I hate it when people do energy related articles that aren't loaded with graphs, or at least the key contextual numbers.
Just to be of some use here are some:
The overall oil market was just at or shy of 100 million barrels per day prior to covid19. As of early April we were down into the high 60-something million barrels per day. Roughly a full one third collapse in demand.
US oil production reached a low of about 5Mbpd in 2010, and rose to last month (march) being 13Mbpd. That is overwhelmingly the fracking you hear about, specifically in the permian basin. As of last week that was already down 1Mbpd.
The top 3 oil producers in the world are the US, Saudi Arabia, and Russia. SA and RU have been floating in the 9 - 11Mbpd range for the last few years, and just a few weeks prior to covid had decided to increase their production by ~2 - 3Mbpd each.
So its very simple napkin math from there. Oil sands are effectively over until we have some kind of substantial long term recovery. At least half of fracking wells in the US are being shut off right now.
If this covid crisis drags on for 2 - 3 years globally, and if the shift to wfh/tele-whatever gets advanced quicker than otherwise, and the airline industry doesn't return to its old levels for years and years... then there's every reason to think that oil sands are simply done and (most US) fracking wells will run out their existing investments and also be done.
how much does it cost to purchase a turned off well? I mean that in the literal sense, how much would it cost for me to go pitch a tent on a capped pipe sticking out of the ground and say "this is mine"?
Starting up a decommissioned well is not simple. There’s a lot of safety protocols to check and procedures to follow to ensure that it will start up properly. You also need to make sure it's linked up to crude processing facilities however small the production is. That's why a lot of american producers are reluctant to completely shut down production right now since its a headache to start back up
I used to work for one of the largest independent power producers in Canada. Even in 2014, they were divesting from fossil fuel based generation and pouring everything into renewables. Great ideal, but it takes time!
Small plug for https://enviro.work (project I built that aggregates environmentally positive job opportunities)
No, it’s still the backbone of their whole economy, which has been going through a major recession for years. There isn’t a meaningful number of renewable jobs to take its place, and won’t be anytime soon. That’s going to be the case in any country/region that has an economy built on energy.
I like to read these words. The oil industry and the government of Alberta, Canada freak out when people say "tar sands" and insist on calling it "oil sands". They think "oil sands" sounds less dirty than "tar sands".
But the truth is that the stuff is really tar (oil, sulfur and sand). That's how all local people called it up until the early 2010's. Once you remove the sand it does look dirty, a dark sticky goo. They're just trying to put make up on a pig.
- Unemployed workers are looking for other jobs in energy
It's sort of broadly gesturing at the idea that this is a sign of renewables overtaking fossil fuels—something most of us would love, obviously—but it's not really a part of the article's core.
I grew up in Alberta and I've been hearing this story as long as I can remember (and I'm old now). While the oil industry is definitely in decline, consumers aren't going to give up on all the luxuries that fossil fuels provide anytime soon. There's also the growing emerging world which has a big appetite for energy and goods. The virus is probably a temporary thing and life will go on. Additionally, the low price of energy will result in an increase in consumption once everything goes back to normal.
We're getting pretty close to the point where it's going to be cheaper to run a car on electricity than it is on gasoline or diesel and once this thing tips over it is game over for Alberta. Elon's Semi is coming. The electric cars are coming. Fracking is going to outcompete the oilsands in Alberta. The sooner Alberta can retool to something else the better. I'm not one of those anti-pipeline Canadians, I think they still have a place and they're better for the environment than railcars, but we need to get serious about the timeline here. Both for global warming and for Alberta's economy.
While I think the overall rate of production of EVs is frustratingly slow, once that giant industry is spun up the oil industry is going to suffer like nothing before. It can recover from this corona situation, but it won't be able to from a shift to EVs. I wish they would see this as their final warning.
It's doubly frustrating for Alberta, which has a high baseline cost of production and bills itself business friendly and talks a lot about "energy". Imagine for a sec that they used a small part of the Heritage Fund (say $1 Billion) and a set of business-friendly regulations to set up an X-Prize type competition for advanced nuclear? How much private investment could they attract? But it's not gonna happen, all their talk of "business" and "energy" just means oil, oil, oil.
Well this ticks all the boxes. I'm from Alberta, worked in oil and gas there for a while and was the Chief Engineer for a Google Lunar Xprize team (one of the relatively successful ones that is still around). Now still working there in aerospace, and some of our customers are coincidentally working with us as they are diversifying away from oil and gas.
Tar Sands is one of the most expensive and damaging ways to produce oil, yet Alberta is still clinging on and propping up the industry, even a decade after the Middle East players, with much more abundant resources and cheaper production, started to diversify.
A sensible plan is to shift energy production to renewables and save oil to make plastic later. Maybe develop oil sands technology at a slow pace
What other renewable form of energy could they develop and export?
People who suggest that they could just put up solar panels (do they even make sense that far north?) and turbines don’t seem to get that they aren’t extracting the oil for themselves, they are selling it.
Where do you think all the plastic, batteries, and energy required to run the manufacturing process for those EVs comes from? I'll give you a hint: it's not renewables.
Plastics are a sort of byproduct of oil production and account for like (IIRC) 5% of them. You can't sustain an industry on that. If their price goes up, there'll be lots of substitutes popping up, but we should also note that. It should also be noted that plastics, by themselves, don't contribute to climate change - the carbon doesn't go in the atmosphere.
Batteries? I'm not sure what the question is. There's a lot of stuff that does into them and fossil fuels is present everywhere, for example powering the mining trucks. Except the way to get rid of fossil fuel powered mining trucks is to have EV semis, which need EV pickup trucks, which need EV passenger cars. That is, it's a virtuous cycle where more EVs cause prices to go down and more EVs to exist. You can plainly see this cycle play out over the last decade and it's only going to accelerate.
Energy? Well, this is simple - it depends on where you make EVs. Plenty of jurisdictions have very low carbon electricity.
Raw material extraction, smelting, refining, shipping and so on all depend on fossil fuels (I haven't heard of any electric ships yet). Batteries in particular are known for having a significant carbon footprint[0], though to Elon's credit he's trying to change this (but it's a long, long way off).
According to the EIA, in the US almost 70% of oil is used for transportation. The US consumes a fifth of the worlds oil.
Even if you committed to fossil fuel only for industrial processes (which I don't see why you would), if used to electrify transportation you'd eliminate a majority of the demand for oil. Plastics usage is marginal compared to transportation.
69% of oil is directly used for transportation, if that falls by even 10% oil sands are going away, if it falls by 30% fracking is going away. Home heating etc make up the bulk of the remainder, with plastics being a small fraction.
They may be picked up again in 40 years to enable plastic manufacturing, but commodity extraction is all about boom and bust cycles.
PS: Buying a 10 gallons of gas for a fillip is 63 pounds. How frequently are you buying 63 pounds of plastic?
That's a fair point, the question is just when. If energy demand remains low for long enough many people are out of business. Ironically, i wonder if that means when demand returns prices will skyrocket because of supply issues.
i've loved watching OPEC twist in the wind over the years because fracking put a price ceiling on a barrel of oil below which the OPEC needed for survival. I never guessed the price would fall completely through the floor and kill everyone though.
In my adult life I've seen the terrorist attacks of 9/11/2001, the financial crisis in 2008-2009, and now this. I've also seen the rise of the Internet, wireless communications, and SpaceX (yes i'm a fanboi). The world is a crazy place.
Most oil is currently used for transportation. Demand for transportation of people could be affected long-term.
Quoting myself here:
"There might be some semi-permanent change in people's behaviors if the epidemic continues for many months. Many people will form a habit of doing more things at home/online: more takeouts, more online shopping, live/recorded video classes, virtual meetings, telehealth, etc. Better online services will also spring up to support the habits/practices.
Since online activities often save time, the new habits could become a new equilibrium: people/companies who adopt them will often have an economic advantage, influencing others to do the same. Thus, oil demand could be significantly diminished long-term as well."
The only thing that will change the status quo is government regulation straight up banning oil and gas products or making them niche and expensive.
For example the City of Vancouver the other night quietly banned using natural gas for heating and hot water in new developments under 3 stories. They'd already done so buildings taller than that.
This will lower GHG emissions from buildings by 86% by making them 'zero emission' and as well this sort of thing, if adopted widely, will lower demand and prices for natural gas.
If the price of oil drops by 20% the demand for oil from marginal sources like tar sands could go down by 70%, since they were barely profitable when prices were 20% higher. On the other hand, oil (or natural gas) prices are only a fraction of the total cost of electricity or gas/diesel, so demand for renewables will probably not drop by too much. In fact, since a sudden shock in the price of oil could kill off a lot of marginal producers, the long term average price of oil could increase from previous expectations. This would make renewables even more attractive. Another factor to consider is that if marginal oil producers die out the price of labor will decrease in many places. This will also serve to make the price of solar lower, since labor costs are a decent fraction of total costs. There are a lot of cascading effects from a change in the price of a commodity as big and important as oil.
Another factor is that oil seems to be much more vulnerable to volatility than renewables. I haven't read anything about renewable sources needing continue production when it's unprofitable to do so because the cost of turning production on or off is so high.
What is up with that fall protection? Mobile fall arresters are really not meant to be used with a loose pile of rope at your feet. And is that a shock pack? From this photo, it looks like he's going to be on the ground before it gets a chance to deploy.
One problem: the value of renewable energy rises and falls with fossil fuels. If oil is dirt cheap, well, solar panels aren't worth much. A few people will pay a premium for cleaner energy but most can't afford it.
Oil and renewables don't overlap perfectly competitively. Renewables are pure electricity, oil is a portable power source. Some oil is burned for power, but only when other energy sources (Coal, renewables, natural gas) are unavailable. You might have a gas generator to back up a solar panel, but you are never going to replace a solar panel with a generator.
The cost to extract shale oil is roughly $40/ barrel. Oil sands are similarly expensive to extract. If oil were to stay at a low enough price for a prolonged period, shale oil and tar sands operations would cease production entirely, limiting supply and increasing the prices.
At $40 per barrel, oil is not economical to produce electricity, but remains viable as a vehicle fuel.
It's almost entirely reversed. As more and more vehicles become electric (and less expensive to operate), demand for oil declines.
The thing about renewables is that almost all the cost is upfront. I have solar panels on my roof and they're going to keep producing energy at the same rate regardless of what the price is, because the marginal price of running them is basically zero. If places are installing them to meet carbon targets, that's also unaffected by price.
Also, oil and electricity aren't so much directly in competition with each other while the EV market remains small. Natural gas, yes, but that was already cheap.
Solar panel degradation is tiny nowadays. For monocrystalline cells the degradation rate is around 0.36% per year, which means in 10 years your panels will still be outputting about 96.5% of what they output brand new. Polycrystalline cells are around 0.64% degradation per year.
Solar generally comes with a warranty, in the range of 80% of nameplate capacity after 20-25 years. There is some degredation but at 20 years that is in line with utility replacement rates.
3.8kW of bog-standard polycrystalline cells, installed by a local company in less than a day. £5500, five years ago; I receive over £500 in feed-in-tarriffs every year. And this is at 56 degrees north.
(I never considered doing it myself - a dangerous hassle, and in any case the FIT scheme required an approved installer and a <4kW scheme. Storage or offgrid would be completely infeasible, it's too seasonal.)
In Alberta, solar panels and other renewable sources of electricity, would compete with the price of natural gas [1], since that is what a new conventional generating station would likely use.
Natural gas and oil prices [2] are not tightly coupled [3].
Because oil is the competition. If I can burn oil to generate electricity very cheaply, then I'll do that. I might be willing to pay a little more for renewables, but not a lot more. If oil prices drop, renewables will have to cut their prices too or else lose their customers. The cost of making solar panels probably don't fall that much, so renewable energy companies will lose money.
Only very strict regulations could decouple the prices of oil and renewables.
Not the OP, but I can say in Japan the spot electric market price is set by the marginal generator: LNG peaker plants.
Thus if renewables were selling into the open market the price for their electricity would indeed be determined by the fossil fuel plants. Yet the vast majority of renewables being installed world wide are doing so under more favorable deals.
Renewables are cheaper than all other forms of generation [1] (yes, rooftop solar is more expensive, but most renewables being installed in the US are utility scale). Oil does not compete with renewables.
Coal is rapidly falling out of the mix [2] [3] [4], and natural gas is complimenting renewables due to its firm dispatchability and throttling speed (evening duck curves). As soon as the price of natural gas spikes, battery storage becomes incredibly attractive financially (its already attractive enough to replace the most expensive single cycle gas peakers).
Electricity when the sun is shinning and the wind is blowing will be incredibly cheap (1-2 cents/kWh), and you’ll end up paying a premium (6-8x multiplier) if you need power when renewables aren’t generating (and your power comes from natural gas or batteries). Market forces working as intended.
Google shifts compute to when and where is the most environmentally friendly based on renewables generation [5], powered in part by Tomorrow/electricitymap.org [6] [7]. Expect to see more large electrical consumers take similar actions in the future, further increasing the rate of renewable deployment. You’ll also see electric vehicles charging when renewables are producing, using market price signaling.
(Replying to my comment because it's edit window has expired)
Fun fact: On sunny days, California alone generates more electricity (10GW/hr) from solar than Australia generates from coal across the entire country. There’s a lot of sunlight hitting the Earth each day.
Reduction in the cost of oil will also reduce the cost of expanding renewable energy. Along with social distancing that might last a year, I wouldn't be surprised if we didn't reach the level of oil consumption from 2019 ever again.
However, I also wouldn't be surprised if we went the other direction as well. The expanse of possibility is so wide that it invokes some anxiety. I have no predictive capability in this environment, which terrifies me.
Short term thinking goes nowhere. Sure, fossil fuels are cheap right now, but it'll bounce back later. One shouldn't make any long term decisions based on temporary market conditions.
Little has changed in the big picture that would not have changed anyways. Shale plays are not cash cows; shale wells have short production span, but are expensive and risky to develop.
Renewables are increasingly the real economic option; they make sense regardless of factors like politics and beliefs.
My understanding is that there’s a lot of debt underpinning some of the new operation. Is it possible that even a “temporary” price reduction could cause a wave of deeper financial problems that make continued investment less likely out in the future?
> ...debt underpinning some of the new operation...
Also older. Those companies are not equal, though, the ones with the best geologists can still make ok profits with a bit of luck.
> ... price reduction could cause a wave of deeper financial problems
Of course, and shale oil hasn't been a money maker in general below $40-120, depending on geology. I guess most of it makes money at $60. Some wells might be profitable even slightly below $40.
Then again, cash flow is king. Very low prices aside, like right now, at a certain point it makes more sense to produce oil below profitability just to keep the cash flowing.
A deployed wind farm doesn't get decommissioned just because panel prices dropped. Seems like low panel prices would still be positive on the whole ?
If panel's are cheaper more people/businesses/farms etc can deploy solar. Leading to more install's which lead's to more installers and more business for maintenance folks (and ancillary services on large installations).
”A non-profit corporation, Calgary Economic Development, recently started a U.S. $1.1 million program to transition unemployed oil and gas professionals to jobs in digital technology, such as software development and programming”
Might as well light that money on fire to keep warm. Retraining is such a ridiculous and naive idea, especially when you’re talking about turning an oil roughneck into a developer. That’s about as dumb as suggesting that displaced truckers can just learn to code. It’s like whoever came up with that never thought to ask a single person affected if it would be viable.
It's not clear that this is for roughnecks, specifically. Quite a few of my old colleagues who were field engineers on oil rigs are now software programmers -- myself included. Most of us had to be above-average at windows administration just to keep our jobs and not get fired. When you're in the middle of nowhere with no ability to call/text/email and the computer on the oil rig doesn't work, it's really up to you to know how to fix the [networking]/[drivers]/[re-crimp wires].
A lot of the oil field workers hold degrees that required calculus, they should be able to transfer to entry level jobs in other knowledge-based careers quite well. Better for our economy than forcing them to be Uber drivers and bartenders. What's your suggestion for what society should do with oil workers?
I'd imagine many roughnecks would transition just fine to hands-on labor jobs like solar panel installation, wind turbine maintenance, and communication tower work. Possibly quite a few roles in datacenters as well. Several of my friends climbed towers and my cousin runs a tower modification company - the habits/skills/necessary tendencies transfer fairly well. Obviously a good degree of re-training is necessary and the workers need to understand and accept that they'll be down-leveled when they enter a new industry.
> What's your suggestion for what society should do with oil workers?
Not displace them in the first place by cutting off the supply of conflict oil, raising tariffs so the domestic labor can get paid a fair wage instead of all the profits going to billionaires and hedge funds?
Just to be of some use here are some:
The overall oil market was just at or shy of 100 million barrels per day prior to covid19. As of early April we were down into the high 60-something million barrels per day. Roughly a full one third collapse in demand.
US oil production reached a low of about 5Mbpd in 2010, and rose to last month (march) being 13Mbpd. That is overwhelmingly the fracking you hear about, specifically in the permian basin. As of last week that was already down 1Mbpd.
The top 3 oil producers in the world are the US, Saudi Arabia, and Russia. SA and RU have been floating in the 9 - 11Mbpd range for the last few years, and just a few weeks prior to covid had decided to increase their production by ~2 - 3Mbpd each.
So its very simple napkin math from there. Oil sands are effectively over until we have some kind of substantial long term recovery. At least half of fracking wells in the US are being shut off right now.
If this covid crisis drags on for 2 - 3 years globally, and if the shift to wfh/tele-whatever gets advanced quicker than otherwise, and the airline industry doesn't return to its old levels for years and years... then there's every reason to think that oil sands are simply done and (most US) fracking wells will run out their existing investments and also be done.