PEAK OIL DEMAND - IEEJeneken.ieej.or.jp/data/7594.pdfKYOTO PROTOCAL HAS SEEN PROGRESS 10000.0...

PEAK OIL DEMAND: WHAT COULD CAUSE IT? HOW CLOSE IS IT? IEEJ OCTOBER 2, 2017 MICHAEL C. LYNCH [email protected]

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IEEJ：October 2017 © IEEJ2017

THE BOOK IS FINALLY HERE!

FUNDAMENTAL TAKEAWAY: REALITY CAN BE COMPLEX, AND BASIC ARGUMENTS CAN BE WRONG OR MISUNDERSTOOD. EXPERIENCE VALUABLE, IN-DEPTH RESEARCH AVOIDS MISTAKES, INDEPENDENT THINKING CAN BE USEFUL

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COULD OIL DEMAND PEAK? PEAK OIL SUPPLY ARGUMENTS FALLACIOUS ◦ PEAK OIL DEMAND NOT BE VALID

POLICY ◦ CLIMATE CHANGE WILL MEAN REDUCED DEMAND ◦ PARIS ACCORDS SEVERELY LIMIT FOSSIL FUEL CONSUMPTION

TECHNOLOGY ◦ ADVANCES IN ‘CLEANTECH’ ARE RAPID: BIOFUELS, MATERIALS ◦ BATTERY ELECTRIC VEHICLES CLOSE TO BREAKTHROUGH

ECONOMICS ◦ DEMOGRAPHICS AND PRICE ◦ OIL VS NATURAL GAS

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THE ARGUMENT (DÉJÀ VU?) JOE ROMM 2017: ◦ In December the nations of the world agreed unanimously in Paris to leave most of the world fossil fuels

in the ground. ◦ Oil demand has been declining in developed countries for over a decade. ◦ Electric vehicle sales are exploding around the world, especially China. ◦ Battery prices are continuing their unexpectedly rapid price drop. ◦ Tesla and Chevy now say their new 200-mile-range EV could cost Americans $30,000 — a game-changing

price.”

“I wasn’t going to post on this since I have blogged endlessly on the painfully obvious reality that we are at or near the peak (oil supply).” JOE ROMM 2009

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STONE AGE ENDED 4000 YEARS AGO, BUT…

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200

400

600

800

1000

1200

1400

1600

1800

2000

1975 1980 1985 1990 1995 2000 2005 2010 2015

CRUSHED STONE PRODUCTION IN US

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WE DIDN’T RUN OUT OF HORSES

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…OR COAL (US PRODUCTION)

-

200.0

400.0

600.0

800.0

1000.0

1200.0

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CLIMATE CHANGE

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CLIMATE CHANGE AND THE PEAK

LARGE AMOUNTS OF FOSSIL FUELS MUST BE LEFT IN GROUND ◦ THOSE RESERVES THUS WORTHLESS ◦ THUS, STOCK PRICES SHOULD BE DISCOUNTED ◦ ALSO, DIVERSTITURE SHOULD BE DONE FOR ECONOMIC REASONS

◦ NOT JUST MORAL/POLITICAL

PROMOTED PRIMARILY BY CLIMATE ACTIVISTS ◦ NY CASE AGAINST EXXON

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EXTREME CASE: 80% OF RESOURCE UNUSABLE

SOURCE: BRAD JOHNSON, THINKPROGRESS.ORG, 2012.

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CO2 EMISSIONS: PROGRESS?

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015

GLOBAL CO2 EMISSIONS

HANSEN

KYOTO COP1

UNFCCC AN INCONVENIENT TRUTH

THE 11TH HOUR

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KYOTO PROTOCAL HAS SEEN PROGRESS

10000.0

10500.0

11000.0

11500.0

12000.0

12500.0

13000.0

13500.0

14000.0

14500.0

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

OECD EMISSIONS

KYOTO TARGET ROUGHLY HALF THE TARGET WAS ACHIEVED

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CLIMATE CHANGE POLICIES DRIVEN BY WEATHER, NOT CLIMATE, IDEOLOGY MORE THAN SCIENCE

HOPE FOR RATIONAL, BUT DON’T ASSUME

RATIONAL: CARBON TAXES, CAP AND TRADE

IRRATIONAL: MANDATES, SUBSIDIES (ESP BEV), LARGE-SCALE BIOFUEL IN OECD

POSSIBLE: ◦ SUBSIDIES TO FAVORED GROUPS

◦ FARMERS, RENEWABLES, ELECTRIC VEHICLES

◦ REGULATIONS ◦ EFFICIENCY STANDARDS, BIOFUELS

◦ PROMOTIONAL ◦ NUCLEAR?

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COST OF REDUCING EMISSIONS

ELECTRIC VEHICLES’ COST OFF THE CHARTS

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TRANSPORT NOT THE MAIN GHG TARGET (IEA 2016)

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IMPACT ON OIL INDUSTRY: CARBON TAXES

BIGGEST HIT TO COAL

BIGGEST WINNERS ◦ EFFICIENCY, GAS, WIND, NUCLEAR, SOLAR ◦ ELECTRONICS: SENSORS, SOFTWARE

WHAT HIT TO GASOLINE DEMAND?

GAMING ◦ CHINA COULD ATTRACT ENERGY-INTENSIVE INDUSTRY

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BUT CARBON TAXES STILL MINIMAL

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$100/ton of CO2 roughly $1/gallon gasoline

ONLY FINLAND, NORWAY AND SWEDEN OVER $25/TON. $100/TON REDUCES US DEMAND BY 20% IN 20 YEARS.

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RATIONAL CLIMATE CHANGE POLICY

END SUBSIDIES ◦ MAX 3.7 MB/D OF OIL DEMAND REDUCTION

TAX CARBON ◦ 2-4 MB/D OF OIL DEMAND REDUCTION AFTER 10-15 YEARS

LIKELY IN TEN YEARS: 2-3 MB/D REDUCTION TOTAL

ABANDON EV SUBSIDIES IN FAVOR OF RESEARCH ◦ LESS BIOFUELS

SCRAP RENEWABLE MANDATES

PROMOTE NUCLEAR, EFFICIENCY, RESEARCH IN NEW TECHNOLOGIES ◦ GAS FOR CHINA AND INDIA

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SUBSIDIES CONCENTRATED IN OPEC

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ECONOMICS AND/OR DEMOGRAPHICS

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RICH COUNTRY DECLINE, POOR COUNTRY GROWTH

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PREVIOUS PEAK GASOLINE DEMAND

Exxon Mobil Corp. CEO Rex Tillerson said this month that U.S. gasoline demand peaked in 2007. 2009

2010 EIA Gasoline demand and price forecast

(demand in mb/d, price in cents/gal)

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50

100

150

200

250

300

350

400

450

8.9

8.95

9

9.05

9.1

9.15

9.2

9.25

9.3

9.35

9.4

2007 2012 2017 2022 2027 2032

DEMAND MB/D PRICE C/GAL

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ACTUAL GASOLINE DEMAND “Thirst for oil returns in wealthy nations” FT 9/2017

6000

6500

7000

7500

8000

8500

9000

9500

10000

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US TRAVEL HAS SLOWED AIR PASSENGER MILES: ◦ 1960-2000: 7.3% PER YEAR GROWTH ◦ 2000-2014: 1.2% PER YEAR GROWTH

HIGHWAY MILES ◦ 1960-2000: 3.24% PER YEAR GROWTH ◦ 2000-2014: -0.3 PER YEAR DECLINE

2008 FISCAL CRISIS MAY BE PARTLY TO BLAME

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DEMOGRAPHICS AND OIL DEMAND (JAPAN)

0.0E+00

2.0E+07

4.0E+07

6.0E+07

8.0E+07

1.0E+08

1.2E+08

1.4E+08

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015

TB/D

OIL CONSUMPTION TB/D POPULATION

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AUTOMOTIVE REVOLUTION? RETHINKX VIEW REAL WORLD

TOKYO:

MOST EXPENSIVE PLACE TO OWN CARS

GREAT MASS TRANSIT

TERRIFIC TAXI SERVICE

CARS REGISTERED: 3,140,651

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TECHNOLOGICAL REVOLUTION

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THE REVOLUTION: TECHNOLOGY AND/OR POLICY

NEW TECHNOLOGIES ◦ STATIONARY:

◦ SOLAR, WIND, ADVANCED NUCLEAR ◦ BATTERIES FOR BACKUP

◦ MOBILE ◦ BATTERIES (EV) ◦ AUVS

DEMOGRAPHICS

POLICIES (CLIMATE CHANGE PRIMARILY)

YIELDS: ◦ PEAK OIL DEMAND

100% RENEWABLE ◦ SMART GRID, DECENTRALIZED ◦ CLIMATE CHANGE POLICIES

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PREDICTIONS OF PARITY BETWEEN BEV AND ICE

Battery Parity Published Source Price $/kwh Reached Where

2012 McKinsey 250 <2020 2015 Nyqvist 150 2025-2030 2016 UBS 160 2021 Europe 2016 UBS 160 2025 China 2017 UBS 2018 Europe 2017 UBS 2021 China 2017 UBS 2025 U.S. 2017 BP 50-150 2025-2035

2017 Carbon-Tracker 150-300 2020

2017 BNEF 2025 2017 Statoil 2025

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THE REVOLUTION IS HERE!

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CLINTON’S SUPERCAR 2000

(Carson and Vaitheeswaran are adamant that the Prius is not the car of the future, though they give Toyota high marks for forward thinking.) GM PRECEPT AND FORD PRODIGY

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OPTIMISTIC BATTERY COST PROJECTION

SOURCE: STRAUBEL, TESLA (2015)

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BATTERY COST UNCERTAINTY “How Soon Can Tesla Get Battery Cell Costs Below $100 per Kilowatt-Hour?

Its $100 per kilowatt-hour goal could be reached sooner than expected—and well ahead of the competition.” (2014)

“Tesla’s announced battery cost to the consumer is $430 per kWh for the 7 kWh pack and $350 per kWh for the 10 kWh pack, so it’s logical to surmise the batteries cost Tesla $300 per kWh, which gives the company a window of between $50-130 per kWh to account for any additional costs and a profit margin.” MIT 2015

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UNCERTAINTY ABOUT HISTORICAL COSTS

Nyqvist et. al. Nature.

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WILL BATTERY COSTS FLATTEN OUT?

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ELECTRONICS IS EASY, CHEMISTRY IS HARD

CAR BATTERY ◦ Same size, power in 3 decades

1981: Memory=128K

2011: Memory = 4GB

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SPOT THE WINNER: 1910 Model T Horse

Horsepower 20 1 Speed 35-40 10-17 Passengers 2-7 1 to 2 Cargo Capacity (lbs) 2000 200-300 Exhaust n.a. 22 lb manure Range 200 40 Price 4740 2280 Fuel Cost/year 1752 840

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ELECTRIC VEHICLE: ◦ $10K EXTRA ◦ 1/3-1/2 LESS EMISSIONS ◦ RECHARGING: 30 MINUTES TO 9 HOURS ◦ RANGE: 100-200 MILES, +/- 50%

HYBRID VEHICLE ◦ $3K EXTRA ◦ 1/3 LESS EMISSIONS ◦ REFILL 5 MINUTES ◦ RANGE: 300-400 MILES

ICE VEHICLE ◦ NO EXTRA, NO EMISSIONS SAVINGS ◦ REFILL 5 MINUTES ◦ RANGE: 300-400 MILES

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PEAK DEMAND VS PRICE IMPACT BNEF THINKS 2-3 MB/D OF LOST DEMAND YIELDS PRICE CRASH ◦ KIND OF SIMPLISITIC

WEAKER DEMAND WOULD PRESSURE PRICES ◦ EXCEPT IF ITS DUE TO HIGHER PRICES

PRICE EXPECTATIONS TOO HIGH ALREADY (IMHO)

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IEA SEES NO PRESSURE ON OPEC

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PRICE FORECASTS IN HISTORICAL CONTEXT

0

20

40

60

80

100

120

140

160

1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020 2025 2030 2035 2040

DOE REF DOE LO IEA NP IEA CP IEA 450 OPEC ESAI SEER GI EVA ARROWHEAD ACTUAL

DOE HIGH PRICE SCENARIO OMITTED FOR PURPOSES OF CLARITY. 42


…CAVEAT: 2014 FORECASTS (WHEN OIL WAS $100)

0

20

40

60

80

100

120

140

160

180

2010 2015 2020 2025 2030 2035 2040

ACTUAL DOE IEA SEER

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ULTIMATELY RIGHT NOW, MORE OIL USE: ◦ GROWING INCOMES ◦ LOW OIL PRICES ◦ REDUCE DEFORESTATION, HABITAT LOSS

PEAK IN OIL DEMAND WOULD REQUIRE ◦ LARGE CARBON TAXES ◦ HUGE ELECTRIC VEHICLE SUBSIDIES ◦ SOME MAJOR TECHNOLOGICAL BREAKTHROUGH

◦ SUPERCAPACITORS ◦ FUEL CELL ◦ REALLY CHEAP BIOMASS OR SOLAR

IMPACT ON CURRENT RESERVE VALUES NIL

IMPACT ON BUSINESS IN NEXT TWO DECADES LESS CLEAR ◦ STILL WAITING FOR MY FLYING CAR—BUT MAYBE NOT MUCH LONGER

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PEAK OIL DEMAND - IEEJeneken.ieej.or.jp/data/7594.pdfKYOTO PROTOCAL HAS SEEN PROGRESS 10000.0...

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