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


Key factor:

The number one factor determining the future of the energy world is peak oil production.

We live in a totally anomalous time. 


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

Over time, it becomes more difficult to extract the resources (crude oil and natural gas). Prices will inevitably rise as efforts to exploit oil and gas fields have slowed in recent years.

This means that prices will gradually return to their “old” new normality, which in the past was well over USD 100 per barrel.


It is unlikely that people, industry and society as a whole will be able to afford this luxury at a price of over 100 dollars per barrel. The reasons for this are the financial crisis, demographic change, global dependence on this limited resource, the level of innovation and many other factors.

In fact, we are witnessing the gradual decline in oil prices. Oil prices are falling to a much lower level. Prices are around 50 dollars for each barrel of oil when the economy is not doing so well. The longer the prices remain at this level, the more likely it is that prices will overshoot the target again. It is unlikely that financially troubled economies in Western and Southern Europe will be able to pay prices well above $100 per barrel of oil.

The probable scenario is that prices will fluctuate very strongly, which will lead to massive changes in the economic order. We will see the greatest market distortions in, among other things, the energy industry.

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

What gives.

What we are currently experiencing in Germany is a shift of power from large energy companies to smaller public utilities. After an initial phase of privatization, there is now renewed strong pressure on the state to manage the electricity infrastructure. This is supported by the public. This new approach is supported 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. This will be a structural change 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. Also with alternatives like electric cars, hybrids, other questions are connected. Electric vehicles cannot replace trucks, air transport, container freight and other means of transport.

It therefore appears that public transport will continue to expand its presence as a means of transportation. We forecast that public transport will gain political importance once oil production reaches its peak. The importance of public transport will also continue to grow at the national level.

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A train wreck to the future. Or hypomobile joints?

What we see in Germany, for example, is that the national railroads compensate for passenger traffic. The national railroads are currently expanding to meet growing customer demand. The electricity suppliers have to meet this demand. 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.


Many thanks for the shared interest in the energy world!



Disclaimer:


This article is just meant to inform the reader of recent developments in the energy industry at large and to share knowledge and insights with a wider audience. The author does not put forth investment recommendations. This article should not be taken as investment advice and the author cannot be held to account for investments made. Further information is provided in the IMPRINT and PRIVACY POLICY, which you can click on or find at the top of this page in the menu bar. For readers from Germany, please refer to the Impressum and Datenschutzerklärung of this website.               


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