Guest blog by SA Shelley: I try to avoid writing about oil too often for three reasons: 1) the oil markets are well observed by more than enough highly paid analysts, 2) the changes in energy technology and distribution are more interesting (and still largely misunderstood by highly paid analysts) and 3) I try to build anticipation for my oil industry supply and demand blog in January of each year. But because of some recent peculiarities that have arisen in the oil markets, a short blog about oil now seems warranted.

For the past 30 years fossil fuels have provided about 80% of global energy needs (see Fig. 1). Oil and gas constitute about half of that supply, so about 40% of all global energy needs are still provided by oil and gas. Even though there are massive investments in renewable energy, most of these renewable investments are displacing coal while oil and gas are still largely unaffected. One of the big reasons for this is that the oil and gas industry is so large and well established that massive amounts energy can be purchased on the spot markets to provide very large, nearly instantaneous energy supplies. Renewables still don’t have that massive market capacity, but it’s coming, especially in light of the lower cost investment and higher returns available in renewables compared to fossil fuels.

Historically, the oil market has worked in a very basic way:

1. When oil supply meets demand, prices have been relatively stable
2. When there has been less oil supply than demand, prices tended to rise
3. When there has been more oil supply than demand, prices tended to fall.

Sure there were agreements and cartels (pre-OPEC, OPEC and probably post-OPEC) that have been successful to some degree to control prices, but in the long run the oil markets have behaved market-like. But what’s happening now in the world of oil as evidenced by its recent price trajectory (see Fig. 2)?

In March of this year, the IEA released their Oil Forecast during the CERA conference in Houston. The IEA argued then that the bulk of oil supply growth will come from the U.S., followed by a group of five other nations and that supply loss will be mainly from Iran and Venezuela (see Fig. 3).

In that report, the IEA forecast oil demand growth of 1.2 million bbls / day for 2019, essentially stating that demand is stable and growing modestly.

However, supply has not remained stable. Recent data suggests that supply losses in Iran and Venezuela are much greater than originally thought. Supply loss from Iran onto world markets is actually twice that indicated by the IEA at close to 2 million bbls / day lost instead of 1 million bbls / day.  For Venezuela, it is likely that since March oil supply has fallen by another 1/2 million bbls / day. Between just these two states, since March, it is probable that another 1-1/2 million bbls / day of oil supply has disappeared from the markets. 

So why are oil prices falling again when demand is supposed to be stable, but supply is decreasing (!!!)? Some possible answers:

1. Oil supply growth is faster than forecast
2. Oil demand growth is slower than forecast
3. Both 1) and 2)
4. Neither 1) nor 2)
5. Somebody is hiding oil, by under reporting production and/or purchases and by using tankers of dubious flags, or under-scrutinized pipelines

I’m guessing 5). Other overlooked, misunderstood and scary data and analysis from the IEA report will be discussed in the January oil blog.

SA Shelley, WH Luyties: OWOE is a small site, with just a few dedicated and experienced staff who follow energy technologies, economics and policies. Occasionally, OWOE bloggers dare to forecast energy developments that tend to be contrarian, and, much to everyone’s surprise, they have been very good at forecasting trends correctly and ahead of much larger analytical organizations. Are we that good at more quickly analyzing publicly available information along with some insight and soft analysis? Or do we have access to the dark arts such as whiskey and voodoo?

Guest blog by S. A. Shelley: In the past few months, a lot of people around the world have probably wondered about why oil prices have again quickly and significantly fallen. I’ve argued in a prior blog at the beginning of this year that the world is awash in oil supply. Even though oil production is collapsing in places like Venezuela, Iran and Mexico, is in danger of collapsing in more places like Angola and Libya, and is politically constrained in places like North Venezuela (Canada), there still is plenty of oil to supply most global markets. The plentiful supply of course comes from surging production in the U.S., ample production in Russia and new offshore fields coming on stream in places like Guyana and Brazil. If you couple increasing supply with softening global demand for oil, you get such downward pressure on oil prices. So what’s with this nonsensical sport of shooting tankers in the Gulf of Oman?

I live in California. That gives me a front seat to virtually every new initiative and trend related to saving the planet, whether it is about turtles and plastic straws, banning single-use plastic bags, electric vehicles, or green energy. Although not the first state to adopt a Renewable Portfolio Standard (RPS), California has been one of the most aggressive in its timetable for replacing fossil fuel based electricity with carbon-free. In 2018, California updated its RPS to the requirement to achieve 60% of electricity sales from renewable sources by 2030 and 100% by 2045. Of course, California’s aggressive push toward renewables has triggered a wide range of reactions. For example, Michael Shellenberger of Environmental Progress has been pushing the idea that California’s electricity rates are significantly higher than the rest of the US (see Figure 1) and rising significantly faster because of its dependence on renewables. His culprit is renewable energy and his solution is to keep nuclear plants open. In contrast, Roger Sowell, who blogs about renewable energy issues, argues that California’s unique climate, geography, and large population make such differences to be expected.

Guest blog by S. A. Shelley In the first blog of this series, I summarized the huge energy resources of Canada. In the second blog, I showed how most of those resources have been or are being squandered and how governments with good intentions, at times more often than naught, deliver bad outcomes. While statistically bad outcomes can be unintentional, in Canada a lot of bad outcomes are actually the deterministic result of government strategy. Coupled with the breakdown of the rule of law at the highest levels, Canada is in bad shape. That unfortunately is the very big ugly in Canada. Other factors resulting in Canada’s bad energy situation are the focused actions by small groups of well-funded opponents and the apathy by the populace who have been habituated to the sweet lucre of government largesse. Canadians are generally kind and polite people, but at the governing level, the plotting and duplicities surpass a Shakespearean tragedy. The Russians probably learn by watching what happens in Ottawa.

The biggest warning that I have is that the path that Canada is on will more likely lead to Canada becoming the next Venezuela – corrupt, ineffective and when in trouble, doubling down on failed collectivist ideas, instead of returning to integrity, order and prosperity.

Guest blog by Mr. R. U. Cirius: Here are some interesting and somewhat offbeat energy stories that haven’t gotten much media attention during the first three months of the year.

California wind turbines contribute to unprecedented wildflower outbreak

This year California has experienced what many are calling a “superbloom” of wildflowers that hasn’t been seen in decades (Fig. 1). While most attribute this to heavy winter rainfall following several years of drought, Dr. Marko Ramius from the National Wind Energy Laboratory (NWEL) has identified another contributor to the phenomenon – California’s ubiquitous wind turbines. Dr. Ramius has released his surprising findings that show the role of what he calls the “turbulence boundary interface”. This is the boundary of the turbulent mass of air downstream of the turbine’s rotor that generally hovers just off the ground. He has found that this boundary traps moisture close to the earth, which then enhances and prolongs the period of flower bloom. He is currently in discussion with major turbine manufacturers to incorporate blade tip misters into their designs that could provide moisture during drought periods and hopefully make such superblooms a more common occurrence.

Click here to learn more about wind energy.

Guest blog by S. A. Shelley In the previous blog about energy in Canada, I presented evidence that Canada has abundance of energy, ranging from hydrocarbon to existing renewable energy supplies. In essence, Canada has similar potential to Norway and even at a larger scale. Norway, like Canada, has been a prolific producer of oil and gas and continues to be so, but Norway is already in a position to be able to transition fully to renewable energy and has undertaken steps in that direction and to curtail fossil fuel consumption (see Independent.co.uk, and Fortune.com).

But where Norway has long term vision and broad social and political consensus, Canada has acrimony, mismanagement and corruption.

Guest blog by S. A. Shelley If there is a poster child in the world for energy wealth, it’s Canada. Folks are dumbfounded by what the Europeans are achieving with renewable energy and decarbonizing, folks quake at the vast untapped oil and gas reserves of Russia, and folks are stunned at how technology and finance combined to bring about the prolific U.S. tight oil and gas production which is upheaving world energy markets. Wow, eh?

Instead, folks should be looking at Canada, that half frozen land of log drivers, curlers and exporter of Hollywood A-listers, and be awestruck by the energy resources that have somehow fallen under the Dominion of Canada.

Guest blog by S. A. Shelley In my previous two blogs I have offered views on oil supply and the (macro) social changes that are resulting in a slowdown of growth in oil demand. In this blog, I’ll look at some of the technological (micro) factors that that will contribute further to a drop in demand. This combination of oversupply and drop in demand will have significant and far-reaching impacts on oil companies, petro-nations, and all the companies and people who are a part of the industry.

Guest blog by S. A. Shelley Surf into any news or finance website and one can find almost everyone commenting about oil demand (see Reuters, OilPrice.com). It can be contradictory and confusing at times, especially when variables are changed and data is parsed in a myriad of ways. I will try to clarify things by separately looking at societal changes (this blog) and then technological changes (next blog). But there is one thing that I have to make clear right away: Oil demand is not going to zero any time soon. The end of the oil age is nigh upon us, but not quite yet, though there are foreboding changes in society (this blog) and technology (next blog) that will affect oil demand in the most unpleasant manner for producers.