Post by jeffolie on Oct 8, 2012 11:59:49 GMT -6
Peak Demand = lower prices "Hope and Change" study
This report promising flat demand reminds me of the failed Obama slogan of "Hope and Change": hoping for the best to happen and ignoring real feedback of the markets and govts actions. For example China is hurting Japan now with about 40% to 50% decline in Japanese car purchases as the Chinese people boycott Japan's products because Japan has had control of oil/gas rich islands since 1895 ... govt actions and POLITICS MATTERS are ignored below with the likely result that the conclussions below will not be any better than "Hope and Change"
==============================
[from: The Truth About Cars Blog]
Peak Oil, Meet Plateauing Demand
By Derek Kreindler on October 8, 2012
TTAC [from: The Truth About Cars Blog]is no stranger to the topic of Peak Oil, but the theory has fallen by the wayside with the recent explosion in unconventional oil and gas. A study [100 pages: www.chathamhouse.org/sites/default/files/public/Research/Energy,%20Environment%20and%20Development/1012pr_oilgas.pdf ] by the British think tank Chatham House argues that the biggest issue facing oil and gas producers in the coming century isn’t Peak Oil, but Peak Demand (summary here www.chathamhouse.org/sites/default/files/public/Research/Energy,%20Environment%20and%20Development/1012pr_oilgas_es.pdf ).
The crux of Chatham House’s argument rests on the reformation of the transportation industry – a desire for fuel-efficient automobiles, the expanding use of biofuels and government regulation mandating reduced carbon emissions has all led to a slackening demand for oil.
Those factors, combined with the rise in “unconventional” supplies, like shale gas could have drastic effects on the oil and gas industry. In 2009, 95 percent of energy used in the global transportation sector came from petroleum. In 2030, Chatham House estimates this number could be as low as 60 percent. One interesting component of this actually comes from China. Chatham House argues that because their fueling infrastructure isn’t so tied into “legacy” fuels like gasoline, there is significant potential for them to be on the leading edge of alternative fuel adoption.
The report cites the increasing adoption of fuel-efficient vehicles like hybrids, Generation Y’s reluctance to drive cars and the potential for CNG powered automobiles as some of the largest drivers of peak demand phenomenon. Among the unintended consequences of reduced driving would be a significant drop off in tax revenues for municipalities that levy a gas tax. Reduced sales of fuel would naturally reduce revenues.
www.thetruthaboutcars.com/2012/10/peak-oil-meet-plateauing-demand/#more-462998
==============================
Executive Summary
The future for the oil and gas industry has changed. For over 100 years the story was one of growth in
production to supply a largely Western-driven market, and of competition between private companies
for access to reserves. Since 2005, oil prices have moved to a permanently high level. Other industries
are capturing some of the demand for transport by producing more efficient engines, vehicles, ships
and aircraft, and by supplying alternative fuels. New technologies are providing diverse but uncertain
opportunities for producing ‘unconventional’ oil and gas in many parts of the world. There are also still
opportunities for private-sector companies in the traditional oil-exporting countries where the industry
is under state monopoly, but generally these will involve cooperation with the state-controlled oil or gas
company. Finally, there is a question of who will carry responsibility for the physical security of Middle
East oil exports now that these mostly go to Asian markets rather than the US or Europe.
The industry’s response to these challenges has implications for the global economy and environment.
Oil and gas supply 57% of the commercial energy the world consumes, and their combustion accounted
for roughly the same proportion of global CO2 emissions. Oil and gas exports are more than 15% of
the value of global exports and provide more than 25% of GDP in Russia, Central Asia and members
of the Organization of the Petroleum Exporting Countries (OPEC). Just over 10% of the value of the
world’s stock markets is invested in the oil and gas sector. What happens next in the industry will affect
the consumers who depend on its products or try to avoid the environmental and social effects of using
them, as well as the governments and shareholders who seek tax revenues and dividends from their
activities.
The industry cannot develop its strategies independently of governments. The report shows increasing
and changing intervention by governments, driven by climate change policies and economic and physical
security. Government policies are generated by political processes that cannot necessarily be expected to
produce coherent or rational results.
The report does not offer new quantitative predictions. The future cannot be predicted with any
confidence, especially while the present (2012) economic difficulties persist. The report’s key findings
are:
1. The oil industry can no longer rely on its monopoly of the transport market.
Use of oil in transport – half the world oil market and most of its expected growth – is being reduced
by competition from other industries. The vehicle industry is replacing oil with more efficient vehicles,
and biofuels are replacing oil products as liquid fuels. This is driven both by the increase in oil prices
since 2005, and by government policies limiting carbon emissions. Since 2011 all major importing
countries have adopted strong policies on carbon emissions and vehicle efficiency. These secure markets
for efficient automobiles, rather than for oil. As current policies are unlikely to achieve their aims, it
is probable that stronger policies will be introduced. Businesses outside the oil sector are anticipating
more severe policies against carbon fuels and are innovating accordingly. The result will be to flatten
and reverse growth in the use of petroleum in transport in developed countries, and slow its growth in
developing countries.
The major private-sector oil companies have a legacy of refineries and distribution networks in the
‘no-growth’ markets. Companies will not invest in modernizing these for a short and uncertain future.
Refineries will close, brands will disappear, and more products will be imported. Governments will be less
able to rely on major international companies to secure supplies.
2. The role of OPEC will change.
The international oil market will continue to be dominated by economics, but the role of OPEC will
change. Future weaknesses in short-term demand will be balanced not only by OPEC’s regulation of its
members’ production when prices are weak, but by the response of producers of non-conventional oil,
whose high variable costs will drive them to slow drilling and delay new projects. Competition in the
medium term will be between investments (made now) in new sources of oil and substitute fuels, and
investments that reduce the use of oil by greater efficiency. Competition from outside the oil industry is a
real and present threat to demand for oil. Long-term trends cannot be predicted on the basis of businessas-
usual extrapolation. Investors look to the industry to show how it will respond.
3. There will be more gas, but uncertainty over where and when.
New perceptions about the potential supply of conventional and ‘unconventional’ gas (such as shale gas)
at relatively low cost are creating the possibility of unexpected expansion of gas markets in most parts of
the world. For this to happen each major region needs prices which are low enough to increase demand
but high enough to increase supply. Prices at present differ widely between markets. Relying on imports
to build new gas demand will seem risky to some countries. In the power sector (which now consumes
about 40% of world gas production) the market for gas depends on government policies for coal, nuclear
and renewables rather than on factors intrinsic to the gas industry. As many oil and gas companies switch
their emphasis from the oil to the gas business, the policies and dynamics influencing the utilities sector
– and potentially transport – will be of growing strategic concern. Because a ‘golden age for gas’ may not
prevail soon or everywhere, investors will be concerned about the cost-competitiveness of new projects.
4. Technology and collaboration are the keys to upstream reserves growth.
‘Peak oil’ is proving a misleading idea. The foreseeable problem is not finite resources but the rate at
which these very large resources can be converted into reserves for potential production. Reserves of oil
and gas have each more than doubled since 1980 – faster than the increase in production. Technologies
are developing which are creating new reserves of ‘unconventional’ oil, as they already have for gas.
These technologies have more places to go, many of them outside the existing oil-exporting countries.
These new areas are opening a field of growth for private-sector companies which was not foreseen a few
years ago. The companies also still have opportunities for collaboration with state companies, in half of
the world’s oil reserves, provided they meet each country’s terms and conditions and bring technology
to complement the state company’s own resources. In some countries whose economies depend on oil
exports, expansion of production is problematic, because their governments may choose to keep oil in the
ground for future production, while gaining time to diversify their economies. Technology is the master
key to both sets of opportunities.
With demand vulnerable to other industries, and supply growing from ‘unconventional’ sources and
new areas, there is no long-term escalator for oil prices. There is no clear trend; all depends on investment
by competitors for the transport market and on the creation of new reserves.
5. Financing future investment is not a question of quantity but of quality: matchingopportunities and risks with sources of funds.
Finance for the private sector in oil and gas depends on investors’ beliefs about growth, risk and the
prospects for positive change. Inertia is not an option if the industry is to maintain and improve the terms
on which it gets finance. Downstream, prospects differ for developed and the developing markets, and
upstream for technologies and access to resources in either state-controlled or open-access areas. The
private-sector companies need to demonstrate to investors their strategies for managing the declining
value of their downstream assets in ‘no-growth’ markets and accessing the diversity of opportunities
upstream. This may lead to radical restructuring of companies and the industry.
Finance for the state companies depends on their place in the national economy, their access to
government, loan or bond finance and governments’ willingness to involve the private sector.
configured for the last era and not the next; their public strategies look recycled, not renewed. Few
companies seem to question the arguments for vertical integration and there is a legacy of implied
obligations to ‘meet demand’ rather than to engage with the changing forces shaping that demand. Choices
are emerging within the industry in which some companies will become energy conglomerates with
interests throughout the value chain, while some become focused upstream or downstream companies.
6. The oil security problem has moved to Asia.
The geopolitics of oil are changing fundamentally as interregional oil trade divides between the eastern
and western hemispheres, with Asian markets absorbing more oil than the Middle East can supply.
This changes the security of supply problem. For Western countries, the risk is price, not supply, since
disruptions to Asian supplies will affect the world oil price.
Political and physical security measures have not yet caught up with these new realities. Although
they are building their own oil stocks, China and other key Asian countries are not part of the OECD/
IEA emergency response system.
There is also a political question: how far will the US go to defend sea lanes that mainly benefit Asian
countries which import oil from the Middle East? And will Asian countries eventually seek to provide
their own protection, individually or collectively? These questions cannot be separated from the wider
issues of US military arrangements in Asia and conflicts there, which may prevent the development of
cooperative Asian response mechanisms either for physical protection or in order to share supplies.
Conclusion
The oil and gas industry has always changed, and has caused changes in the societies in which it operates.
The schismatic changes of the 1970s opened a new era. The combination of changes that the industry
now faces requires epic rather than incremental responses, for the industry to evolve and prosper. Those
responsible both inside and outside the industry need to try to understand what is happening now and
how it may affect the future, to explain their strategies clearly and to adapt to new situations as they
develop. In a world where technology and environmental threats are changing industries and society so
rapidly, the slowly turning supertanker is not an image that excuses inertia in oil and gas companies and
those who deal with them. All who are in the industry or who are involved with it need to share clear
thinking about the future.
(summary here www.chathamhouse.org/sites/default/files/public/Research/Energy,%20Environment%20and%20Development/1012pr_oilgas_es.pdf ).
This report promising flat demand reminds me of the failed Obama slogan of "Hope and Change": hoping for the best to happen and ignoring real feedback of the markets and govts actions. For example China is hurting Japan now with about 40% to 50% decline in Japanese car purchases as the Chinese people boycott Japan's products because Japan has had control of oil/gas rich islands since 1895 ... govt actions and POLITICS MATTERS are ignored below with the likely result that the conclussions below will not be any better than "Hope and Change"
==============================
[from: The Truth About Cars Blog]
Peak Oil, Meet Plateauing Demand
By Derek Kreindler on October 8, 2012
TTAC [from: The Truth About Cars Blog]is no stranger to the topic of Peak Oil, but the theory has fallen by the wayside with the recent explosion in unconventional oil and gas. A study [100 pages: www.chathamhouse.org/sites/default/files/public/Research/Energy,%20Environment%20and%20Development/1012pr_oilgas.pdf ] by the British think tank Chatham House argues that the biggest issue facing oil and gas producers in the coming century isn’t Peak Oil, but Peak Demand (summary here www.chathamhouse.org/sites/default/files/public/Research/Energy,%20Environment%20and%20Development/1012pr_oilgas_es.pdf ).
The crux of Chatham House’s argument rests on the reformation of the transportation industry – a desire for fuel-efficient automobiles, the expanding use of biofuels and government regulation mandating reduced carbon emissions has all led to a slackening demand for oil.
Those factors, combined with the rise in “unconventional” supplies, like shale gas could have drastic effects on the oil and gas industry. In 2009, 95 percent of energy used in the global transportation sector came from petroleum. In 2030, Chatham House estimates this number could be as low as 60 percent. One interesting component of this actually comes from China. Chatham House argues that because their fueling infrastructure isn’t so tied into “legacy” fuels like gasoline, there is significant potential for them to be on the leading edge of alternative fuel adoption.
The report cites the increasing adoption of fuel-efficient vehicles like hybrids, Generation Y’s reluctance to drive cars and the potential for CNG powered automobiles as some of the largest drivers of peak demand phenomenon. Among the unintended consequences of reduced driving would be a significant drop off in tax revenues for municipalities that levy a gas tax. Reduced sales of fuel would naturally reduce revenues.
www.thetruthaboutcars.com/2012/10/peak-oil-meet-plateauing-demand/#more-462998
==============================
Executive Summary
The future for the oil and gas industry has changed. For over 100 years the story was one of growth in
production to supply a largely Western-driven market, and of competition between private companies
for access to reserves. Since 2005, oil prices have moved to a permanently high level. Other industries
are capturing some of the demand for transport by producing more efficient engines, vehicles, ships
and aircraft, and by supplying alternative fuels. New technologies are providing diverse but uncertain
opportunities for producing ‘unconventional’ oil and gas in many parts of the world. There are also still
opportunities for private-sector companies in the traditional oil-exporting countries where the industry
is under state monopoly, but generally these will involve cooperation with the state-controlled oil or gas
company. Finally, there is a question of who will carry responsibility for the physical security of Middle
East oil exports now that these mostly go to Asian markets rather than the US or Europe.
The industry’s response to these challenges has implications for the global economy and environment.
Oil and gas supply 57% of the commercial energy the world consumes, and their combustion accounted
for roughly the same proportion of global CO2 emissions. Oil and gas exports are more than 15% of
the value of global exports and provide more than 25% of GDP in Russia, Central Asia and members
of the Organization of the Petroleum Exporting Countries (OPEC). Just over 10% of the value of the
world’s stock markets is invested in the oil and gas sector. What happens next in the industry will affect
the consumers who depend on its products or try to avoid the environmental and social effects of using
them, as well as the governments and shareholders who seek tax revenues and dividends from their
activities.
The industry cannot develop its strategies independently of governments. The report shows increasing
and changing intervention by governments, driven by climate change policies and economic and physical
security. Government policies are generated by political processes that cannot necessarily be expected to
produce coherent or rational results.
The report does not offer new quantitative predictions. The future cannot be predicted with any
confidence, especially while the present (2012) economic difficulties persist. The report’s key findings
are:
1. The oil industry can no longer rely on its monopoly of the transport market.
Use of oil in transport – half the world oil market and most of its expected growth – is being reduced
by competition from other industries. The vehicle industry is replacing oil with more efficient vehicles,
and biofuels are replacing oil products as liquid fuels. This is driven both by the increase in oil prices
since 2005, and by government policies limiting carbon emissions. Since 2011 all major importing
countries have adopted strong policies on carbon emissions and vehicle efficiency. These secure markets
for efficient automobiles, rather than for oil. As current policies are unlikely to achieve their aims, it
is probable that stronger policies will be introduced. Businesses outside the oil sector are anticipating
more severe policies against carbon fuels and are innovating accordingly. The result will be to flatten
and reverse growth in the use of petroleum in transport in developed countries, and slow its growth in
developing countries.
The major private-sector oil companies have a legacy of refineries and distribution networks in the
‘no-growth’ markets. Companies will not invest in modernizing these for a short and uncertain future.
Refineries will close, brands will disappear, and more products will be imported. Governments will be less
able to rely on major international companies to secure supplies.
2. The role of OPEC will change.
The international oil market will continue to be dominated by economics, but the role of OPEC will
change. Future weaknesses in short-term demand will be balanced not only by OPEC’s regulation of its
members’ production when prices are weak, but by the response of producers of non-conventional oil,
whose high variable costs will drive them to slow drilling and delay new projects. Competition in the
medium term will be between investments (made now) in new sources of oil and substitute fuels, and
investments that reduce the use of oil by greater efficiency. Competition from outside the oil industry is a
real and present threat to demand for oil. Long-term trends cannot be predicted on the basis of businessas-
usual extrapolation. Investors look to the industry to show how it will respond.
3. There will be more gas, but uncertainty over where and when.
New perceptions about the potential supply of conventional and ‘unconventional’ gas (such as shale gas)
at relatively low cost are creating the possibility of unexpected expansion of gas markets in most parts of
the world. For this to happen each major region needs prices which are low enough to increase demand
but high enough to increase supply. Prices at present differ widely between markets. Relying on imports
to build new gas demand will seem risky to some countries. In the power sector (which now consumes
about 40% of world gas production) the market for gas depends on government policies for coal, nuclear
and renewables rather than on factors intrinsic to the gas industry. As many oil and gas companies switch
their emphasis from the oil to the gas business, the policies and dynamics influencing the utilities sector
– and potentially transport – will be of growing strategic concern. Because a ‘golden age for gas’ may not
prevail soon or everywhere, investors will be concerned about the cost-competitiveness of new projects.
4. Technology and collaboration are the keys to upstream reserves growth.
‘Peak oil’ is proving a misleading idea. The foreseeable problem is not finite resources but the rate at
which these very large resources can be converted into reserves for potential production. Reserves of oil
and gas have each more than doubled since 1980 – faster than the increase in production. Technologies
are developing which are creating new reserves of ‘unconventional’ oil, as they already have for gas.
These technologies have more places to go, many of them outside the existing oil-exporting countries.
These new areas are opening a field of growth for private-sector companies which was not foreseen a few
years ago. The companies also still have opportunities for collaboration with state companies, in half of
the world’s oil reserves, provided they meet each country’s terms and conditions and bring technology
to complement the state company’s own resources. In some countries whose economies depend on oil
exports, expansion of production is problematic, because their governments may choose to keep oil in the
ground for future production, while gaining time to diversify their economies. Technology is the master
key to both sets of opportunities.
With demand vulnerable to other industries, and supply growing from ‘unconventional’ sources and
new areas, there is no long-term escalator for oil prices. There is no clear trend; all depends on investment
by competitors for the transport market and on the creation of new reserves.
5. Financing future investment is not a question of quantity but of quality: matchingopportunities and risks with sources of funds.
Finance for the private sector in oil and gas depends on investors’ beliefs about growth, risk and the
prospects for positive change. Inertia is not an option if the industry is to maintain and improve the terms
on which it gets finance. Downstream, prospects differ for developed and the developing markets, and
upstream for technologies and access to resources in either state-controlled or open-access areas. The
private-sector companies need to demonstrate to investors their strategies for managing the declining
value of their downstream assets in ‘no-growth’ markets and accessing the diversity of opportunities
upstream. This may lead to radical restructuring of companies and the industry.
Finance for the state companies depends on their place in the national economy, their access to
government, loan or bond finance and governments’ willingness to involve the private sector.
configured for the last era and not the next; their public strategies look recycled, not renewed. Few
companies seem to question the arguments for vertical integration and there is a legacy of implied
obligations to ‘meet demand’ rather than to engage with the changing forces shaping that demand. Choices
are emerging within the industry in which some companies will become energy conglomerates with
interests throughout the value chain, while some become focused upstream or downstream companies.
6. The oil security problem has moved to Asia.
The geopolitics of oil are changing fundamentally as interregional oil trade divides between the eastern
and western hemispheres, with Asian markets absorbing more oil than the Middle East can supply.
This changes the security of supply problem. For Western countries, the risk is price, not supply, since
disruptions to Asian supplies will affect the world oil price.
Political and physical security measures have not yet caught up with these new realities. Although
they are building their own oil stocks, China and other key Asian countries are not part of the OECD/
IEA emergency response system.
There is also a political question: how far will the US go to defend sea lanes that mainly benefit Asian
countries which import oil from the Middle East? And will Asian countries eventually seek to provide
their own protection, individually or collectively? These questions cannot be separated from the wider
issues of US military arrangements in Asia and conflicts there, which may prevent the development of
cooperative Asian response mechanisms either for physical protection or in order to share supplies.
Conclusion
The oil and gas industry has always changed, and has caused changes in the societies in which it operates.
The schismatic changes of the 1970s opened a new era. The combination of changes that the industry
now faces requires epic rather than incremental responses, for the industry to evolve and prosper. Those
responsible both inside and outside the industry need to try to understand what is happening now and
how it may affect the future, to explain their strategies clearly and to adapt to new situations as they
develop. In a world where technology and environmental threats are changing industries and society so
rapidly, the slowly turning supertanker is not an image that excuses inertia in oil and gas companies and
those who deal with them. All who are in the industry or who are involved with it need to share clear
thinking about the future.
(summary here www.chathamhouse.org/sites/default/files/public/Research/Energy,%20Environment%20and%20Development/1012pr_oilgas_es.pdf ).