ReallyVeryFoolish wrote:ReallyVeryFoolish wrote:From where I am sitting, the further reduction in expenditure by the oil majors makes me even more confident we will see > $70 or 80 oil and higher in the medium term. End of life fields with high marginal cost are more likely to be closed down now as opposed to having money spent extracting remaining reserves. Add that to the fact that there's already no significant large scale new capacity under development presently anyway. It's even more certain that once the market returns to normality, oil prices will recover significantly.
This is the first article in the media that reflects my views on the medium term outlook for oil production. If anything, I would say the article likely under estimates the situation. Oil consumption in the modern economy isn't going to reduce as quickly as many people seem to expect.
https://www.google.com/url?rct=j&sa=t&u ... IE7F1hk2Xg
I too think that an upcycle in oil price is fairly likely to follow this downcycle, indeed that is why I am over-exposed to oil & gas to the extent that I am. However it is always worth being cautious and - from an environmental perspective at least - hopeful. The transition away from oil could occur faster than people think. So here are some snippets that give pause for thought:
1) In 2019 three quarters of global 'capacity add' in generation was renewables. (
https://www.irena.org/newsroom/pressrel ... ty-in-2019) That is an amazing rate of progress. I have previously looked into, and posted here on TLF, regarding average renewables capacity factors vs average conventional capacity factors, and they are not so different than each other. Yes individual technologies are dissimilar, but the aggregate is fairly similar. This means that very soon you will not be able to give away new conventional capacity, it will become exposed to all the dis-economics of diminishing scale.
2. I hear folks say that oil is skewed towards the transport sector and is unsubstitutable at scale in the short term. Well, to an extent that is so, but as any TSLA investor will tell you, the times they are a changing (and I am overexposed to TSLA as well, which has done considerably better than some of my oil exposure). From where I sit - which is currently in the international electricity sector - everyone worldwide within the grid planning system is expecting rapid EV adoption. And they are expecting less grid disruption and/or reinforcement than you might expect. They are expecting overall grid utilisation to go up (so cost per 'unit' to go down), but peak grid use to not be as much of an increase as was feared. The reason is nodal batteries, not so much at house level as at substation and HV node level, maybe some at generator infeed level.
3. That in turn means that EV adoption gets a double boost. Firstly it turns out the grid is not an expensive barrier, and secondly it means that we need roughly twice as many batteries as are in the EVs themselves, which in turn improves battery manufacturing economics (more scale is good).
4. And the new generation capacity that will come onstream will not be conventional oil & gas. It will be renewables. See point 1. That in turn could lead to quite a rapid collapse in conventional demand. I happen to think that the IRENA scenario below is overoptimistic but it is within the range of possible outcomes. (note, it is from a freely available IRENA publication, see
https://www.irena.org/-/media/Files/IRE ... k_2020.pdf , so we can reproduce it here). That in turn suggests that the next upcycle in oil price could well be the last opportunity to bail out (er, sectoral switch if you want posh words) at a profit. But of course everyone will be thinking like that. Not everyone can be a lucky punk !
regards, dspp