Peak Oil – The hidden hand of economics is the answer
Many in the industry have claimed that peak oil will arrive in the middle of next decade, when the voracious demand for oil consumes more than what OPEC and the other oil exporting countries can produce. By then, oil demand is forecast to reach 100mb/day from the 87 mb/day today. Where is the world going to find the additional bbls of world? Much of the oil in the world is produced from giant fields which produce more than 2mb/day, including the giant Ghawar field in Saudi Arabia.
Saudi Arabia has chosen however to play its cards close to its hand, refusing to comment what its peak production is, although many have speculated these aging fields will soon decline fast enough. For a while, the recent financial crisis has raised concerns about new investments drying up for oil exploration. The recent oil spill in the Gulf of Mexico by bp has also put a moratorium on offshore drilling – a much needed source of oil for USA. The increased production of renewables (bioethanol and biodiesel) is not projected to make up the deficit.
An interesting fact is that the WTI NYMEX Dec 2018 contract hit $100 in recent trading in anticipation that peak oil will arrive before that. The author begs to differ that peak oil will NOT arrive, at least over the next decade. An analysis into how oil is used will reveal much of it is used for gasoline and diesel ( > 50% ) in motor vehicles. An industrial revolution in the 1850s saw the switch in use of wood to coal as new designs were made in chimneys and furnaces, hitting the death knell for wood as a fuel. Can the same happen for motor vehicles with the advent of electric cars, hybrids and higher fuel efficiency with the intensive research being done in this area? A shift towards these technologies can potentially reduce demand by up to 10-20 mb/day increasing towards the end of the decade as technology by learning occurs.
If, and that is only if before peak oil occurs or rather perceived to occur, oil prices will rise to make these technologies feasible even earlier, stemming further oil demand and increase in prices. Otherwise, the rise in oil prices will see vehicle growth come to a standstill and a social revolution occurs with public transportation as the norm. Somehow the hidden hand of economics will adapt and reduce oil demand.
A day after I wrote this note, Bloomberg came up with the article, ‘Toyota Targets $50,000 Range for Hydrogen-Powered Vehicle to Debut by 2015′
Indeed technology is running with the economics.