Peak oil matters - the longer term

dspp
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Peak oil matters - the longer term

Postby dspp » November 8th, 2016, 9:27 am

I have asked Stooze for a oil & gas long term trends board so as not to clutter up the O&G companies board, and in due course I am going to try and transfer some of the Fool UK posts on that (pm off board if you want to give me permission to copy any of your posts). However it may be that the LemonFool layout allows us to keep things on just one board.

Anyway I see the FT this morning has picked up Bloomberg a few days ago on the World Energy Council (and now Opec) latest re peak oil production and peak oil demand and thought I ought to pop it up here.

"OPEC’s decision last month to reverse its policy of unfettered production and cut oil output to boost prices may be at odds with the industry’s most important long-term trend: demand for what they produce could start falling within 15 years.
If rapid improvements continue in renewable energy, electric vehicles and other disruptive technologies, petroleum consumption will peak in 2030 and decline thereafter, according to a report from the World Energy Council. As the globe’s largest producers gather in London this week for the Oil and Money conference, they might want to check their assumption that the market will grow for decades to come."
(from Bloomberg,http://www.bloomberg.com/news/articles/2016-10-16/what-opec-s-oil-u-turn-missed-peak-demand-keeps-getting-closer-iud8k6o5)

Since this is the first post in what may be a long thread I'd just like to point out that I am no rabid anti-oil person. Oil & gas are at present vital for humanity's development, and I gladly spent much of the first half of my career in the industry. The second half of my career has mostly been in renewables and I suspect that will become more relevant for humanity's future in time. However as an investor who has deliberately at this point overweighted my portfolio to be almost 1/3 in oil because of my view on the medium term oil price, the key thing to bear in mind is how to manage that transition without damaging my savings !

regards, dspp
Last edited by dspp on November 8th, 2016, 9:31 am, edited 1 time in total.

nigelpm
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Re: Peak oil matters - longer term

Postby nigelpm » November 8th, 2016, 9:31 am

I would think it preferable to just rename this thread "Energy"

and then have all manner of debate on energy stocks and energy commodity prices here. One can start new threads as required.

youfoolishboy
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Re: Peak oil matters - the longer term

Postby youfoolishboy » November 8th, 2016, 11:01 am

For me the actual date of oil’s demise is a complete unknown. Any guess, sorry forecast, of any financial or world event greater than say 5 years away is pointless as there are far too many variables. Undoubtedly renewables will one day take over from oil it when is another matter. Instead of looking at when perhaps focusing on actual changes that show progress to that date is more worthy of noting so that investing can be done on that basis otherwise its just listening to alleged specialists or bodies, like the World Energy Council above, who invariably have a view biased by their own experiences or more usually their paymasters and target audience.

PeterGray
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Re: Peak oil matters - the longer term

Postby PeterGray » November 8th, 2016, 1:25 pm

OPEC’s decision last month to reverse its policy of unfettered production and cut oil output to boost prices may be at odds with the industry’s most important long-term trend: demand for what they produce could start falling within 15 years.


I'd be prepared to accept that as a real possibility - though I'd claim no special insights here.

However, the conclusion made by the article seems to ignore the issue of timescales. "Demand may begin to fall within 15 years" leaves a great deal of room over the medium term for real issues about the ability of production to meet demand - and to leave a fair bit of room for OPEC to have a real impact on prices over a 5-10 year timescale

Peter

dspp
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Re: Peak oil matters - the longer term

Postby dspp » November 8th, 2016, 7:51 pm

I think it does matter to us private investors. For example some of us choose to skew our investments towards exploration plays, whereas others go downstream, and others go for integrated supermajors. In making these choices we are implicitly taking a position regarding the time horizon associated with the release of value of the assets of these companies. So in a exploration pureplay we hope that it strikes oil this year, not next year, etc.

At the other end of the investable spectrum for you and I (since we cannot easily take a stake in a sovereign major resource holder, except just recently), looking at a supermajor, and using quickie numbers for Shell as an example, it has 11.7 bn boe of proved reserves for 2015 and pumped about 1.1 bn boe in 2015 for revenues of $53bn. That is 10.6 years of proven reserves on the balance sheet that are a significant chunk of the market cap of £80bn (which I think is just the RDSB numbers, not the RDSA mkt cap) and on average at least half of those reserves are going to be produced in the period 5-10 years hence. I am not in this post going to try and separate out the market cap elements for Shell - but I am making the point that Shell's valuation does take into account factors that look at least 10-years ahead as well as short term factors. So I as an investor need to think about that as well. Otherwise I could get caught out without even realising that I am taking a position.

For completeness I should also make the point that I think we all know, that small changes in the supply vs demand equation can cause large spikes in the price in the very short term. So even if we are thinking long term the short term can happen very quickly. And that by the way is why I am currently significantly overweight in O&G vs the rest of my portfolio.

regards, dspp

Tymeric
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Re: Peak oil matters - the longer term

Postby Tymeric » November 18th, 2016, 6:44 am

Thought this might be of interest.....

https://www.usgs.gov/news/usgs-estimates-20-billion-barrels-oil-texas-wolfcamp-shale-formation

The estimate of continuous oil in the Midland Basin Wolfcamp shale assessment is nearly three times larger than that of the 2013 USGS Bakken-Three Forks resource assessment, making this the largest estimated continuous oil accumulation that USGS has assessed in the United States to date.

“The fact that this is the largest assessment of continuous oil we have ever done just goes to show that, even in areas that have produced billions of barrels of oil, there is still the potential to find billions more,” said Walter Guidroz, program coordinator for the USGS Energy Resources Program. “Changes in technology and industry practices can have significant effects on what resources are technically recoverable, and that’s why we continue to perform resource assessments throughout the United States and the world.”

http://www.bloomberg.com/news/articles/2016-11-15/permian-s-wolfcamp-holds-20-billion-barrels-of-oil-u-s-says

The estimate lends credence to Pioneer Natural Resources Co. Chief Executive Officer Scott Sheffield’s assertion that the Permian’s shale endowment could hold as much as 75 billion barrels, making it second only to Saudi Arabia’s Ghawar field


Some more detail here

https://pubs.usgs.gov/fs/2016/3092/fs20163092.pdf

dspp
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Re: Peak oil matters - the longer term

Postby dspp » November 28th, 2016, 8:25 pm

I've just picked up this week's Economist from the doormat where it has been languishing. It is almost as if their writers have been reading the discussions here and on the Fool from Jan and August

http://boards.fool.co.uk/price-effect-o ... e#13317761

http://boards.fool.co.uk/will-we-ever-s ... e#13420504

As far as I can see from a quick skim they have not been as thorough as we jointly have been.

regards, dspp

dspp
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Re: Peak oil matters - the longer term

Postby dspp » November 30th, 2016, 7:33 pm

from http://oilpro.com/post/28906/shell-stud ... icle_6_txt

Shell... ........[is planning] for a time after fossil fuels. "The idea that you can just be a very clever observer and step in when the moment is right, forget about it," Shell Chief Executive Ben van Beurden told Reuters. "I am convinced that in this space we will play an active role, a leading role and we will plan acquisitions in it." ....... "Of course we do believe in renewables but probably more in building the utilities and integrating them into our existing operations," van Beurden said.

That is where Shell's strategy appears to diverge from French oil company Total, which is often referred to as one of the most progressive oil company when it comes to moving away from fossil fuels..... While Total is focusing on investment in green energy technologies, van Beurden hinted that Shell would become an electricity and gas provider, through the integration of utilities. He said there may be value in delivering a service, rather than being the owner of a technology.

john10001
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Re: Peak oil matters - the longer term

Postby john10001 » January 7th, 2017, 3:41 am

We are nowhere near peak oil and probably never will be. I think we might very well be near peak Tesla.

Lootman
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Re: Peak oil matters - the longer term

Postby Lootman » January 7th, 2017, 5:13 am

john10001 wrote:We are nowhere near peak oil and probably never will be. I think we might very well be near peak Tesla.


I read somewhere that there are more discovered and untapped energy reserves underground now than there were when the phrase "peak oil" was first mooted, which must be 50 years ago.

So we are discovering reserves even faster than we are consuming them.

Problem? What problem?

Generali
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Re: Peak oil matters - the longer term

Postby Generali » January 7th, 2017, 11:46 am

Lootman wrote:
john10001 wrote:We are nowhere near peak oil and probably never will be. I think we might very well be near peak Tesla.


I read somewhere that there are more discovered and untapped energy reserves underground now than there were when the phrase "peak oil" was first mooted, which must be 50 years ago.

So we are discovering reserves even faster than we are consuming them.

Problem? What problem?


The problem oil faces isn't a lack of supply IMHO it's a lack of demand. As the Saudi Oil Minister said many years ago, "The Stone Age didn't end due to a lack of stones".

We've had this bloke come to talk to us at work (one of the largest Aussie fund managers):

http://tonyseba.com/

The way he puts it in Australia, admittedly one of the most expensive electricity markets in the world, if prices of solar panels and batteries keep falling at the rate they have done for the last couple of decades by 2025 it will be cheaper to use solar and battery than to use mains electricity and by 2030 it will be cheaper to use solar and battery than it is to run the poles and wires. At that point even if you can generate electricity for free then you are out of business if you supply households!

This is an interesting article based on an interview with Mr Seba a few months ago:

http://www.smh.com.au/business/energy/i ... oz5bm.html

If it's cheaper to produce your own electricity and use it than it is to buy petrol why would people drive petrol cars in most of the world? I guess in the extreme north and south of the world (I include the UK in that) winter sun might be such that solar isn't feasible but for the vast majority of the world's population it looks highly likely that generating their own power is going to be the most economical way of powering their homes and cars.

This isn't about being a greenie or based on wishful thinking it's about the cheapest way to fuel your life. Either we disbelieve the basis of Mr Seba's argument and believe that for some reason solar panels and batteries will stop becoming cheaper or it's a financial inevitability that solar power will become the norm across most of the world. After all, oil is a form of stored solar energy it's just been stored for a very long time.

LongbeardRanger
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Re: Peak oil matters - the longer term

Postby LongbeardRanger » January 7th, 2017, 5:13 pm

Generali wrote:The way he puts it in Australia, admittedly one of the most expensive electricity markets in the world, if prices of solar panels and batteries keep falling at the rate they have done for the last couple of decades by 2025 it will be cheaper to use solar and battery than to use mains electricity and by 2030 it will be cheaper to use solar and battery than it is to run the poles and wires. At that point even if you can generate electricity for free then you are out of business if you supply households!

This is an interesting article based on an interview with Mr Seba a few months ago:

http://www.smh.com.au/business/energy/i ... oz5bm.html

If it's cheaper to produce your own electricity and use it than it is to buy petrol why would people drive petrol cars in most of the world? I guess in the extreme north and south of the world (I include the UK in that) winter sun might be such that solar isn't feasible but for the vast majority of the world's population it looks highly likely that generating their own power is going to be the most economical way of powering their homes and cars.


"If".Quite an important word!

I am convinced of the merits of solar, and I do think that, in the long run, solar will be the dominant energy source we use. (Indeed as you say of oil, it's actually just a form of stored solar energy anyway.)

However, these kind of predictions with time frames attached are very dangerous IMO and to go out and act on them in a decisive manner by taking big directional investment bets would be pretty dangerous unless you really know what you are doing. To buy into Seba's thesis I would have to understand very clearly the dynamics of the price of solar energy and battery storage and be confident that it is on a continuous downward trend. It certainly has been to date, I agree, but it is still a very very minor share of energy generation and large scale battery storage is essentially nonexistent. For his thesis to be true, it has to become the dominant source of generation and therefore there has to be a really massive increase in production of solar generation and battery storage at the same time as the price of solar continues to drop. That makes me ask myself - why will capital be attracted to invest in solar and battery storage UNLESS the return it can realise from that investment is attractive? And if the return is attractive, doesn't that preclude continued dramatic price deflation of solar?

It may be there is a simple answer to this, but if so I have not seen it (and I have read a reasonable amount on this).

I do think solar will continue to grow, but I am not convinced yet that there will be a solar revolution in the manner Seba describes. (Though I hope there will, as it would be, to me, an obviously positive development.)

LongbeardRanger
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Re: Peak oil matters - the longer term

Postby LongbeardRanger » January 7th, 2017, 8:25 pm

I should add something to my post above. There is a potential solution to the problem I identify in that governments could provide the capital necessary, either by direct investment in solar (as producer, or as purchaser on a massive scale) or by removing the implicit subsidy on fossil fuels (which do not have to pay for the environmental damage that it is likely they are causing).

At the moment there is little sign of that happening. Government budgets are tight, and there is a significant first mover disadvantage in being the first economy to introduce a proper carbon tax. That could certainly change but it is very difficult to predict can whether and when any such change will happen.

Rgds
Phil

Generali
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Re: Peak oil matters - the longer term

Postby Generali » January 7th, 2017, 9:57 pm

LongbeardRanger wrote:
Generali wrote:The way he puts it in Australia, admittedly one of the most expensive electricity markets in the world, if prices of solar panels and batteries keep falling at the rate they have done for the last couple of decades by 2025 it will be cheaper to use solar and battery than to use mains electricity and by 2030 it will be cheaper to use solar and battery than it is to run the poles and wires. At that point even if you can generate electricity for free then you are out of business if you supply households!

This is an interesting article based on an interview with Mr Seba a few months ago:

http://www.smh.com.au/business/energy/i ... oz5bm.html

If it's cheaper to produce your own electricity and use it than it is to buy petrol why would people drive petrol cars in most of the world? I guess in the extreme north and south of the world (I include the UK in that) winter sun might be such that solar isn't feasible but for the vast majority of the world's population it looks highly likely that generating their own power is going to be the most economical way of powering their homes and cars.


"If".Quite an important word!

I am convinced of the merits of solar, and I do think that, in the long run, solar will be the dominant energy source we use. (Indeed as you say of oil, it's actually just a form of stored solar energy anyway.)

However, these kind of predictions with time frames attached are very dangerous IMO and to go out and act on them in a decisive manner by taking big directional investment bets would be pretty dangerous unless you really know what you are doing. To buy into Seba's thesis I would have to understand very clearly the dynamics of the price of solar energy and battery storage and be confident that it is on a continuous downward trend. It certainly has been to date, I agree, but it is still a very very minor share of energy generation and large scale battery storage is essentially nonexistent. For his thesis to be true, it has to become the dominant source of generation and therefore there has to be a really massive increase in production of solar generation and battery storage at the same time as the price of solar continues to drop. That makes me ask myself - why will capital be attracted to invest in solar and battery storage UNLESS the return it can realise from that investment is attractive? And if the return is attractive, doesn't that preclude continued dramatic price deflation of solar?

It may be there is a simple answer to this, but if so I have not seen it (and I have read a reasonable amount on this).

I do think solar will continue to grow, but I am not convinced yet that there will be a solar revolution in the manner Seba describes. (Though I hope there will, as it would be, to me, an obviously positive development.)


CSIRO, the Australian state-owned R&D body, claims that Evergen, it's solar and battery package, is already competitive with grid electricity at current Australian market interest rates albeit the package relies on getting the occasional top-up from the grid when grid prices are low.

http://www.domain.com.au/news/beat-your ... 30-gr0tvq/

PeterGray
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Re: Peak oil matters - the longer term

Postby PeterGray » January 8th, 2017, 10:38 am

I have no real view on peak oil. Except that it's likely to be a long way off in my investment horizons - more than 10 years or so. Whether in the end falls in demand (due to solar etc) outstrip supply, of whether the Manure hits the fan with demand outstripping possible supply first I won't judge. Certainly at some time in the future oil production will be a lot lower than now.

However, for most of us, in investment terms that's irrelevant. What I want to know are the likely pressures on the PoO over the next few years. And that's a lot easier to see. We currently have a major slow down in investment, with some big projects coming on stream that were started years ago, when prices where high, but little in the pipeline to come after them. Investment will pick up as projected prices increase, the time lag is years for oil to flow in most cases. On the time scale of a few years there is no real indication of falling demand, if anything the reverse. Developed economies are becoming more efficient, and may well consume less, but there are massive populations in developing economies whose demand is increasing, and will continue to do so. So far then the makings of a perfect storm for oil prices over the next few years.

Against that, there is the role of shale production. That can be increased, and no doubt will, but how quickly and by how much? It will limit the extent of the rise in the PoO, but I'm not clear that US shale can produce the amounts that will be needed, in the time scale required to prevent significant spikes in the PoO, and quite possible lengthy periods of elevated prices. I suspect we will see considerable volatility in the PoO over the next few years, but I'd expect the mean level to be above where it is now, and quite possibly a fair bit higher.

Peter

Bubblesofearth
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Re: Peak oil matters - the longer term

Postby Bubblesofearth » January 8th, 2017, 11:52 am

Couple of mega-trends worth considering for the next couple of decades;

https://www.statista.com/statistics/281 ... worldwide/

https://ourworldindata.org/world-population-growth/

This represents a huge, and growing, built infrastructure that would take a long time to reduce or replace.

Over a similar time-scale we are likely to see depletion of old 'elephant' oil fields to the point where production can no longer be maintained. Ghawar is probably the poster child here with (depending who you believe) some 2/3 of recoverable oil already produced. Interesting that the Suadis are interesting in flogging off assets at this time?

I'm inclined to think there will be a rise in oil prices, with a lot of volatility, over the next 10-20 years before market forces drive enough substitution to matter.

I'm invested accordingly.

BofE

casapinos
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Re: Peak oil matters - the longer term

Postby casapinos » January 8th, 2017, 7:45 pm

I would be willing to bet (indeed i am betting) that oil consumption will be at or above current levels for decades.
My reasons are as follows:
World energy consumption will continue to rise as the Chinese and then Indians and Africans and South Americans acquire transport- whatever means of propulsion is used diesel , petrol or electric, the energy requirement will grow.
China and India are commissioning dozens of coal- fired power stations as I type, coal is still the dirtiest but cheapest form of power and will be replaced , that may be by renewables, or nuclear (esp China) but a simple and practical intermediate step is OIL/gas.
The developing world sees and aspires to the levels of consumption which currently exist for , perhaps ,20% of humankind, much of that needs energy to manufacture,feed clothe and "consumerise".
Peak oil just keeps receding into the distance: as a follower of HUR I am inclined to the view that below existing sources of oil are enormous quantities lying in Fractured basements, not just in WOS but in many other oil - rich areas, I opine that we have merely depleted the top layer of oil- bearing rock.
Fracking will be widespread for many years as technology improves and costs fall, the cycle of falling prices, falling costs has several iterations to go.
We have just experienced a major and lengthy slowdown in world growth , I personally expect that anew upcycle is just beginning , if not in the developed world then certainly in emerging economies, with a return to high levels of growth and rising consumption.
Humankind is likely to solve the pollution and climate problems created by energy consumption rather than forgo its benefits- given the choice and profits available using cheap and still plentiful energy sources rather than deprive ourselves of a desired lifestyle created I know where my money is.
There are those who say the future arrives sooner than you think, but in relation to oil they have been predicting its demise for several decades, eventually they will be right but eventually could be some time away.


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