Cheap oil forever, Who saw this coming?

[J. C. Walker,Jr.]

http://www.truth-out.org/news/item/28282-saudis-tell-shale-industry...

[David MacLeod]

I wrote this post last March: "Oil Company Woes: This is What Energy Depletion Looks Like"

[J. C. Walker,Jr.]

http://fuelfix.com/blog/2015/01/06/bp-details-job-cuts-capital-spen...

[David MacLeod]

Yes, all good points. Short term thinking indeed.

[J. C. Walker,Jr.]

A little irony with regards to short term thinking, and maybe a CYA hat tip to Methane...Also the suggestion the potential frac energy could become a stranded asset along with wondering how long the usefulness of this power play will last. Low balling on this magnitude creates a fire sale. It could get interesting if any local refineries go up for sale as to the rumor I overheard recently.

[David MacLeod]

Hi J.C.,

I'm wondering how you got the title "Cheap oil forever" from the article you link to.  That's not the takeaway I got from this post and the many issues raised in it. 

I have a post on my blog, "What's Going on with low gas prices..." that covers a number of angles.  In brief, I think cheap oil is due to a number of factors.  North America is putting more dirty and expensive oil (tar sands, shale, oils) on the market, and now the market has responded to the high prices - economies can't afford oil priced this high, and in response economies around the world are suffering, and as a result of that demand is shrinking, so there is now excess oil on the market, so prices are going down. The Saudis are not limiting production, so as to drive out the expensive to produce oil from North America from the market, so that at some point in the future the price can then rise again.

Whether or not North America is driven out of the market by prices lower than they can afford to produce, I believe they are only going to be able to be players in this game for a few more short years, regardless.  The reason for this assessment, based on numerous reports from the IEA, from the Post Carbon Institute, and one other study posted in one of the major science journals, is that these shale deposits deplete very quickly after drilling begins.  The IEA doesn't see much contribution after 2020, and other reports are much less optimistic.

I do not believe we'll have cheap oil forever, but it could be fairly cheap for an extended period of time if world economies continue to collapse.

Who saw this coming? A fair number of "peak-oilers" tended to really emphasize this idea of triple digit oil prices and continuing upward as supplies dried up.  Firstly, they under estimated the determination and inertia of the current world system that would insist on putting oil on the market that offered a very low or even negative energy return on energy invested, and secondly they didn't very well take account of the real world economic effects of high prices forcing significant (and involuntary) demand reduction.

However, the serious thinkers, including Colin Campbell, Richard Heinberg, and Jeff Rubin, did forewarn that we would see big price swings with big economic effects.  For example, from the book closest at hand, here's an excerpt from p. 32 of The End of Growth/The Big Flatline, by economist Jeff Rubin:
"The relationship between oil and economic growth is a two-way street. Buying oil stocks, for example, is always a great idea when crude prices are going up. But when high oil prices trigger a recession that clobbers demand, crude prices come tumbling back down to earth, bringing those same oil stocks along for the ride.
That's why the best cure for high oil prices is high oil prices..."

P. 38:
"...the only peak that matters is the one determined by what we can afford, not by how much we can drill. Potential oil resources are only meaningful if we have the money to actually pay for the fuel...
The resources may be there for the taking, but our economies are already telling us we can't afford the cost."