A Peak Price to Pay: Peak Oil and Our Energy Future


Black gold:

The number one factor shaping the future of the energy world is peak oil. Peak oil has a direct impact on the supply and demand of the world’s most precious resource.

We live in a totally anomalous time. 


 


1. THE ENERGY YIELD IS IMPORTANT. AS FAR AS ENERGY RETURNS ARE CONCERNED, VERY FEW ENERGY RESOURCES ARE COMPARABLE TO OIL.


Oil and gas are among the energy sources with the highest energy return on invested energy (EROI) next to nuclear power and hydropower.

As time goes by, it becomes more and more difficult to extract this resource (oil and natural gas). Prices will inevitably rise as efforts to exploit oil and gas fields have slowed in recent years.

Prices will gradually return to their “old” new normal, which in the past meant oil prices well above $100 per barrel.


It is unlikely that people, society and industry will be able to afford this black gold, this luxury good at a price of over $100 per barrel. The reasons are the financial crisis, demographic change, global dependence on this limited resource, the level of innovation and many other factors that shape the future of oil.

In fact, things may turn out differently. We are witnessing a drop in oil prices. Oil prices have fallen to much lower levels. As long as the economy was not doing so well, prices stayed around $50 per barrel oil. The longer prices stay at that level, the more likely it is that prices will overshoot again. The point is that consumers need to be able to pay the higher oil prices. That’s the demand aspect. It is unlikely that consumers in Western and Southern Europe will be able to pay prices well above $100 per barrel of oil.

The likely scenario could be as follows: Prices will fluctuate strongly. This may lead to massive changes in the economic order. We will see the greatest market upheavals in the energy industry, among others.

Over time, structures and organizations that cannot withstand these price fluctuations will disappear.


2. DECLINING ENERGY YIELDS FROM FOSSIL FUELS LEAD TO ECONOMIC RESTRUCTURING.


In Germany, we are currently observing a shift in power from large energy corporations to smaller municipal utilities. After an initial phase of privatization, there is now renewed pressure on the state to manage the electricity infrastructure itself. This view of having the state manage the power grids is supported by many and large segments of the population. This new approach also finds support across all age groups. In 2015 alone, we witnessed the break-up of E.ON, the world’s largest private electricity company, and RWE, the second largest German electricity company. There will be further structural changes in the industry.

The extent and speed of structural change therefore depends on the elasticity of oil demand. What we do know is that oil cannot be replaced by any other fossil fuel in the transport sector. With alternatives like electric cars, hybrids, other issues may arise that we have not thought of before. Electric vehicles cannot replace trucks, air transport, container freight and other means of transport.

But some sectors could benefit from peak oil. So it appears that public transit will continue to expand its footprint in transportation. It could be that public transport will gain political importance once conventional oil production peaks. On a national level, the importance of public transport will also continue to grow.


3. SCENARIOS FOR OUR COMMON ENERGY FUTURE


A train wreck to the future. Or hypomobile joints?

National railroads can compensate for lost passenger traffic elsewhere. National railroads are currently expanding to meet growing customer demand.

Electric utilities must meet this demand and provide power to run all these trains. For the forseeable future, say for now for the next 20 to 30 years, state-run businesses will be at the forefront of the energy transformation in Germany. This also applies to many other European countries.


4. REFERENCES


Deffeyes, K S 2006, Beyond Oil: The view from Hubbert’s Peak, Hill and Wang, ISBN 0-8090-2957-X, United States.


Many thanks for the shared interest in the energy world!



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