Statoil retreating from Northland may well feel like a victory against oil. But it’s a tiny illustration of a broadly accelerating trend.
Statoil have currently stopped all new exploration worldwide. Shell’s long since stopped exploring Taranaki, and walked away from the sub-Arctic. This week BP abandoned the entire Australian Bight. Over 8,000 Phillipino workers have lost their oil jobs in Saudi Arabia this year alone. Over 25,000 oil service jobs have gone from Singapore in the last 18 months alone: ports, refining, marine, and consulting engineering, because exploration is dead.
What we are feeling is far bigger than a little win in Northland. It is a global economic earthquake.
OPEC’s decision last month to cut oil production is simply not yet facing an unpalatable trend: demand for oil could start falling within 15 years.
If rapid improvements continue in renewable energy, electric vehicles, and other disruptive technologies, petroleum consumption will peak in 2030 and decline thereafter, according to the World Energy Council.
The plunging cost of renewable energy – with solar powered modules costs falling 50% since 2009 – is already upending the business model of electricity utilities. Given the advances in better technology, by 2030 carbon-powered vehicles may be the exception rather than the norm. That too will impact oil demand.
Less than a decade ago, oil producing countries could count on “peak oil” to mean that more oil reserves = high price = high long term state income. US/Canadian shale, Iran, and the Caspian, will depress oil prices for a decade. Venezuela’s near total failure, and Saudi Arabia’s drastic social welfare cuts, are warnings showing that calculation may be changing. There is a growing risk that some oil resources might not be needed.
The consistently slow world economy is adding to renewables dampening demand. The old orthodoxy of perpetual growth in oil exploration and oil prices is now not very perpetual at all.
Of course, not all oil majors are tearing up their business plans yet. There will still be an anticipated increase of 20 million barrels per day over the next two years. That’s going to eat up the unused oil demand of an awful lot of Nissan Leaf cars. Nor will it “solve” climate change.
In political terms, the thing to watch is countries who have relied for their future on high oil prices and have not diversified their economies. It barely needs stating that this oil industry is what MBIE and the current government continue to beg us all to get behind, simply because oil worker salaries are so high. Promising New Zealand’s next pathetic bulk commodity binge-purge cycle, they achieved nothing, and forgot to apologise.
But New Zealand is a negligible part of the greater trend. For if oil producers fail to navigate the challenges of upcoming peak oil demand, the destruction of vast amounts of public and private shareholder value is unavoidable.
The greatest economic risk is, even after all oil majors stop all substantial new exploration, their resources become “stranded”, meaning their value evaporates because it’s no longer economic to extract them. With that sectoral sharemarket fall go the fates of whole states, whole pension funds, and the incomes of billions of people.