Where are the peak oil prophets?
Tar sands, deep water, synthetic fuels, coal and gas conversion, and hydraulically fractured wells have produced a few percent more lately than the plateau of total production from 2005-2011. Those methods start paying at US$70-100 a barrel. The plateau saw prices above US$100 consistently.
Demand made itself more efficient in the face of rising prices even as new expensive sources came online. Now the new sources are producing but demand has softened enough with basic efficiency measures that the new unconventional oil cannot command the high prices.
Unless things change fast, we'll see the worst of all possible effects. New oil ventures will fail and go offline. Low prices will lead to efficiency plans being cancelled. We'll have the situation of five years ago again and prices will skyrocket as demand rises and the new unconventional oil is offline.
Of course, that's exactly what OPEC and Russia are hoping for. They want new oil sources and efficiencies to go away so they can get back on the gravy train. So they're flooding the market strategically now to drive prices even lower and put new sources out of business.
Since it takes investors and technologies several years to react to changes in price, a fairly steady production could lead to accelerating resonant gyration in prices if OPEC can time it right.
It's all very exciting, but it doesn't change the reality that oil is getting harder and harder to extract. Eventually it will be too expensive to extract more.
This both makes it unsustainable for the competition to drill for oil, and creates a higher demand.
Once many of the competing (e.g. Western) oil companies goes bankrupt, OPEC can increase the prices and enjoy both higher demand and increased profit. At that point, it will take a long time before investors feel comfortable investing in oil again in fear of an identical situation. They also push renewables into a similar spot.
I was looking for a reference that shows debt vs. market cap of US oil companies, but cannot find it. It didn't look promising for the US oil companies.
Anyway, this doesn't have anything to do with peak oil, which we are likely passing these years (for conventional oil). Except we'll likely crash sooner if we increase demand.
It's not a new strategy—the well-capitalized oil companies do this every time the industry stalls. They call it "prospecting for oil on the floor of the stock exchange."
Many shale producers will go bust but others have tightened their belt and become more efficient. The technology itself has also gotten cheaper, allowing those wells to be profitable even at depressed energy prices. More will likely fail but the shakeout will leave the remaining shale producers in a very strong place.
The idea that "OPEC can increase the prices" is farcical at this point. OPEC has been in open revolt for a long time and can no longer function as a unified front against the Western consuming countries. Smaller OPEC producers have long ignored the quotas, battling for marketshare while comfortable in the knowledge that Saudi Arabia would lower their production to maintain price targets. The Saudis have grown tired of that role—this current salvo is as much a move against their fellow OPEC members as it is new Western production.
This current situation is the Saudi's public recognition that OPEC has failed, the final culmination of a decline that began decades ago.
Saudi Arabia is facing the prospect of increased production on several fronts for both geopolitical reasons (Iran) and technological (America, deep sea, Canadian oil sands, etc). When the US tears down export barriers, their situation will become that much more dire as American shale producers will find entire new markets for their oil. Finding markets has long been as significant a task for the industry as finding oil itself.
Other investors are certainly fearful of investing in oil but I've been moving more and more of my personal portfolio into energy over the last few months. Given time, energy will rebound.
It seems like we're experiencing peak oil demand, rather than peak supply.
I'm not sure if the "peak oil prophets" considered this possibility - that their warnings will actually be heard, measures will be taken and we will avoid running out of oil.
Now that we're here, is peak demand less scary than peak supply ?
Yes, much, because the world's economies don't grind to a halt. They become more efficient and keep running. That's a much better outcome.
OPEC is effectively dead.