Fossil Fuels

Published on February 6th, 2015 | by Guest Contributor


Saudi Arabia Sees End Of Oil Age On The Horizon

February 6th, 2015 by  

Originally published on EnergyPost.
By Elias Hinckley

Most analysts believe Saudi Arabia refuses to cut production because it wants to shake out its higher-cost competitors or because it wants to punish Iran and Russia. There may be some truth in those theories, writes Elias Hinckley, strategic advisor and head of the energy practice with international law firm Sullivan and Worcester, but they miss the deeper motivation of the Saudis. Saudi Arabia, he says, sees the end of the Oil Age on the horizon and understands that a great deal of global fossil fuel reserves will have to stay underground to avoid catastrophic global warming. “That’s why it has opened the valves on the carbon asset bubble.”

Saudi Arabia’s decision not to cut oil production, despite crashing prices, marks the beginning of an incredibly important change. There are near-term and obvious implications for oil markets and global economies. More important is the acknowledgement, demonstrated by the action of world’s most important oil producer, of the beginning of the end of the most prosperous period in human history – the age of oil.

In 2000, Sheikh Ahmed Zaki Yamani, former oil minister of Saudi Arabia, gave an interview in which he said:

“Thirty years from now there will be a huge amount of oil – and no buyers. Oil will be left in the ground. The Stone Age came to an end, not because we had a lack of stones, and the oil age will come to an end not because we have a lack of oil.”

Fourteen years later, while Americans were eating or sleeping off their Thanksgiving meals, the twelve members of the Organization of the Petroleum Exporting Countries (OPEC) failed to reach an agreement to cut production below the 30 million barrel per day target that was set in 2011.  This followed strenuous lobbying efforts by some of largest oil producing non-OPEC nations in the weeks leading up to the meeting.  This group even went so far as to make the highly unusual offer of agreeing to their own production cuts.

The ramifications of this decision across the globe, not just in energy markets, but politically, are already having consequences for the global landscape.  Lost in the effort to understand the vast implications is an even more important signal sent by Saudi Arabia, the owner of more than 16% of the world’s proved oil reserves, about its view of the future of fossil fuels.

Since its formal creation in 1960 the members of OPEC, and specifically Saudi Arabia (and in reality the Kingdom’s control over global oil markets is much larger than that 16% of reserves implies as its more than 260 billion barrels are among the easiest and cheapest to extract and before enhanced recovery techniques accounted for a much larger share of global reserves) have used excess oil production capacity to influence crude prices.  The primary role of OPEC has been to support price stability.  There are notable exceptions – like the 1973-1974 oil embargo and a period of excess supply that undermined prices and crippled the Soviet Union in the 1980s (though whether this was a defined strategy or serendipity remains in some question), but at its core the role of OPEC has been to control oil prices. As recent events show, OPEC’s role as the controller of crude oil pricing is coming to an abrupt end.

But in a world where a producer sees the end of its market on the horizon, then every barrel sold at a profit is more valuable than a barrel that will never be sold

In acting as global swing producer, OPEC has relied heavily on Saudi Arabia, which can influence global prices by increasing or decreasing production to expand or reduce available global supply.  Saudi Arabia can do this not only because it controls an enormous portion of global reserves and production capacity, but does so with crude oil that is stunningly inexpensive to produce compared to the current global market.  A change, however, has occurred in Saudi Arabia’s fundamental strategic approach to the global oil market. And this new approach – to refuse to curtail production to support global prices – not only undermines OPECs pricing power, but also removes a vital subsidy for global oil producers provided by the Saudi’s longtime commitment to price support.

Understanding Why

The widely held conventional theory is that the Saudis want to shake the weak production out of the market.  This strategy would undermine the economic viability of a meaningful amount of global production.  The theory assumes that this can be done in some kind of orderly bring-down of prices where the Saudis can find an ideal price below the production cost of this marginal oil production but still high enough to maintain significant profits for the Kingdom while this market correction plays out. The assumption is that following the correction there will be a return to business as usual along with higher prices, but with Saudi Arabia commanding a relatively larger share of that market.   An alternative rationale is that Saudi Arabia is fighting an economic war with oil; a strategy designed to economically and in turn politically cripple rival producers Iran and Russia because the governments of these countries that depend on oil exports cannot withstand sustained low prices and will be significantly weakened.

While there may be some truth to both of these theories, the real motivation lies somewhere closer to Sheikh Yamani’s 2000 prediction.  Saudi Arabia has embarked on an absolute quest for dominant market share in the global oil market.  The near-term cost of grabbing that market share is immense, with the Saudis sacrificing potentially hundreds of billions of dollars if low prices persist.  In a world of endless consumption, this risk would be hard to justify merely in exchange for a temporary expansion of global market share – the current lost revenue would take years to recover with a marginally higher share of global supply.

But in a world where a producer sees the end of its market on the horizon, then every barrel sold at a profit is more valuable than a barrel that will never be sold.  Current Saudi oil minister Ali al-Naimi had this to say about production cuts in late December: “it is not in the interest of OPEC to cut their production whatever the price is,” adding that even if prices fell to $20 “it is irrelevant.”  Implied, if not explicitly stated, is that Saudi Arabia wants its oil out of the ground, regardless of how thin its profit margin per barrel becomes.

Saudi Arabia is seeing a new and massively changing energy landscape. The U.S. and China have agreed to bilateral carbon reduction targets.  2014 is now officially the hottest year recorded in human history, a record set almost impossibly without the presence of El Nino.  And on January 7 a report released in Nature lays bare the fossil fuel climate change equation by concluding that to achieve anything better than a 50/50 shot at keeping global warming under 2 degrees centigrade (the most widely accepted threshold for avoiding catastrophic climate change) 82% of fossil reserves must remain in the ground.  That report puts hard numbers on the percentages of fossil fuels that must “stay in the ground” and calls for 38% of proven Mideast oil reserves to never to be pumped from the ground.  That 38% represents some 260 billion barrels of oil – worth tens of trillions of dollars – much of that not held in Saudi reserves.

Saudi Arabia no longer needs OPEC.  Global action on carbon dioxide emissions is gaining global acceptance and technological advances are creating foreseeable and viable alternatives to the world’s oil dependence

All of these threats to oil use are occurring against a backdrop where the acceleration of costs-effective alternative technologies expands the potential of viable alternatives to our current fossil fuel-based energy economy.  Yamani’s prediction no longer seems a fantasy where no one outside of science fiction writers could envision an alternative to the age of oil, but rather a stunningly prescient analysis of the future risk to the value the largest oil reserve on the planet by a man who once managed that reserve.

Saudi Arabia no longer needs OPEC.  Global action on carbon dioxide emissions is gaining global acceptance and technological advances are creating foreseeable and viable alternatives to the world’s oil dependence. Saudi Arabia has come to the stark realization, as Yamani foretold, that it is a race to produce, regardless of price, so that it will not be leaving its oil in the ground.  The Kingdom has effectively open the valve on the carbon asset bubble and jumped to be the first to start the race to the end of the age of hydrocarbons by playing its one great advantage – a cost of production so low that it can sell its crude faster and hoping not to find itself at the end of the age of oil holding vast worthless unburnable reserves.

The end of the age of oil, of course, remains many years off (and almost certainly well beyond Yamani’s timeline of 2030), but to Saudi Arabia, that end is clearly not so far away that the owner of the largest, most accessible crude resource is willing to continue to subsidize higher prices for other producers at the risk of leaving its own oil untapped one day in the future.

Collateral Fallout

Much has been made of the catastrophic economic consequences to Russia, Iran, Venezuela and other oil exporting nations caused by these low oil prices, as well as, the profound damage to their economies and impending political turmoil.  Meanwhile in the U.S., there has been endless analysis of the impact (or lack of impact) on the nation’s resurgent oil production and speculation about the price at which U.S.  production will begin to decline.

Less well documented is the impact on access to capital for drilling operations (and given the disastrous economics of North American coal, perhaps fossil fuel extraction broadly).  Drilling for oil requires huge amounts of capital with a significant appetite for risk, as both production uncertainty and market volatility can undermine the value of investments.  In the current production boom, market volatility was wildly underpriced.  When combined with pent up appetite for yield due to persistently low interest rates, capital, including tremendous amounts of high-yield debt, has flooded into oil companies.  As low crude prices persist there will be substantial losses by investors.  This will cause volatility in crude oil markets to be re-priced, and access to low cost capital will disappear for all but a select group of oil production investments.

There is a much much bigger story unfolding: the carbon asset bubble is deflating 

OPEC will continue to meet and hold itself out as a cartel that can control the oil markets, but that time has passed.  The cartel was dependent upon Saudi Arabia to use its outsized swing position to control spare capacity in the market.  With the Saudis no longer interested in that role, the influence of the cartel is gone.  It would be no surprise at all to see Saudi Arabia actually increase production (though how much additional output is readily available is unclear) as prices stabilize and begin to climb later this year because excess capacity will be shed from the market and global economic growth will accelerate.

The direct oil markets impact and the geopolitical fallout will likely be the defining headlines of 2015, but there is a much much bigger story unfolding: the carbon asset bubble is deflating.  The value of effectively every asset class on Earth is influenced by the assumption that a fossil fuel-based economy will persist for so long that any potential for future change to asset values can be ignored.  That assumption is wrong.  The global industrial economy operates on an assumption of available and relatively inexpensive energy, either in the form of electricity or liquid fuels.  If the form, availability of, or cost of, those energy sources changes it will fundamentally change the cost to use and produce virtually every other asset on Earth. And that will necessarily change the value of every one of those assets. There will be both positive and negative impacts, and understanding this change, in both scope and speed, will provide insight on one of the largest wealth shifts ever experienced.

The owner of the most valuable fossil fuel reserve on Earth just started discounting for a future without fossil fuels.  While they would never state this reasoning publicly, their actions speak on their behalf.  And that changes everything.

[Elias Hinckley (@eliashinckley) is a strategic advisor on energy finance and energy policy to investors, energy companies and governments. He is an energy and tax partner with the law firm Sullivan and Worcester where he helps his clients solve the challenges of a changing energy landscape by using his understanding of energy policy, regulation, and markets to quickly and creatively assemble successful energy deals.]

Reprinted with permission.

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  • neroden

    I believe this. Here’s the important questions: What order will the other oil producers collapse in? And wil any of them survive other than Saudi Arabia?

    I believe no other oil producer is cheaper than Saudi Arabia. Will they drive the UAE and Kuwait out of business too?

  • Melody Szabo

    Oil prices don’t crash anymore, there is far too much money to be made in hyper inflating the price, this was clearly learned in 2006 and 2007. Oil is still overpriced, even considering that demand has nearly exceeded supply.


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  • Sebastian Tristan

    Very interesting analysis. There’s one thing that I am not sure though: I don’t know how much the Saudis care about climate-change and the fact that 2014 was the hottest year on record.

  • sjc_1

    The Saudis are selling at lower prices to “instill discipline” in OPEC, they have done this before. They also want to put pressure on Iran to make a deal on nuclear.
    With India and China demanding more oil, it is unlikely that oil will remain unsold. The world may soon demand more than 100 million barrels per day, the test will be the world supplying that.

  • globi

    What you are saying is proofing my point that Saudi Arabia is not acting sensibly.

    1. There is no reason for Saudi Arabia not to have substituted electricity produced from oil with electricity produced from natural gas 15 years ago already.

    2. Germany proofed in December 2011 that a country can intall 3 GW of PV in one single month. link.
    So, Saudia Arabia could in principle have installed 41 GW of PV by 2016 already. Especially since PV is cheaper than electricity produced from oil.

    3. Nuclear power is evidently too slow and too expensive to reduce its own oil consumption.

    There’s no reason not to have started the switch to natural gas in the year 2000 and there’s no reason not to have started the switch to PV in 2011.
    Just as there’s is no reason not to allow women to drive cars or flogging bloggers.

    You may be impressed with Saudia Arabia, but the facts at hand certainly don’t impress me.

  • Adas Lesniak

    There is one duper crucial piece missing in the article. It is quite simple: higher the prices of oil, bigger effort for switching to alternatives, much faster end to an oil dependend world.
    So yes. Lowering prices make a lot of sense. It’s buying the time. Rise the prices twice and effort for evs and renovables will quadruple and oil will be out of the game three times faster, so producers will sell much less of it. I’ve pulled multipliers out of thin air, but basic logic is just right and super simple.
    This is much more important when they already paid for development, so investment is now irrelevant to how much they will get out of it.

    • Bob_Wallace

      I suspect we won’t see very high oil prices again. Prices are likely capped by the cost of opening new shale oil wells and demand is likely to slow/drop over the next few years.

  • BigWu

    The good news here is that Saudi oil is not only the cheapest to produce, it’s also the least CO2 intensive. By allowing the market to determine price, new high-cost/high-CO2 sources like tar sands and tight oil will be priced out of the market.

    Note that this is for new plays only. Already completed (producing) high-pollution projects are only limited by their marginal cost of production since their initial investment is quite literally a “sunk cost”.

  • JamesWimberley

    Saudi Arabia’s oil reserves aren’t a fact but a claim, from a secretive autocracy. Decoding Aramco’s reports is Kremlinology. A good few observers think they are lying. Evidence? When prices were sky-high, the Saudis signally failed to increase output. The obvious inference is that they couldn’t.

    • globi

      Although I wouldn’t be surprised if their claimed reserves are incorrect (as their allowed OPEC production share is based on reserves available).
      But that would just mean that they have limited production capability.

    • BigWu

      Having reserves and being able to produce them are two very different things. Production increases require large amounts of both time and capital.

      That said, it is most certainly the case that their reserves are little more than a claim. When OPEC output quotas were being set in the mid-1980s, member countries added a whopping 300 billion barrels of reserves to their balance sheets. All it took was a pencil too.

  • BigWu

    There are several posts stating a variation of “the conclusion doesn’t follow the data” and claiming that the House of S’aud should keep propping up prices in their own best interest. Unfortunately for anyone working or investing in the oil patch, this is simply not so.

    Production (supply) is most certainly NOT flat. At $100+ per barrel, it’s economic to develop and produce oil from deep water, fracking and even manufacture it from bituminous sands (i.e., tar sands). And producing more the world most certainly is, particularly the US and Canada!

    The problem the House of S’aud has is a simple maths problem. In order to keep the price of oil at or near $100/bbl, they (as the only producer willing to cut production) would need to decrease their production to match global supply increases (less the change in demand). Thing is, they don’t actually produce that large a percentage of the global supply (~12.7%, 11.7 million barrels per day). And the increases they’d need to offset?

    North America has increased its production by an astonishing 5.6 million barrels per day since 2009! And while increased demand has eaten about 4.1 million of that output to date, global demand is going flat due to legally mandated increased efficiency in the worlds largest oil markets (EU, N.Am and E.Asia) and permanent demand destruction as oil-fueled power generation loses out to robust competition from solar (Hawaii, Africa and even S’audi itself). So going forward, nearly all additional production will have to be offset by production cuts in S’audi to keep the price high.

    To keep it simple: recent production growth in N.Am is 1.5 million barrels per day added per year, so the House of S’aud would have to reduce production by that much to keep prices high. That’s a reduction of nearly 13% of their production in 2015, 15% the next year, and a whopping 56% cut in 2021. In only seven years, if they continued this strategy, they wouldn’t be selling ANY oil. That’s clearly not a viable strategy, hence their decision to let the free market set prices (and thus stop oversupply over time).

    • Bob_Wallace

      But by messing with the price of oil the Saudis might be able to get most producers to cut production some. To create a large, informal “OPEC”.

      Cut production some, raise prices some but not enough to bring new North America and offshore projects on line. Hold a price under $100 that would mean good profits but not extensive new production.

      • Philip W

        Even if prices were to go up by that much, they probably couldn’t ramp up like they did a few years ago due to lot’s of investors backing out of oil.
        But maybe that’s just my optimism speaking 🙂

        • Bob_Wallace

          I read one article that said the upper limit price of oil would be determined by the cost of drilling a new shale oil well in the US.
          That’s the cheapest and fastest way to bring new production on line. If present supply is ever taxed by rising demand then rigs would move back into the shale oil fields and start new holes.

          I think that means that there are likely to be no new tar sands starts as costs are higher for a new site.

          I don’t see demand rising much if any over time. US demand is going down simply due to more rigid CAFE standards. Add in PHEVs and EVs and demand should drop very significantly.

          I’ve been hanging out in countries the last month in countries where people ride a lot of motorbikes and drive around in three wheel taxis (tuk-tuks). Those vehicles are so very appropriate for being electrified. As the price of batteries drops look for massive oil use drops here. And many cars travel only small distances per day. A short range EV like the Leaf would work well for a very high percentage of car drivers.

          China is pushing hard on getting drivers into EVs. A major reason is air quality but a secondary effect is going to be lower oil usage.

          I think we might be close to peak oil demand,

  • globi

    At least based on my knowledge they still use mostly oil to produce
    electricity in Saudi Arabia. link.

    This is a huge opportunity loss, especially during high oil prices. It would
    have been much more sensible to replace oil power with Wind, PV and simply natural gas power.
    Also, this could have also increased its oil exports without having to increase oil production.

    So, I’m not certain whether the Saudis are indeed thinking as much as this article indicates.

  • onesecond

    I think there are a lot of reasons for Saudi Arabia to not cut oil production: increasing their geopolitical power, hurting the USA fracking and Canadian tar sands industry, weaken Iran and Russia, slowing down the uptake of EVs and maybe selling as much as they can cheaply before a worldwide climate legislation takes roots.
    It is much easier to commit to environmental protection, when that oil crap is way to expensive anyway. So I do think Saudi Arabia realized that the world doesn’t need them as much at a high oil price and want to make themselves irreplacable again.

  • Larry

    Remember the old Arab saying. “My grandfather rode a camel; I drive a Mercedes; my son will drive a ______, and my grandson will ride a camel”. Sorry for the omission-just couldn’t remember

    • MaryfromKelowna


    • Doug Cutler

      Grandson may find the Middle East eventually too hot to support even camels. This trend is happening already.

      • Ronald Brakels

        There is a specially designed carrier for transporting camels from Australia to Saudia Arabia. I could make a fortune if I could work out what to put on it for the return trip.

        • Bob_Wallace

          Tony Abbott and his friends. I’ll bet you could get it funded through Kickstarter….

          • Ronald Brakels

            1. Tony Abbott would be unlikely to be in Saudi Arabia.
            2. He has no friends. Not at the moment.

            On Tuesday his party will vote whether or not to give him the boot – at that particular point in time. It may suit those who would be king to bide their time and so there is no way to call this one.

          • Ronald Brakels

            And if we sent Tony Abbott along with the camels then we’d get in trouble for sending them an ugly one. No one wants to be stuck with the ugly camel.

    • Ross

      Likely to happen. Hard to see the Saudi royal family holding on to power when the oil revenues drop off and support can’t be bought. With climate change they’re also screwed.

    • LogicDesigner

      I had to look it up. Turns out it was Rashid bin Saeed Al Maktoum, the Prime Minister of U.A.E. for 32 years, and the guy who transformed Dubai from a group of settlements into the ultra-modern city it is today. He said:

      “My grandfather rode a camel, my father rode a camel, I drive a Mercedes, my son drives a Land Rover, his son will drive a Land Rover, but his son will ride a camel.”

      • Larry

        Thank You!

  • kyle stone

    Much of this is on par with predicting asteroid paths in 100 years.

  • CJ

    Agreeing with Russell – conclusion doesn’t follow, total revenue created is more important than how many barrels sold….Agreeing with Bob – oil will valuable for decades after it is no longer a primary source of energy, it has a heck of a lot of applications, even McDonalds Fries contain a preserving agent processed from oil….Agreeing with all those who comment in support of a greener future, renewable energy and CO2 emission reduction etc.

    However, like it or not renewable energy is still a very poor relation and while many advances have been made in recent years the technology is at best several decades away from replacing ‘the age of oil’ with an ‘age of renewables’…personally I don’t think it ever will. Renewables are very good for some applications under some conditions and definitely have a place but they aren’t a realistic answer to energy production needs globally.

    Hydrogen infrastructure backed by Fusion is what will replace ‘the age of oil’, but several key technological advances have yet to be made, not least how to sustain and manage a Fusion reaction.. its definitely on its way but still ‘sometime in the future’ rather than a pending development that will worry the Saudis in the next 15 or 20 years.

    • Bob_Wallace

      ” Renewables are very good for some applications under some conditions and definitely have a place but they aren’t a realistic answer to energy production needs globally.”

      I disagree. There is very little that we can’t do and do cheaper with renewables. Give us a little time and we’ll likely figure out how to do it all, this is a relatively new undertaking.

      “Hydrogen infrastructure backed by Fusion is what will replace ‘the age of oil'”

      Very unlikely.

      Perhaps fusion will replace renewables one day but there are two significant hurdles ahead. First, we have to figure out how to make fusion work. Second, we have to determine if we can make fusion cheap enough to be competitive. Fusion is going to have to compete with ~3 cent wind and solar stored (possibly) at less than 1 cent per kWh in liquid metal batteries.

      That is not a task to be taken lightly. You don’t just make fusion in a tin can and magically put electricity into the grid. You’ve got a lot of the same “big plant” issues that make fission so expensive.

      Hydrogen is simply a storage technology. An extremely lossy storage technology. Batteries are almost certain to win.

      • Ronald Brakels

        We currently do not know a way to make fusion affordable. So even if current approaches to fusion are successful, it will not be used. Compared to other things that could be done with the funding fusion power research is a clear waste of money.

        But even a successful tritium fusion reactor would very roughly release about as much radioactivity as Three Mile Island nuclear accident did each year, as we have no practical way to contain tritium, and while that is miniscule compared to the Fukushima nuclear disaster, it’s still not going to be acceptable by the local planning board. So it’s probably more accurate to say that even if the current work on tritium fusion is successful, it will not be used, because it won’t have been successful, because it won’t have resulted it a fusion reactor design that can be used.

        And I’ll mention that “breeding” the tritium is difficult too. The simplest solution might be to build 25 or so fission reactors to feed each fusion reactor. But sometimes even the simplest solutions get rejected on the grounds of economic rationalism, not to mention economic lunacy.

    • Doug Cutler

      In 25 years maybe but unlikely we’ll have fusion. But even so by then it
      will have to compete with completely paid off current and emerging solar utility at the end of PPA still producing 80%+ power with 0% fuel costs.

      • Bob_Wallace

        We rarely talk about the long term cost of wind and solar. When we talk about cost it’s generally based on a 20 year PPA, during which all the capital investment is paid back and financing is finished.

        We could easily be looking at 30 or more years out of our solar panels and 20 or more from current tech wind turbines.

        Start with 3 cent wind and solar, which is probably where we’re headed. Add in another 20 years with a 1 cent or less operating cost. That’s a future of 2c/kWh electricity.

        Fusion may give the techfans a tingly feeling in their legs, but it’s going to have a very hard time competing with 2 cent electricity.

        • Doug Cutler

          I’m in favor of fusion research. Fusion will come in handy for powering the plasma drives of interstellar space probes. I just don’t see the rush.

          • Bob_Wallace

            I’m also in favor of fusion research. In general I’m in favor of researching everything, we never know what knowledge will come from a line of inquiry. I think we should continue to research fission.

            My issue is that given the ideas on the table I see no route for either fusion or fission to become cost competitive with renewables.

  • Offgridman

    So now some other analyst’s are starting to agree with my theories on why the Saudi’s are going to continue with high production.
    The one statement in here that I will disagree with in here is this.
    “the beginning of the end of the most prosperous period in human history – the age of oil”
    I think that the promise of renewable energy sources is just the beginning of our most prosperous period. Constant and continuing supplies of energy that are basically reliant on just the fact that the sun will rise, the wind will blow, the waters will move, and there is heat inside of our world making it liveable.
    Yes someday millions of years in the future we may need to worry about these resources running out, but considering our relatively short history compared to that by then we will have energy alternatives that don’t poison us, or will be able to get to a new world to utilize.

    • Bob_Wallace

      Cheap energy will create more wealth.

      If you measure prosperity cheaper energy along with smarter manufacturing will lower the cost of goods and make more stuff available to those who couldn’t afford it in the past.

      (Now we need to concentrate on sustainable feedstock.)

      • Offgridman

        “Concentrate on sustainable feedstock”
        Which is why with along with energy efficiency, making sure that the most people as possible get the benefits of that inexpensive energy, it is just as important to continue the efforts towards recycling and reuse of resources.
        Looking towards a fairly close future (hopefully) when world population stabilizes, it is going to be time for markets to concentrate on feeding those people and providing them with a decent lifestyle that includes the products they see as necessary. Clothing, communication, education in addition to food, housing and health care are the basics that will need to be provided with a system for people to get those things.
        Most consumer products are made up of metal, plastic or glass which all can be reused or come from organic sources that can be regrown.
        At some point (maybe still centuries off) after populations stabilize markets are going to have to get away from the idea of inflationary growth and get used to static operation. Products are made, used or consumed, recycled or grown again, and then brought back as new products again.
        It seems to me that this is being recognized in the European bond markets with the big investors accepting zero or negative interest rates as the best available hedge against inflation which has actually become very minimal.
        I realize that this is in part just my personal daydream, but hopefully in the future people will recognize that the only way to stop strife and wars is simply to see that all members of society have a way to provide for their basic needs. Relatively inexpensive energy accessible by all is half of this equation, an economic recycling use of resources so that there is enough for all the other half. Of course the different strata of society having different amounts of these resources will always be part of this picture, but we do need to get away from our current situation where one percent of society controls fifty percent of the resources and fifty percent of society has comparably nothing.

    • Kyle Field

      (The realist in me) cheap oil was key to launching us into the most productive period in human history. the age of cheap oil (power) is ending. renewables are positioned to take the helm…but until a unified structure of energy creation, transportation, flight and localization is proven at all scales, we can’t bank on that being a prosperous age.

      (The optimist in me) Having said that, I’m with in in leaning forward based on what I’ve seen and what has been proven so far that the age of renewables will far exceed what we’ve done to date 🙂 I’m very excited for the future (even in the face of the uber scary climate change impacts) and feel very fortunate to be living at this time in human history and leading the charge towards a cleaner way of life.

      • Offgridman

        But that highly productive period of history actually began more than a century before the use of oil with the use of coal and ever improving means of transportation.
        We are already seeing the use of coal being decreased with large amounts of it still easily accessible.
        So hopefully your optimist side can see that the same thing can happen with the other fossil fuels, especially as we concentrate on better ways of using renewable energy in all of its forms. Something we should have started concentrating on at least a century ago, but at least it is happening now.

        • Bob_Wallace

          We can probably identify several points along human development where a new technology jumped things up a lot.

          Domestication of the horse. The wheel. Water and wind mills. The steam engine. Oil.

          This time I think we’re really onto something….

          • Offgridman

            It definitely isn’t necessary that everyone agree with my opinions on where we are coming from or headed towards, but I do appreciate your seeming to understand what I am trying to get across.

          • Matt

            Some would likely include medicine and the computer in there also. 😉 But I see you are focused on the NRG steps.

        • Kyle Field

          Yup, yup, yes it can and I’m with you on that last point too 🙂

    • Matt

      I think the statement “the beginning of the end of the most ç period in human history – the age of oil” cab be read “the beginning of the end of the age of oil, which until now has been the most prosperous period in human history” not that we are by definition leaving prosperity behind.

      • Offgridman

        Yes it is possible to read it that way with prior knowledge of what is going on with the development of renewable energy.
        But for the uninitiated coming in and seeing the statement “the beginning of the end of the most prosperous time in history” it is quite easy to take that negatively. Hence my criticism.

    • Ross

      Humanity may well become more prosperous materially. Unfortunately we continue to do irreparable damage to the diversity and the habitats of the creatures we share the planet with.

      • Offgridman

        In some times and places this has definitely been a part of our past and of course it is still a part of our present existence. But while the main stream media may concentrate on the bad news and events there is a lot of evidence around the world that humanity is learning how to coexist with each other and the world in a sustainable way.
        Societal, cultural, and market changes from everyone having access to renewable locally sourced energy at a relatively low cost can only continue to help the trend over the last half century of fewer incidences of violence and war. Better access to information and education around the world has been proven to lead to population growth control and stabilization. As I mention below recycling and reuse of our resources is becoming more common and will have to become an expected part of societies and cultures around the world. With the limits of our ability to use fossil fuels becoming so obvious this lesson is carrying over to all types of resources.
        With removing the need to fight for access to energy, food, and the other basic needs of life we also get rid of the main causes of conflict and war. This leaves people able to take care of themselves, their families, their neighbors, and their environment. Humanity as a whole has gone through a lot of changes over the past few centuries, the lessons of the worst things that we can do to each other and our world are becoming available to all. Now is the time for us to continue to figure out all of the best things that we can do for each other and our environment.

        • Ross

          That growing enlightenment, that is usually associated with improvements in the human development index is certainly a positive. I worry though about climate zones shifting faster than life can adapt to it and the consequent mass extinctions.

          • Offgridman

            Your concerns are things that I have thought about and have also, but when we try people can have very positive affects on the environment as well as detrimental. If we try it will not only be possible to limit our emissions of CO2 and other green house gases but to reverse the current trend. Can you imagine how different things would be if everyone in the world was to plant and nurture a tree every year?
            There are some signs of hope for wildlife with what is called the ‘rewilding’ of different areas even urban districts where animals and people are learning to coexist. A big problem with this in the US though is the animosity towards carnivores. If you read up on what has happened in Yosemite over the past 2-3 decades since the reintroduction of wolves to even the water flows and forest growth it becomes obvious that ecological preservation or restoration needs top down as well as bottom up assistance.
            But how we see things just comes down to personal perspective in most cases. Maybe it is my age or different experiences, but while aware of the different issues you speak of it is just my preference to see the glass as half full rather than half empty. Over the past fifty years I have seen a lot of negative or bad things happen, but I have also seen many positive and good things, so I prefer to concentrate and encourage them.

  • Martin

    But the US is not the only country in the world were some or a lots of politicians are still clinging to FF. 🙁

    • Kyle Field

      Not clinging to so much as being paid off to support them and extend their grip on our society. 🙁

      • Joe Viocoe

        And Natural Gas sourced Hydrogen is the next drug of choice… and we will need to fend off the storm of propaganda that is coming.

        • Bob_Wallace

          The storm is already upon us. Read any link about FCEVs which would be run off NG obtained H2 until NG runs low and expensive or until a significant carbon tax is established.

          The backers of FCEVs gloss over that issue while claiming that FCEVs are the way to get off fossil fuels.

          Some fantasize about some unknown process to make H2 from electricity cheaply, but at this point it requires “magic happens”.

        • Kyle Field

          I’ll start by saying that I’m not a fan, but would LOVE to be proven wrong about FCEVs. While not ideal in many ways, there are a few scenarios where hydro makes sense. For instance, solar powered filling stations. This allows the hydro to be generated on site, with sustainable power. The only thing that would be needed would be water (as the feeder to produce hydro). I’m not sure if this is scalable but it does correct a lot of the issues with hydro (central generation, natural gas powered generation, etc). On top of that, the power would basically be free after the initial capital was absorbed…just need to cover the cost of water and taxes…

          • Bob_Wallace

            I’m not seeing that. The system would run only a few hours a day and not every day. You’d have to build a large extraction/compression/storage system to gen enough H2 to keep the pumps going.

            I don’t know much of anything about H2 production but I wonder if it might require a trained tech on hand to keep the system operational. That would be a big wage load for a gas station that would otherwise operate with a minimum wage worker running cash register.

            H2 sounds like a great idea until you dig into it and then it starts sounding like it would take a bit of magic to make it workable.

          • Kyle Field

            I’m not familiar with the details either. It would be interesting to see a macro analysis of FCEVs vs EVs. I would think the extra power needed for the same miles in FCEVs vs EVs would be MASSIVE at scale.

          • Bob_Wallace

            This is a bit outdated. My understanding is that fuel cells have become a bit more efficient. But look at the energy losses before you get to the fuel cell level.

          • Joe Viocoe

            It will take 3 to 4 times as long to pay off the initial capital… why not just put that solar energy into batteries?

          • Kyle Field

            Mainly because fcevs can be refueled with 300 miles of range in a matter of minutes.

          • Bob_Wallace

            How valuable is that to the typical driver?

          • Bob_Wallace

            BTW, one can drive from Mecca to Medina on a single Tesla S charge.

          • Kyle Field

            The market will dictate that. Perhaps that’s why big oil through current gasmobile manufacturers is creating range anxiety anxiety…to create awareness that EVs are lacking in this area but fear not! FCEVs are here to save the range!. :S

          • Bob_Wallace

            Truth is, most drivers make very few trips greater than 300 miles per day each year. With a 200 mile range EV it will mean a single 20 -30 minute recharge.

            Think lunch.

          • Kyle Field

            I agree and we have proved that out in my family with our EV. It’s been a fun learning and growing experience for sure.

          • Joe Viocoe

            A battery swap can do the same, for a lot cheaper.
            Turns out, people don’t actually care as much for every minute, if there are much cheaper our free options

          • Joe Viocoe

            The taxes from the land are also much higher than an equivalent EV charging station too.
            Any H2 station (whether supplied by truck or onsite) will need significant area and be properly zoned for a highly volatile and compressed gas like 10,000 psi hydrogen.
            Maintenance and Operation costs are still applicable. Some stations may be fairly cheap to run, but they are also very low capacity stations.

            If you’ve got enough solar panels for an H2 station.. then you’ve got enough solar panels for 3 or 4 EV charging stations of equivalent size.

          • Kyle Field

            Yeah, I would be curious to see studies on Total Operating Cost of both and power required by both (H2 stations would actually be higher due to drivers needing more net energy for the same miles due to losses converting the rooftop PV to hydro…then back to electricity onboard the vehicle).

  • I don’t believe this reason. They are now going on less margin, so that means volume has to increase for the same money. Is it? Since everybody believes this is a temporary ploy (perhaps to hit Iran), they aren’t taking the aluminium out of the F150. 🙂

    • Kyle Field

      Exactly, they have a relatively LARGE supply of oil and would rather get $40/bbl times 1 trillion gallons (arbitrarily large number) vs $100/bbl but only produce 1 billion gallons (again, arbitrarily smaller number). Makes sense as otherwise consumption would stay lower (historically as prices rise, consumption drops) and other production methods (shale oil, tar sands, etc) become economically viable, eating into their margins. This is well documented in recent world oil production graphs showing the crazy increase in US oil production that was made profitable as a result of high oil prices. The counterpoint is that same graph, but with the last 2 months of lower pricing causing most of the US production dropping off again.

  • Marion Meads

    The Age Of Oil could truly come to an end only when the US group of baboons become smarter! That will be the day.

    • Kyle Field

      Last I checked, you and I are both a part of that group. Someone has to lead the charge 🙂

    • Mike Shurtleff

      No, the baboons will go for the new low-hanging fruit, Solar PV, Wind, and Storage. It’s going to change, but there will still be stupid baboons.

  • Brian

    The truth is that renewables are the future, but republicans want us to be stuck using dirty fossil fuels, for as long as possible, so they can increase their profits. Money is the only reason republicans are trying to destroy wind and solar power.

    • Bob_Wallace

      The Republican party is a mixture of types. The corporate wing has the money and they call a lot of the shots. There aren’t enough corporate votes so they’ve attracted the haters, the highly greedy, and combined them with the truly conservative people to make a voting coalition strong enough to win elections.

      The actual conservatives in the Republican party are, well, conservative. They are resistant to change, actually afraid of change. If things are working well enough for them to get by then their inclination is to stay the course, don’t take chances.

      Those people will always be the last to move to something new. It’s their nature.

      • Ross

        It would be nice if the GOP could dial down the crazy quotient. It seems like they got far worse after Bush senior.

        • Bob_Wallace

          The Republican party became very nasty during the Clinton administration. Almost all civility disappeared.

          A congress member shouting out “You lie!” at the President in a State of the Union address should have resulted in him leaving Washington that very night, never to return.

  • James White

    stop producing or perish
    produce as much as possible assuming others will stop due to market conditions

    if we spent a fraction of the money and energy on cooperation we would all benefit

    • Mike Shurtleff

      “if we spent a fraction of the money and energy on cooperation we would all benefit”

      1. The only cooperation is aimed at increasing profits.
      2. There is no cooperation between countries to improve the lot of commoners …not when there are profits involved.
      Solar PV, Wind, and Low-cost Storage solves that …if it is kept distributed in production and consumption.

  • Russell

    I don’t think the conclusion follows from the data. If there is a limited time to sell oil it is not about how much stays in the ground, but the total amount in $ they get for what they sell. i.e. they would rather sell x million barrels for $100 than 1.5x million barrels for $30. In the first case even though they would leave more oil in the ground they would still earn more $.

    • Bob_Wallace

      The demand for oil as industrial feedstock will likely go on long after it has lost its fuel market. I would think that the big goal would be to sell for maximum profit now, invest well (including building a solar/storage grid) and look at oil as a long term, lower, income source.

      • Koenraad Coel

        Didn’t some Saudi prince comment that oil is one of the most precious substances on earth (because of the myriad of things we can do with it, like petro-chemistry) and it’s sort of insane to burn it ? I don’t see oil becoming obsolete all that soon, but once we stop burning it by millions of barrels, pricing would be vastly different.

    • Kyle Field

      I’m sure they’ve done the math and are making a financial decision based on real data.

      • Mint

        I’m sure the Saudis have a plan and have done the math, but analysts like Elias Hinckley absolutely have not.

        There is no way that selling for $50/bbl will result in more profit than a slightly reduced volume at $100/bbl. The latter is at least 3x the profit per bbl.

        Saudi Arabia is setting the stage for a future cut. They want others to blink first, and they want to set a precedent that will scare the shit out of investors in shale oil, tar sands, etc. We already saw BP cut exploration investment. When the other members of OPEC have had enough of low prices and are willing to cut production, then Saudi Arabia will cut a bit as well.

        • Kyle Field

          I agree about scaring others out of new (expensive) exploration and production…but if they’re producing at $10/bbl, they would be making roughly double profits at just under $100/bbl. Rough math says they must be thinking they would end up leaving half of current reserves in the ground to make the current pricing make sense. Dunno the details, but they’re no dummies, financially speaking.

        • Mike Shurtleff

          “They want others to blink first, and they want to set a precedent that will scare the shit out of investors in shale oil, tar sands, etc.”
          Spot on. The price of oil will be coming back up.

  • tibi stibi

    i think this makes sense. even the saudis are investing in solar now. they must understand that solar on the one side and ev’s on the other will make oil much less interesting in the next years!

    • Kyle Field

      I would say next decades, but yes, the US oil industry is already talking about “stranded assets” also known as oil resources acquired that will either not be profitable or not needed and thus, need to be written off.

      • Ross

        I’m starting to notice it in everyday life.
        EVs and hybrids are increasingly visible.

        • Kangeroo

          Running on coal and natural gas.

          • just_jim

            And water power and wind and solar, and contributing less to GHG than ICV even when it’s running on coal and natural gas.

            But either you knew that, or you are even more ignorant than you come across as.

    • Ernie

      There are two *other* reasons for the Saudis to invest in solar power: they have lots of it (it’s the other thing they have lots of, besides sand), and the less oil they burn making electricity, the more they can export. They’ve long wanted to switch to nuclear power for this reason, but America has told them not to for as long as they’ve been allies. They don’t have any coal resources to speak of.

      I’m not so sure if they find EVs to be any threat at all. I mean sure, they’re *there*, but their market share is so small as to barely be a mosquito sting to an elephant. Nevermind other transportation that requires oil, like ships, trains, big rigs, and airplanes. Those modes make up about 40% of our oil use, with light vehicles taking up the other 60%.

      • Joe Viocoe

        problem is that they cannot export their electricity. They don’t have many large population centers either, so domestic demand for electricity is nill. They won’t be able to sustain a lavish lifestyle unless they are exporting something.

        • Bob_Wallace

          SA has discussed exporting solar electricity to Europe. I don’t know how it pencils out once transmission costs are included but SA certainly has the capital to lay the wire.

          Solar from SA and solar from Morocco would make for a long solar day in Europe.

          • Ross

            The power export dreams are probably exaggerated. Given a choice between domestic investment in efficiency plus renewables or buying in foreign power there’ll be a strong preference to keep it local.

          • Mike Shurtleff

            The really interesting thing to me, is Saudi Arabia is not moving into the renewable energy business fast enough. They just pushed their current plans in this area out some. The timidness of entrenched interests. Does not bode well for them.

      • Mike Shurtleff

        That’s not correct.
        Yes, light trucks and cars make up about 60% of our oil use.
        Yes, ships, large trucks, planes etc. make up another large percent, but it is not the remaining 40%.
        You are forgetting about plastics, fertilizers, and other industrial solvents.

  • CU

    This discussion implies that saudis politics are smarter thant US politics….

    • Will E

      really cannot imagine US politics stupidity of ignoring the money that can be made with renewables. jobs, tax revenues, a never ending supply of energy everywhere, and the politians dont see these never endingtax revenues passing every day.
      calculate the solar kwh passing by, tax every solar kwh 10 cents and there is the tax revenue of the sun.

      • Kyle Field

        Let’s get solar to cost parity with the grid across the US and replace all coal/natural gas production first..then the govt can worry about monetizing it. This brings to mind the fact that we (in the US) need to figure out how to pay for roads in a post-petrol world as they are currently funded by a tax on gasoline.

        • RobMF

          Keep raising taxes on gasoline until the majority of vehicles are electric. Then switch to miles driven or a tax at the electric charging station.

          • Kangeroo

            Well, you do know where most electricity comes from don’t you? COAL.

          • just_jim

            Where? In the US coal is not where most (more than 50%) of electricity comes from. Right now it is the largest source of electricity, but don’t expect that to continue. Coal generation peaked almost a decade ago, in 2007, since then it’s fallen by almost a quarter. Over the last few years new coal was less than 5% of new capacity. If these trends continue, it coal’s share electricity generation will fall even faster.

          • RobMF

            37 percent and falling does not a majority make…

            But it is still too much. The only safe number is zero.

          • Kangeroo

            How much comes from wind/solar? Wind and solar both kill birds. Windmills chew them up and solar fries them. There’s nothing safe about that. Plus they are both crappy inefficient. The elites on the beach do not want windmills blocking their view or solar panels spoiling the lines of their big estates. You cannot ever have everything pristine no matter how hard you try, and the world does not necessarily have to be pristine anyway. Even animals can dirty things up. Just reasonably clean is sufficient and that is all that is possible, unless you advocate genocide like some liberals do. Margaret Sanger did. This is not JUST YOUR WORLD either.

          • Philip W

            You my friend have come to the wrong place.

          • just_jim

            Look up bird kill by windmills, fossil fuels and buildings and get back to us.

          • Mike Shurtleff

            Solar PV kills birds? More than coal killing birds?
            Wait let me stop laughing… Thanks needed a good laugh.

            “…unless you advocate genocide like some liberals do”
            Really I was not aware of that sub-group. Care to share an actual link to actual information verifying that bizarre claim in some way?

            Yes, we have to share the world with epsilon semi-morons like yourself and I for one cannot pass judgement. I do however, have an different view of the world, and you must share that world with me. I am your worst nightmare. My solution is to convert you. Solar PV, Wind, and Storage will supply power so cheaply that even semi-moron, AGW doubters like yourself will be ok with using it. I won’t even be asking you to eat crow.

            Thanks for another example of how clueless somebody has to be to believe that side of the issue.

          • Kangeroo

            Nobody believes your websites or your statistics because of your reputation for lying and fabrication. Proven liars like yourselves have a huge credibility gap on all your pet issues. Everything to global warming to solar/wind viability is all suspect. You are doing more harm than good. Nearly every comment here from one of yours is riddled with insults to anyone who doesn’t fall in line. Calling people idiots doesn’t give you any credibility or prove your case. Third world populations are dying because of your influence. I remember when you guys said that within 10 years the Amazon Jungle would be totally gone. That was way back in the 1990’s. And it was way back in the 70’s when your predecessors spread the alarmism about the soon to come ice age right there on the cover of TIME MAGAZINE. So you see, people who have lived long enough to remember your constant ongoing alarmism put very little stock in your new religion. And you have given the term “political science” a whole new meaning. People are laughing at you.

          • Mike Shurtleff

            Like I said, doesn’t matter if you believe in AGW or not, Solar PV, Wind, and Storage are going to be the lowest cost option for electrical power. Even you will sign up to save money at some point. I don’t think that’s very alarmist. Do you?

            btw I’m 58 and well aware of past global cooling scare. I’ve read and researched a lot on the subject. Material from both sides of AGW issue. You?

            My insults are a reaction to your own. If you’re going to dish it out, then you should be able to take it. What do you really hope to accomplish here?

          • Kangeroo

            I think we should tax liberals for all the hot air that they exhale.

          • just_jim

            Sound fair if we also tax so called conservatives for their stupidity. Liberals would see their taxes raise a couple hundred a year, ‘so called conservatives’ several thousand, and the federal budget would be so much in surplus we’d have to cut the tax rates.

          • Mike Shurtleff

            Solar PV and Wind are winning in the market.
            Low-cost storage is coming next.
            No hot air. Facts.
            Put that in your corncob pipe and smoke it.

      • Mike Shurtleff

        More important: Renewables is the side that is winning. This will increasingly be the case.

    • Marion Meads

      We are severely handicapped compared to the Saudis. They don’t have a group of baboons trotting their ignorance while holding power.

    • Mike Shurtleff

      Talk verses action.

  • Ross

    Too bad that they wasted the good years by not sufficiently developing their country and human rights.

    • RobMF

      Oil is an expensive low efficiency fuel burned in crappy, low efficiency engines resulting in terrible environmental consequences. The future is better without it.

      • Ross

        They’ve left themselves a monumental task of shifting their economy to a sustainable model not dependent on oil revenue and that can adapt to further temperature increases.

        • Calamity_Jean

          …that can adapt to further temperature increases.

          I’m not sure that’s possible. It’s pretty darn hot there already.

          • Ross

            Yes, there’s little reason to doubt the accuracy of climatologists models. If they want to continue living there they’ll need to build environmentally controlled habitats.

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