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AB 2000 studies

Alain Boublil Blog


Oil : the new glut

Tensions in the Middle-East had generated at the end of last year a sharp rebound of oil prices, reaching almost 70$ per barrel. When these tensions are far from having disappeared, with the American assault against the chief of the Iranian Army and the launch of a missile which hurt the Ukrainian Boeing, causing 176 deaths, rates fell back under 65$ , the market seeming to ignore the political risks which weight on the most important zone of production and export of oil. This is showing a break with the past. The first two oil shocks in the Seventies had coincided with the Kippur war and after with the Iranian revolution. Koweit invasion followed by the Iraq one had, each time provoked market prices rapid rises which reached their record level with more than 100$ as an average during the 2011-2014 period.

Markets reaction does not mean that an appeasing of the situation is expected but that they became much less sensitive to geopolitical risks, even if these ones are affecting transportation costs. To link the Persian Gulf to Asia today costs five times more than a year ago, as a sign of the persisting tensions which are harming the region. It is the new balance between the supply and the demand which is at the origin of that stability. Regularly, a production capacity peak, the peak oil, is forecast, and notably in the last International Energy Agency reports. Reality has been quite different because production which was not supposed to exceed 85 or even 90 million barrels per day will have reached 95 billion in 2019. It has been then evocated, due to the taking into consideration of the risks associated to the climate warming, the idea of a demand peak. It is also far from having occurred. Consumption, in ten years grew from 85 to 95 million barrels. Developed countries consumption moderation has been more than compensated by the strong rise of needs from emerging countries, China and India being at the top of the list.

The idea of a rarefaction of available resources has also been largely spread. Between 2013 and 2015, if natural gas is included, new discoveries were evaluated, as an average, at 17 billion oil-equivalent barrels. Since that, this figure has been halved, which could let us believe that it is more and more difficult to find fossil fuels and that the prediction of a peak could well be fulfilled. But it is the opposite. If less oil is found, it is because for three years less is looked for due to its overabundance. That explains, despite geopolitical tensions affecting production zones, in the Middle East as in Latin America, price stability. The most significant factor has been the increase of American production whose impact on the world market has been strengthened by the decision of the Obama administration to authorize the producers to export oil when they did not find clients on their national territories due to the saturation of refineries capacities.

American production went from 5.7 billion b/j to more than 12 million between 2010 and 2019, when this year, the U.S. became the world biggest oil producer. That new extraction technology, which is also used to produce natural gas, has been, at the beginning highly criticized, notably through a movie where we saw natural gas going out of taps and exploding. It has been quickly understood that behind these campaigns coal producers, whose production was going to be affected, were acting. Their worries were justified because natural gas share in the power mix doubled in less than ten years, contributing to reduce greenhouse gas emissions. These extraction techniques based on hydraulic fracturation are obviously unsuited to highly urbanized areas or to agricultural regions. But it exist huge territories in Siberia, in Central Asia or in South America where deposits can be exploited.           

The abundance of oil resources has not yet been limited to non conventional oilfields. In Norway, the Sverdrup field has just been put into operation and its production would quickly reach 600 000 barrels per day. In Guyana and in Angola, major off-shore oilfields have been discovered and are progressively put into operation. In Brazil, at sea, facing Rio and San Paolo, pre-salt oilfields are also coming into full operation which will give soon to the country its energy independence. Production increased by 30% in ten years and will reach quickly 3 million barrels per day, covering 90% of the country needs. Government launched a public offer for a new field in that area but was asking for a minimum bid of 24 billion dollars to obtain the full rights to exploit the oilfield. It was quite unsuccessful, candidate companies finding that amount too high. It is another sign of the market turnaround which became and which will stay during a long period with overcapacities.

That situation, which was not forecast, is occurring in a context where environmental issues become stronger everywhere, even if some political leaders are denying it, as in the U.S. or in Brazil. So, behaviors will change which will weight on energy consumption, at the first place of which are coal and also oil. The recourse to electric transportation will progress, even if this deep change will occur much slower than what is announced today. We can say the same about heating. Progress will be delivered much slowly than expected. Until now, through the increase of the available supply, technological innovation has rather favored carbon energies, natural gas and petrol, than the other tools able to answer to the environmental challenges. Political leaders should take this point into consideration when they fix objectives.

So the “carbon neutrality” commitment of the European Union at the 2050 horizon can be diagnosed as utopia. First, to use the term “horizon” to determine a maturity is a paradox if we know that the characteristic of the horizon is to move away each time we approach it. It is a communication trick and nothing more but it is counter-productive. The objective is so far above what it is achievable that it will generate a worrying demobilization. The average life duration of a vehicle is superior to 20 years. In the number of cars, even if we include trucks and delivery vehicles, the share of electric vehicles is inferior to 1% and it will take more than 30 years to reach 50% because new electric vehicles market share is as an average under 5%. The reasoning is quite also pertinent for heating and industrial production for which in some sectors, it is not possible to avoid using fossil fuels.

To convince and to obtain results, you must be credible. To mention “horizons” and to quote figures which are making people dreaming allow to these who pronounce them to occupy the front of the scene. But the issue is too serious to be treated as if we were attending a spectacle. Instead of talking about a world without carbon, let’s become a world without coal, it will be much more efficient.       


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