada’s oil sands, no project was too expensive.

In early 2014, Brazil was selling off an 8-billion-barrel oil field named Libra that could potentially pay out USD1 trillion over a 30-year period.

This was for a pre-salt discovery located 240km off the coast of Brazil that would cost USD80 billion to develop. That’s the kind of trust the market was showing off at the time.

And then, puff, it all went up in smoke.

Lower than expected demand growth coupled with all the oil and gas that was pouring in from the US’s shale boom alongside production increases in most areas of the world glutted the market.

And prices plummeted.

As soon as traders and investors realized the world’s oil stocks were near full, prices came tumbling down from USD105 in June to USD46 in January 2015. By 2016 it bottomed at 30.

Many smaller companies went bust, long-term contracts became unfulfillable, development plans were halted, investment in exploration tanked, rig counts dropped… you know, crisis.

Renewable energy developments slowed with cheaper oil available; President Donald J. Trump lauded the low oil prices as a source of cheap fuel for the American economy.

For oil-dependent countries however, the times were not for celebration.

The oil cartel OPEC moved in to try to deal with the crisis. A landmark alliance was created between OPEC and Russia to reduce production and try to raise the prices.

However, the US did not obey by anyone else’s rules, and every time the price climbed a bit they went back into full drive on shale plays, and OPEC lost market share.

Eventually, the alliance, named OPEC+, succeeded in raising prices back to around USD60, but production cuts continue to this day.

It is difficult to predict what will come next for the oil industry, but the central topic of discussion today is of paramount importance and has become known as “Peak Oil.” That is when global demand for oil stops growing. It has already started to slow down. According to some industry experts, that could be as close as a decade away.

Still back in 2014, Russia invaded and occupied the Ukrainian peninsula of Crimea, which created a major mess in international affairs and triggered a European boycott on Russia.

With Eastern and Central Europe still quite dependent on Russian gas for heating and power, they had to try to bypass that need by sourcing the gas elsewhere, a long-standing policy objective for Europe.

But Russia is much more dependent on European money than Europe is on Russian gas, and so, to make a bypass of their own, after decades of unsuccessful negotiations, Russia signed a thirty-year natural gas supply and pipeline development agreement with China.

Unofficially, the deal is estimated to be worth USD400 billion, which would make it one of the largest deals of any kind, ever.

On its side, China continues to gobble energy like no other nation on earth to power its industrial growth and its expansionary strategy through the Belt and Road Initiative. In its path, it is building refineries, coal power plants, transmission lines, acquiring mining rights and building solar and wind parks. That’s right, if China is the undisputed biggest polluter on earth, it is also one of the biggest investors in renewable energies.

For this sector too, it has been a powerful decade. There has never been so much investment in renewable sources of energy as over the last ten years. Fueled by more competitive technologies and environmental concerns, solar and wind power took the decade by storm, putting renewables in number one in terms of investment in power generation. In fact, in 2018, investment in renewables stood at 272.9 billion globally, triple that of investment in fossil fuel generation.

Over the whole decade up to the first half of 2019, investment in renewables reached USD2.6 trillion. Today, at 1650GW, generation capacity from renewables is four times higher than 10 years ago.

While it still only accounts for 12.9% of global generation, the sector is growing quickly, and with environmental issues dominating an ever-more-polarized global community, this growth might bring about “Peak Oil” even earlier than we think.

Oil companies know this, and they started adding renewables to their portfolio. “Energy Companies,” are how they brand themselves now; BP’s new slogan is “Beyond Petroleum.”

In more inspiring news, the small developing nation of Costa Rica in Central America spent the last five years living almost exclusively on renewable energy.

Only 1.4% of its generation came from fossil fuels, which are used to compensate for fluctuations in renewable generation. Way to go Costa Rica!

With all the talk about access to power, we tend to forget those that have none. According to the World Bank, 11% of the world’s population still does not have access to electricity, that’s about 850 million people living mostly in Africa. Still that is 6% less than in 2010, so there is some progress.

Either way you look at it has been a wild decade for energy, and we have only just scratched the surface here. The decade to come is one in which the topic of energy, and how we get it, will definitely be central to global debate.

Exit mobile version