Bigger fracs disguise lower productivity and why this matters.

The BP Energy outlook published last month, goes into great detail about the changing global energy mix. From some points of view, it is changing rapidly, but objectively, the “energy transition” is going to be gradual, even with the best will in the world.  There is a lot of speculation about when “peak demand” for oil will occur: 2040 seems to be a rough guide, however, it is a plateau and gradual decline. No cliff-edge on the horizon.

Show me the money

What struck me about this detailed analysis is that there is a big omission – at least in the publication – maybe not in the analysis – but who knows? This omission is so fundamental to the world economy, it may just be too complicated, or too scary, to put in.

As I pointed out in a previous post or two, there is a very strong correlation between energy and GDP, and the historical norm has been cheap energy, particularly oil. This is in many ways logical – you look for natural resources in the easiest places (geologically at least), and statistically – throwing darts at a dart board will tend hit the big targets first (apologies to all explorationists out there… not making any disparaging remarks about this noble science – but making a mathematical point).  Evidence that energy is going to get more expensive would point to lower GDP growth – and given the world’s population and aspirations for better standards of living – that could be a disaster in the making, and certainly not something anyone would want to draw attention to in something as mundane as a Global Energy Review.

The BP Energy Outlook doesn’t (as far as I can see) address the question of the cost of all that oil that is going to peak in 2040… and here I start to disagree strongly with many pundits. Discussing oil supply without discussing cost is like dreaming of your next vacation without worrying about your budget… a nice exercise but ultimately likely to end in disappointment and tears.

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