Oil will be going up, and up.

Discussion in 'Energy' started by R P, Sep 16, 2021.

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  1. Could help ICE drivers on the fence move to EVs. But it could also affect the price of everything else, too. A meaningful fact is that only 27% of oil is used by cars. Here is a very insightful article by an oil analyst. He could be right.

    Ninepoint Market View

    Eric Nuttall: We are about to hit a production wall setting us up for all-time high oil prices


    Where exactly are incrementally necessary barrels going to come from in sufficient quantity in the years ahead to meet demand growth?

    Author of the article:

    Eric Nuttall

    Publishing date:

    Sep 15, 2021


    The world is hurtling towards an energy crisis, one in which the demand for oil, in my opinion, will grow for at least the next decade, yet the global oil supply chain can no longer adequately respond to it due to stringent environment, social and governance regulations and pressure from investors.


    It could lead to all-time high oil prices in the years ahead that could crimp global economic growth, despite the decades-long runway for oil substitutes needed to reach critical mass and achieve decarbonization.


    How did we get here? Energy ignorance: the lack of knowledge of how oil is used, how critical it is to our daily lives, and the realistic timeline to replace it with a “renewable” alternative lie at the epicentre of the coming energy crisis.

    Ask the average person “what is oil used for?,” and they will likely reply that most oil demand comes from cars (it’s actually about 27 per cent). Ask the same person “what is the alternative to oil?,” and they will likely say wind turbines and solar panels.

    In a country where it’s dark and gloomy for a third of the year and where the wind does not always blow, how is our power grid supposed to handle the incremental demand for electric vehicle charging? Battery storage, they would respond, a technology that is still in its infancy.

    Ignoring the trillions of dollars needed for investing in resources, where are the required base metals and rare earths expected to come from when, for example, Royal Bank of Canada is already forecasting a 32 per cent supply deficit for copper by 2030. What about the 40 per cent of oil consumption that is non-travel related such as plastics, rubber, lubricants, medicine, makeup, cement, and thousands of other applications?

    This is our energy reality: the runway to displace oil as a transportation fuel is measured in decades while the ability to reduce oil consumption in non-travel related areas would require a meaningful reduction in the average person’s quality of living — a choice that will not be made willingly.

    However, with every article calling for the imminent end of oil, the worry among the generalist investment community grows and this has direct consequences on their desire to invest in energy stocks and, by extension, the corporate priorities of oil companies who seek to lure them back.

    The fear of peak demand is leading to the reality of peak supply. What does that mean?

    Historically, rising oil prices, and therefore, rising corporate cashflows would translate into more spending and more production growth. That relationship is now broken. Owing to too many years of profoundly disappointing stock performance, investors are now demanding a return of capital (“pay me now!”) thereby limiting the amount of capital that can be spent on production growth.

    Most notably, this is impacting U.S. shale companies, the marginal swing producer of the past decade. Today, shale investors demand tepid production growth rates (if at all) so as to maximize free cash flow and for at least 50 per cent of free cashflow to be returned back to them in the form of dividends and share buybacks.

    The result? The end of U.S. shale hypergrowth, a watershed event for the industry.

    Without this source of meaningful supply, the world is now increasingly reliant on the global super majors and OPEC to grow production in order to avoid a supply crunch. Even before the rise of U.S. shale there were signs of stress within the global supply chain.

    The rate of new oil discoveries with few exceptions had been falling for years, while the size of new oil pools being found were shrinking and depletion rates rising.

    Furthermore, with a painful past and uncertain future, the industry began to suffer from an exodus as veterans suffering from one too many cycles retired early, others leaving the industry for safer pastures, and fewer young people looking to enter it. This was recently displayed this summer when the University of Calgary cancelled enrolment in its bachelor of science in oil and gas engineering.

    Now, with enormous ESG pressures preventing the European super majors — who are based in the epicentre of eco-wokeness — from sufficiently investing in “dirty oil,” the production outlook over the next decade from this group is flat, at best.

    Marry this with estimates by Sanford Bernstein Co. LLC that the Organization of the Petroleum Exporting Countries sits on only 3.9 million barrels per day of real excess capacity and one can quickly see that we are heading straight into a wall.

    With the world’s population set to grow by another two billion people according to the United Nations by 2050, and oil alternatives such as hydrogen expected to take several decades to reach meaningful scale, once OPEC spare capacity gets exhausted by the end of 2022 and ESG pressures continue to disallow production growth from the equivalent of 40 per cent of global supply, I would posit the question: where exactly are incrementally necessary barrels going to come from in sufficient quantity in the years ahead to meet demand growth?

    A world that is racing towards decarbonization due to well-intentioned but not fully informed government policy is propelling us towards an energy crisis that, in my opinion, will result in record high oil prices and have a profound impact on the global economy.

    The masses’ energy ignorance and those who deplore Canada’s role in responsibly supplying the world with among the highest rated ESG barrels, and shame those whose livelihoods come from doing so, will be the ones to blame.

    Eric Nuttall is a partner and senior portfolio manager with Ninepoint Partners LP.
     
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  3. bwilson4web

    bwilson4web Well-Known Member Subscriber

    Thanks. Everything but “hydrogen” made sense. Hydrogen takes too much energy to manufacture.

    He didn’t mention small, liquid salt reactors and is too pessimistic about solar and wind.

    Bob Wilson
     
    Last edited: Sep 16, 2021
  4. SouthernDude

    SouthernDude Active Member

    Uh. I don't think 40% of all the oil is used for things other than fuel. Seems a bit high. Still an issue though. There aren't many compelling alternatives to most plastic products.

    I think the same general up and down pattern that has been happening for decades will still continue. Who cares about this ESG nonsense? If one group doesn't invest, another will. That is why divestment is fake and pointless.

    Peak oil based on resource supply is just a retarded meme at this point. I'm almost convinced that it is the result of people not understanding terms associated with mining. It's ridiculous how much oil/gas is still in the ground.
     
  5. I agree with the peak oil supply roller coaster ongoing narrative. But there are some facts here that we can't ignore. With cars using only 27% of supply, I wonder how much diff EVs will really make, esp given that it will be a very slow transition. And not good that world supply is shifting more and more to bad actors, who as in the past, will ensure the price will stay high.
     
  6. SouthernDude

    SouthernDude Active Member

    The overwhelming majority of crude oil gets refined and used as some type of fuel. I think only ~10-15% of it gets refined into other products globally. In the US at least, it seems that nearly 45% of crude oil supplied during 2019 got refined into finished motor gasoline (1). So switching from ICE to EV will have a much larger impact on US emissions than in some other nations. The real question is what will replace jet fuel, industrial heating, and non-fuel petroleum based products. I think that hydrogen would make a lot of sense for commercial jets. Maybe hydrocarbon based products won't be gotten rid of but the hydrocarbons be created from CO2 in the air. Who knows.

    I actually think the transition from ICE to EVs (effectively from the 2-3% total market share where it is now to essentially 95%+) will probably happen in about 15 to 20 years. That isn't really that slow for a product like a car. I think the total market share will grow at a pace that is basically linear - it'll just be a really stretched out S curve to the point where it basically looks like a linear line. There won't be a year or two of annual EV sales that doubles the current total annual car sales. I don't know where anyone gets that idea other than false analogies with consumer tech (or even worse - the transition from horses to early cars).

    I also think that people overestimate how much the oil market will be impacted from mass shift away from cars. I think around 10% (probably a little less now) of the oil produced in the US comes from legacy wells - or older wells that were drilled a long time ago. They should be able to sell oil at very low prices because all the capital costs that went into exploration have already been paid off.

    https://www.eia.gov/dnav/pet/pet_cons_psup_dc_nus_mbbl_a.htm
     
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  9. SouthernDude

    SouthernDude Active Member

    This is only temporary though. I don't know if it would specifically increase EV adoption itself. There seems to be a 2-3 year lag time between infrastructure announcement and deployment. Right now there is already a ton of infrastructure announced. I tried to get more details, but anyone I contacted over the details was pretty mum about their plans. I doubt that EVs will go seriously mainstream until about 2025.
     
  10. Very informative , but I hope this leads to more EV's being
    sold.

    Dan
     
  11. How does this help??
    https://www.bnnbloomberg.ca/biden-to-release-u-s-oil-reserves-in-challenge-to-opec-1.1685973
    If anything will just make US even more vulnerable to the mid east and Russia in the future with oil supplies. And doesn't look like it is helping the cost of oil to go down. Oil on its way up again today. High oil and gas prices are like a tax on the poor and lower middle class who can't afford to buy an electric car. US needs to have more domestic oil/gas supplies until the conversion to electric is farther along.
     
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  13. SouthernDude

    SouthernDude Active Member

    that would require not listening to environmentalists and ignoring fake progressive outrage over native land that suddenly became holy. Not going to happen.
     
    R P likes this.
  14. marshall

    marshall Active Member

  15. SouthernDude

    SouthernDude Active Member

  16. Last edited: Nov 24, 2021 at 4:33 PM
  17. marshall

    marshall Active Member

    Some of us are old enough to remember a world with a lot less plastic. No plastic grocery bags, glass instead of plastic mustard bottles, coffee in metal cans, soda pop in glass bottles and so on.

    I don't think finding enough petroleum for plastic is going to be much of an issue, especially under BPs rapid reduction projection.
     
  18. It's not just plastic bags and stuff like that, but everything else, electronics, cars appliances, you name it. What would we replace those with, wood, metal? And don't forget plastic is easily recycled. What I really hate is how people dump their plastic and garbage along water ways, esp in 3rd world countries. They treat their rivers, lakes and oceans like sewers. I am always shocked when I visit there, and see that. No wonder we have these big floating garbage rafts in the ocean.

    Anyway, am sure oil will never be totally replaced, at least not in our lifetimes. Reduced consumption, probably, at least in transportation vehicles. But even that still looks like a long ways off. Still some major engineering and production hurdles to replace all ICE vehicles. Cost is a big issue, which is hitting us hard right now with all this inflation.
     
  19. marshall

    marshall Active Member

    We are talking about 5%. So there is no need to get one's Jockey shorts all tied up in a knot.

    While plastic, but not all plastic, can be recycled, it clearly has a long way to go. China stopped taking our garbage a while ago, and it's my take that a lot of it is just going to the dump if it's cheaper than paying a recycler to recycle it. Our recycler raised their price due to China's decision.

    Then there is the issue of eating and breathing particles of plastic everyday. Have you ever seen a plastic grocery bag decompose in sunlight?

    https://apps.npr.org/plastics-recycling/
    https://www.npr.org/2020/09/11/897692090/how-big-oil-misled-the-public-into-believing-plastic-would-be-recycled

    I agree that oil isn't going away anytime in my lifetime. However, consumption will get reduced. How fast this happens will depend on the price of oil, government regulation, and how quickly alternative solutions come on line.

    I think you try to over sell the inflation issue. When I start seeing pickup trucks with the their tail gates down, I'll be a little more concerned.

    https://www.cnn.com/business/economic-growth-indicators?utm_source=optzlynewmarketribbon
     
  20. Well, oil is certainly not going up today,...haha. And neither are the markets. Looks like covid will be with us for the foreseeable future. So that might even tame inflation a bit, for a while.

    Heading to Maui in just over a week from now. We are not eligible for boosters yet, so hope our immunity is still good. Might take a month or so before this latest variant hits us hard again, and will be back by then. I also have season passes to two mtns here, and will not be happy if they shut those down again. Good news here in BC, we are 87% fully vaccinated (12 years and over at least 2 doses), one of the highest rates anywhere.
     

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