OK so that is a classic LinkedIn banner headline designed as click-bait… 🙂 the original was going to be “Why oil will go to $20/bbl and why it won’t stay there..”, but since I started writing this in mid-December 2015 procrastination has now made the old headline a bit mainstream…
Despite this, the core argument remains – not that oil will go to $20/bbl in the short-term (it may well…) but that the long-term price of oil should be $20 or below. “Should” is only relevant from supply and demand perspective – the geopolitics of $20/bbl oil mean that it is unlikely to stay there. Could the “Green revolution” in energy lead to war?
The conventional wisdom on oil as a resources has been that of oil as a finite resource leading to Peak Oil panic – which was widely commented in mainstream media and widely dismissed within the industry. Probably the best antidote to Peak Oil Panic I heard (and I apologise as I don’t know the source) was “when you can talk about Peak Technology, then we can talk about Peak Oil…”. With a bit of hindsight this has proven to be very true at the current time. US oil shale has been a technology driven source of new supplies.
In 1968 Garrett Hardin published the influential paper in Science “The tragedy of the commons” – which was a amongst other things, a call to abandon the cold-war arms race. Above and beyond the main argument that humans would act in a rational-but-selfish manner to the detriment of shared resources (the “commons”), he also argued that there was a class of problems that had no technological solution. The arms race being one.
The use of finite resources may also be seen as a member of this set. Technology in the oil industry has caused a temporary supply side excess, and indeed I think most people in the industry can see that a combination of technology and price could keep us supplied for generations, even if it does not alter the fact that fossil based hydrocarbons are a finite resource. Technology can’t change the fact that fossil fuels are finite – although it may well render them obsolete.
The finite nature of oil has led to a generally accepted view that oil prices will inevitably rise over time as scarcity sets in and F&D costs increase. This was very much the driver of the Peak Oil debate mid last decade. However, it now seems likely that the opposite is becoming a reality – demand will decline before scarcity of resources becomes an issue. In this brave new world, permanent over-supply and consequent low prices may be the main theme.Continue reading “Could the “Green Revolution” in energy lead to instability, real revolution and war?”