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Peter Tertzakian

Peter Tertzakian

Peter is an economist, investment strategist, author and public speaker on issues vital to the future of energy. He has clocked over 30 years of…

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“End Of Oil” Narratives Are Misleading

Oil

The world isn’t reinventing the wheel. But we are changing how it turns, who it carries and where it’s going.

Over the next few decades we’ll be plugging in more cars, hailing and sharing them, and reminiscing about the good ol’ days of the steering wheel.

To be sure, these looming mobility changes are all exciting and impactful. But none of these nascent trends extrapolate easily into a narrative about “the end of oil,” a disruptive displacement of the fuel everyone loves to hate.

Contrary to armchair calculus, more electric vehicle (EV) sales do not equate to the world using less oil anytime soon.

In fact, whichever way you cut the spreadsheets, the numbers are pointing in the opposite direction. By 2030, less than 15 years from now, I expect around 400 million more internal combustion engines will accumulate into the global fleet of passenger cars – even after assuming that EV market penetration is accelerated with the heavy-handed help of governments around the world.

Here is an indication of the scale of vehicle accumulation: So far this year, to the end of September, over 70 million vehicles with internal combustion engines have been sold worldwide. Every new vehicle that’s sold lingers in the fleet.

Simplistic assumptions and analogies abound. A petroleum-powered vehicle is not like a cheap DVD or videocassette that gets pitched out the minute you buy a Netflix subscription. A car already on the road is an expensive asset –most often financed with debt – that’s put to work for as long as possible by a string of owners. What’s under-appreciated is that most oil-burning vehicles will resist going to the scrap yard, due to their stubborn and improving reliability (see my column Old Pistons Die Hard from October 16th.)

Related: Russia Unfazed by U.S. Oil Sanctions

Another mythical assumption is that oil consumption is only about planes, trains and automobiles. At least 40 percent of every barrel goes to other industrial uses, like heating, lubricating wheels (electrically propelled or otherwise) and petrochemicals. The developing world continues to computerize, mechanize, industrialize and all sorts of other suffixes that contain “-ize” that use more and more oil products beyond transportation. From shampoo to crayons and shoes, hundreds of household items contain refined oil products.

As a conclusion to my multi-part series on the impact of EVs on oil consumption, my figure this week shows the future of oil under three scenarios of substitution of passenger cars by electric vehicles, including the scenario that assumes that all countries will ban the sale of combustion engines by 2040. For conservatism, I’m also assuming growth in other non-transport segments will stagnate even though this is contrary to most current trends and projections.

(Click to enlarge) 

A growing number of barrels are going to be demanded until at least the 2030s. It’s quite likely we will be using as much oil in the 2040s as we were in 2012 – a staggering 90 million barrels a day.

We can debate and squabble over whether our daily oil appetite will be 85 or 105 million barrels in 2040; or whether peak demand will occur in 2028 or 2038. These are distracting and somewhat moot metrics.

Related: Kingdom Of Fear: Saudi Arabia On Lockdown

The reality is that a lot of oil is going to be consumed worldwide over the next several decades, with serious implications to pressing issues like climate change, geopolitics, energy security and investment to name a few. What is the point of misleading narratives about “the end of oil?”

For example, consider the pursuit of reducing global carbon dioxide emissions. Is that goal really being aided by harshly discounting the likelihood that consumers won’t displace their oil habit as fast as headlines suggest?

When it comes to thinking about future oil consumption, we don’t need to reinvent the wheel; we need to turn it in a different direction, away from numbers and timing that rely on more assumptions than lanes in a Texas freeway. Maybe we should focus on: What are the attributes we want from oil suppliers of the future? And equally, what are the accountabilities of oil consumers?

By Peter Tertzakian

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  • Colin MacDonald on November 11 2017 said:
    The UK government takes in about £30 billion every year from car and fuel tax. They have also taken around £100billion from North Sea oil petroleum revenue taxes; that is before they taxed the oil companies profits and the fat pay cheques of the offshore workers. Electric cars on the other hand require government subsidies. These figures are fairly typical of Europe, absent the home grown oil production. Governments have been living beyond their means for decades, we have the technology to go all electric, the question is whether we have the money.
  • Paul Maher on November 14 2017 said:
    Hello, have been interested in the past about what Jim Stafford from your organization has had to say about Low Energy Nuclear Reactions", LENR. He has spoken as one that has seen hope for the worlds energy problems in LENR. How do you feel about it?
  • hall monitor on November 20 2017 said:
    A severely flawed article in many ways.

    As an example of quantitative flaws, the article states "At least 40 percent of every barrel goes to other industrial uses " .

    In reality, roughly 35 gallons (>80%) out of a 42 gallon barrel are related to gasoline, diesel (ultra-low sulfur distillates) or aircraft fuels. In addition, some of the gas liquids, "other distillates" and heavy oils are used for transport (buses, maritime, etc.). So, as a percentage of a barrel of oil, transport represents almost 85%.

    https://www.eia.gov/energyexplained/index.cfm?page=oil_home

    More important is the basic premise of this piece. "We can debate and squabble over whether our daily oil appetite will be 85 or 105 million barrels in 2040; or whether peak demand will occur in 2028 or 2038. These are distracting and somewhat moot metrics."

    Really??

    Let's translate those "distracting and somewhat moot metrics". The difference between 85 and 105 million bbls/day or 2028 versus 2038 peak represent trillions of dollars of investment. If we over-invest, we risk enormous waste of funds. If we under-invest, we risk shortages and price increases. If we ignore this, we risk severe price volatility.

    If the author wishes to consider additional attributes of suppliers and accountabilities of consumers

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