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

We live in a totally anomalous time.

Oil and gas are among the energy sources which show the highest energy return on energy invested (EROI), apart from nuclear power and hydro.

The interesting part is that because of increasing effort to exploit oil and gas fields, where it will be more difficult to get to these resources as time goes on, prices will necessarily go up.

This means that prices will gradually return to their “old” new normal which historically have been far above 100 US dollars for every barrel.


It is not likely that people, industry and society as a whole will be able to pay for this luxury, at a price above 100 dollars for every barrel. This is because of financial crisis, demographic changes, world-wide dependance on this limited resource, level of innovation among many others.

In fact what we are witnesssing is the decline fo oil prices to a much lower level, somewhere around 50 dollars for every barrel of oil. The longer prices stay at this level the more likely it is that prices will overshoot. It is improbable that fiscially-streched economies in Western and Southern Europe will be able to pay for prices very much above the 100 dollars for every barrel of oil.

The likely scenario is that prices will flucatuate very widely, leading to massive changes in the structure of the economy.

Over time, structures and organisations that can withstand these price fluctuations will disappear.

What gives.

What we are witnessing in Germany especially is the power shift from large energy corporations to smaller public utilities. After a period of privatization there is now a strong push to manage infrastructure by the state. This is backed by the public, across all age groups. Just alone in 2015 we saw the break-up of E.ON, the world’s largest privately-owned electricity company and RWE, Germany’s second largest electricity company. This will be a structural shift in the industry.

The extend and speed of structural change depends therefore on the elasticity of oil demand. What we know is that oil in the transport sector can not be substituted for by any other fossil fuels. Also, alternatives such as electric cars, hybrids have other issues attached to them. Certainly they cannot replace trucks, air traffic transport, container freight and other means of transport. So it is likely that public transport will be an area where public utilities will further expand their footprint and grow in political importance in the future. The importance of public transport on a national level will continue to grow likewise.

A train wreck to the future. Or hypomobile joints?

What we see in Germany for example is that the national railways compensate for personal transport and currently expand in order to cope with growing customer demand. Electricity providers have to meet this demand and the lack of infrastructure was part of the reason for recent price upticks. For the forseeable future, let us say for now for the next 20 to 30 years, state-run businesses will be at the forefront of the energy transformation in Germany. The same is true in many other European countries.

 

 

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