The peak of oil, or peak oil, has been the subject of a furious and controversial debate for decades. The idea, originating from a 1956 study signed by the American geologist Marion King Hubbert, was that at the beginning of this century the oil fields would reach the point of maximum productivity, followed by an inexorable decline. Hubbert predicted that American oil production would peak in 1970, which actually happened the following year. Why shouldn’t the same happen globally?
Today we know the answer: why the theory of peak oil, however geologically correct, it did not take technological advances into account. The underwater drills have managed to extract oil at extreme depths. New procedures for the exploitation of bituminous sands in Canada made the production of crude oil cheap from the earth, all the more so in 2008, when the price of the barrel reached 148 dollars. Horizontal perforation allowed the advent of fracking, which made it possible to develop the shale oil, extracted from the crushing of the rocky subsoil, which magically brought the United States back on the podium as the first world producer.
But the peak of Marion King Hubbert was a peak of supply or production capacity. What Looney talks about is exactly the opposite: a peak of demand, or the maximum point of consumption.
According to estimates by the International Energy Agency (IEA), global demand for oil will drop an average of 9.3 million barrels per day this year, practically the level of ten years ago. Now, as China’s consumption has already returned to 90% of those before the pandemic crisis, it is easy to imagine that the same trend will also be registered in Europe, as preventive closure measures will be eased. Not surprisingly, the price of the barrel has already risen to around $ 40, after having sailed at an altitude of 20. Still, it is not excluded that Looney’s suspicions are well founded.
To try to raise prices, OPEC and Russia have reached an agreement for a vigorous cut in production, but many operators doubt that it will stand for long. With the price at $ 20, the extraction of bituminous sand has almost stopped and that of shale oil are preparing to face an avalanche of failurescompounded by the fact that nobody wants to finance them on the capital market. With the price almost doubled, something is starting again, but the “difficult” sources of oil still remain well below the break-even point.
We add that the sum of the pandemic and the collapse of the price opens up new scenarios of instability in almost all the oil countries of the world. Iraq is not paying salary to civil servants. Nigeria has applied for emergency funding. Mexico, the Republic of the Congo and Gabon are in serious economic difficulties, not to mention a Venezuela that has been on its knees for years. Kazakhstan, already in trouble due to the drop in demand and price, had to stop the most important field due to an epidemic among workers. The princely state budget of Saudi Arabia, the country that has the lowest extraction costs thanks to the quality of its deposits, to stand up needs the price of the barrel is 80 dollars.
In order for crude oil consumption to return to the monstrous level of one hundred million barrels per day (almost 16 billion liters burned every 24 hours), the global recession triggered by Covid-19 needs to end and that, above all, it does not become depression. Not to mention that, according to numerous observers, some of the collective experiences induced by the pandemic are destined to take root, starting with telework, which reduces travel by car. Of course, in this situation, investments in reservoir development and maintenance projects also collapsed. According to the IEA, which held a webinar on the topic last week, this could lead to a supply-side shortage that is capable of bouncing off prices. At least in theory though. For now the stocks in the warehouse are at the highest levels.
On the other hand, the collapse in hydrocarbon consumption during the crisis produced an 8% drop in carbon dioxide emissions, while global consumption of renewable energy increased by 1.5 percent. Two good news would be said, but here too caution is a must.
The minus 8% of CO2 emissions is little more than climatologists recommend achieving every year between now and 2050, if humanity really wants to reach the great zero emissions target for that date. Too bad they are ready to go back. On the other hand, the recent increase in “green” energy available is only due to the recent start-up of new solar and wind plants, whose investments date back to past years. It is a pity that the ongoing crisis has significantly affected investments in renewables.
Many (but not too many) leaders argue that the pandemic crisis can be the perfect opportunity to open a new sustainable chapter in the history of globalization. But Kristalina Georgieva, director general of the International Monetary Fund, was the only one to offer governments a clear three-point recipe: to establish a tax on hydrocarbons, to remove subsidies for fossil fuels and to invest in green energy, also thanks to the programs emergency for the economy.
The 750 billion euros proposed by the Von der Leyen Commission for the European recovery partly collect this latter invitation, linking some investments to sustainable projects. But oil subsidies, estimated at over $ 400 billion a year, depend on the often demagogic policies of individual states: from the US majors oil that pump oil; to Iran where gasoline costs 9 cents per liter. Finally, the carbon tax, considered by many to be the best economic policy to save the planet from the climate disaster, partially applied in Europe and even less elsewhere, seems light years away from receiving the necessary consensus.
Because at least one thing is clear. Whatever the price that sets the market future Brent or West Texas Intermediate, it will always be a price that does not take into account the damage that the combustion of hydrocarbons produces, to the atmosphere of this tumultuous planet.