Is the age of oil about to end? This oilman thinks so

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Paul Danish

There’s a new “Peak Oil” prediction out, and this one is worth taking seriously if for no other reason than its source.

Peak Oil, you may recall, refers to a theory propounded by the late geologist M. King Hubbert, who predicted that world oil production would ultimately reach a maximum and then go into a long decline. He initially predicted this would happen in the 1965 to 1970 time frame. Later versions of the theory held that Peak Oil would be achieved a few years ago.

The theory has been repeatedly debunked by reality, most recently by the appearance of new oil and gas exploration and production technology like three- dimensional seismology, horizontal drilling and multi-stage fracking.

What sets the latest Peak Oil prediction apart is that it is based on peak demand, not peak production — and that it’s predicted to occur as soon as five years from now. That and the fact that the person making the prediction is the Chief Financial Officer of Royal Dutch Shell (Hubbert’s old company) — who says Shell is already taking the prospect of Peak Oil demand into account in its strategic planning.

“We’ve long been of the opinion that demand will peak before supply,” Shell CFO Simon Henry said during a conference call with financial analysts last week. “And that peak may be somewhere between five and 15 years hence, and it will be driven by efficiency and substitution more than off-setting the new demand for transport.”

Back when I was writing about energy in the 1980s, I began wondering whether the age of oil might end due to lack of demand instead of lack of supply, but it was such a contrarian view I didn’t have the guts to write it at the time. Lately, I’ve been thinking it’s an idea whose time has come.

For the following reasons:

All of the world’s major auto companies are adding all-electric cars to their product lines and improving their range on a battery charge. Tesla and Chevrolet will both be offering cars that get more than 200 miles driving range in their latest product lines; Toyota is expected to have a similar offering by 2020.

The most critical electric car technology, batteries, is being incrementally improved at an accelerating rate. It is entirely possible the range of electric vehicles will double or triple over the next 10 years. That alone could cause sales to explode.

Tesla is producing all-electric cars that compete with and out-compete all but the highest-end conventional ones on performance, which is a necessary condition if all-electric cars are ever to take market share from conventional ones. “Performance” means metrics like 0-60 mph measured in seconds. The auto industry learned decades ago that it will sell a lot more cars by being bad than by being green.

Semi-autonomous and self-driving cars are on the verge of entering the market. These technologies will save fuel as well as lives.

Conventional cars are becoming a lot more fuel efficient, while giving away nothing in terms of performance. In order to meet the more stringen Corporate Average Fuel Economy (CAFE) standards imposed by the government in 2008 auto makers have developed and deployed the technologies that are making it possible.

In the past 10 years, the CAFE of cars sold in America has risen roughly from 25 miles per gallon to 35 mpg — and is on track to rise by another 10 to 15 mpg in the next 10. So the amount of fuel used is going down while the number of cars and miles driven is going up. The technology that is making this possible is being adopted by automakers all over the world.

And so on.

So does this mean green activists won’t have fracking to kick around anymore? Hardly.

Demand for petroleum may peak, but oil won’t become a minor player in the world’s energy mix for decades. There are about 200 million internal combustion engine powered cars in the United States. It will take the better part of a generation to replace them all.

Oil production around here will probably be among the last to be phased out. That’s because the oil industry has invested billions of dollars in infrastructure development in the Wattenberg Field in Weld County (which extends into eastern Boulder County as well). That investment is a sunk cost that makes Wattenberg oil some of the cheapest to produce in the country. In a shrinking market, that matters big time.

As for the oil companies themselves, they will shift their focus from oil to natural gas. The latter produces half the CO2 of coal when it’s burned in power plants, and the demand for electric power is expected to explode as electric cars replace oil and gas driven ones. Natural gas has the inside track for producing a lot of it in a hurry.

The important point here is that the end of the age of oil will be brought about by a drop in demand not a drop in supply — and that the drop in demand will be brought about by fossil fuels being displaced by technological advances, not by political decisions.

This opinion column does not necessarily reflect the views of Boulder Weekly.

  • Bazz12

    The problem with this article is that US peak oil DID occur in 1970 as predicted and
    world peak crude oil DID occur in 2005 as predicted.
    The decline was covered by the tight shale oil production which gave an 8 year opportunity to make other plans. However the tight shale oil is now declining also.
    The declining world economy has produced a decline in demand that has produced a price so that the tight oil suppliers cannot make a profit.
    So sorry but you missed peak oil.

  • Desy

    Exactly, what they call ‘oil’ has changed, its API is much worse, its natural gas to liquids, tar sands, Argentinian heavy oil and ethanol. Jed Clampet crude is going and getting better at exploiting reserves doesn’t mean there’s more or it will be cheaper, because its expensive technology that makes it happen. Price comes down when demand is less than supply, as it has always been.