Oil
by
Gregor Macdonald
India’s recent series of power blackouts, in which 600 million people lost electricity for several days, reminds us of the torrid pace at which populations in the developing world have moved onto the powergrid. Unfortunately, this great transition has been so rapid that infrastructure has mostly been unable to meet demand. India itself has failed to meets its own power capacity addition targets every year since 1951. This has left roughly one quarter of the country’s population without any (legal) access to electricity. That’s 300 million people out of a population of 1.2 billion. Indeed, it is the daily attempt of the underserved to access power that may have led to India’s recent grid crash.
But the story of India’s inadequate infrastructure is only one part of the difficult, global transition away from liquid fossil fuels. Over the past decade, the majority of new energy demand has been met not through global oil, but through growth in electrical power.
Frankly, this should be no surprise. After all, global production of oil started to flatten more than seven years ago, in 2005. And the developing world, which garners headlines for its increased demand for oil, is running mainly on coal-fired electrical power. There is no question that the non-OECD countries are leading the way as liquid-based transport – automobiles and airlines – have entered longterm decline.
Why, therefore, do policy makers in both the developing and developed world continue to invest in automobile infrastructure?
The Demise of the Car
by Gregor MacdonaldIndia’s recent series of power blackouts, in which 600 million people lost electricity for several days, reminds us of the torrid pace at which populations in the developing world have moved onto the powergrid. Unfortunately, this great transition has been so rapid that infrastructure has mostly been unable to meet demand. India itself has failed to meets its own power capacity addition targets every year since 1951. This has left roughly one quarter of the country’s population without any (legal) access to electricity. That’s 300 million people out of a population of 1.2 billion. Indeed, it is the daily attempt of the underserved to access power that may have led to India’s recent grid crash.
But the story of India’s inadequate infrastructure is only one part of the difficult, global transition away from liquid fossil fuels. Over the past decade, the majority of new energy demand has been met not through global oil, but through growth in electrical power.
Frankly, this should be no surprise. After all, global production of oil started to flatten more than seven years ago, in 2005. And the developing world, which garners headlines for its increased demand for oil, is running mainly on coal-fired electrical power. There is no question that the non-OECD countries are leading the way as liquid-based transport – automobiles and airlines – have entered longterm decline.
Why, therefore, do policy makers in both the developing and developed world continue to invest in automobile infrastructure?
by
JW
by
Gregor Macdonald
Executive Summary
- Why oil price vulnerability is growing
- Why the marginal cost of oil is rising higher at an accelerating rate
- Why the marginal cost of oil for non-OPEC regions is now above $90
- The hard math explaining why an increase an output from OPEC will no longer reduce the world price for oil
- The new rules that will govern the price of oil from here
- The alarming growing risk of large-scale war for oil
Part I: OPEC Has Lost the Power to Lower the Price of Oil
If you have not yet read Part I, available free to all readers, please click here to read it first.
Part II: The Cruel Math of the Marginal Barrel
An unpleasant megatrend that has affected global oil production the past decade has been the quickly escalating cost of production. However, prices have finally risen high enough to stabilize declines in regions like North America.
This actually makes for a new and emerging vulnerability: the risk that prices fall at some point through levels that remove the new oil supply.
Given that world oil production has been trapped below 74 mbpd since 2005, and that the cost of the marginal barrel keeps rising, this vulnerability is growing.
The Cruel Math of the Marginal Barrel
PREVIEW by Gregor MacdonaldExecutive Summary
- Why oil price vulnerability is growing
- Why the marginal cost of oil is rising higher at an accelerating rate
- Why the marginal cost of oil for non-OPEC regions is now above $90
- The hard math explaining why an increase an output from OPEC will no longer reduce the world price for oil
- The new rules that will govern the price of oil from here
- The alarming growing risk of large-scale war for oil
Part I: OPEC Has Lost the Power to Lower the Price of Oil
If you have not yet read Part I, available free to all readers, please click here to read it first.
Part II: The Cruel Math of the Marginal Barrel
An unpleasant megatrend that has affected global oil production the past decade has been the quickly escalating cost of production. However, prices have finally risen high enough to stabilize declines in regions like North America.
This actually makes for a new and emerging vulnerability: the risk that prices fall at some point through levels that remove the new oil supply.
Given that world oil production has been trapped below 74 mbpd since 2005, and that the cost of the marginal barrel keeps rising, this vulnerability is growing.
by
Gregor Macdonald
There’s been a lot of excitement in the past year over the rise of North American oil production and the promise of increased oil production across the whole of the Americas in the years to come. National security experts and other geo-political observers have waxed poetic at the thought of this emerging, hemispheric strength in energy supply.
What’s less discussed, however, is the negligible effect this supply swing is having on lowering the price of oil, due to the fact that, combined with OPEC production, aggregate global production remains mostly flat.
But there’s another component to this new belief in the changing global landscape for oil: the dawning awareness that OPEC’s power has finally gone into decline. You can read the celebration of OPEC’s waning in power in practically every publication from Foreign Policy to various political blogs and op-eds. David Ignatius of the Washington Post wrapped up nearly all of the recent claims in a nice bundle in his May 4, 2012 piece, An Economic Boom Ahead?, when he quoted PFC Energy’s David West:
“This is the energy equivalent of the Berlin Wall coming down,” contends West. “Just as the trauma of the Cold War ended in Berlin, so the trauma of the 1973 oil embargo is ending now.” The geopolitical implications of this change are striking: “We will no longer rely on the Middle East, or compete with such nations as China or India for resources.”
(Source)
While it’s true that the Americas hold great promise to convert natural gas resources to higher production levels, that is not the case with oil. The celebration of a geo-political swing in energy power therefore misses a crucial point: No region — from OPEC to Non-OPEC, from Africa to Russia — has the single-handed ability to lower the price of oil now, because none can bring on new supply quickly enough for a long-enough sustained period of time.
OPEC Has Lost the Power to Lower the Price of Oil
by Gregor MacdonaldThere’s been a lot of excitement in the past year over the rise of North American oil production and the promise of increased oil production across the whole of the Americas in the years to come. National security experts and other geo-political observers have waxed poetic at the thought of this emerging, hemispheric strength in energy supply.
What’s less discussed, however, is the negligible effect this supply swing is having on lowering the price of oil, due to the fact that, combined with OPEC production, aggregate global production remains mostly flat.
But there’s another component to this new belief in the changing global landscape for oil: the dawning awareness that OPEC’s power has finally gone into decline. You can read the celebration of OPEC’s waning in power in practically every publication from Foreign Policy to various political blogs and op-eds. David Ignatius of the Washington Post wrapped up nearly all of the recent claims in a nice bundle in his May 4, 2012 piece, An Economic Boom Ahead?, when he quoted PFC Energy’s David West:
“This is the energy equivalent of the Berlin Wall coming down,” contends West. “Just as the trauma of the Cold War ended in Berlin, so the trauma of the 1973 oil embargo is ending now.” The geopolitical implications of this change are striking: “We will no longer rely on the Middle East, or compete with such nations as China or India for resources.”
(Source)
While it’s true that the Americas hold great promise to convert natural gas resources to higher production levels, that is not the case with oil. The celebration of a geo-political swing in energy power therefore misses a crucial point: No region — from OPEC to Non-OPEC, from Africa to Russia — has the single-handed ability to lower the price of oil now, because none can bring on new supply quickly enough for a long-enough sustained period of time.
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