Thursday, May 12, 2016

Oil Prices: The Next 25 Years

Even with really, really fast computers it's damn near impossible to parameterize what you are trying to do, but this piece at least gives us a starting point.
From Bloomberg Gadfly:

Oil Needs Two Saudi Arabias
I know, I know. What with tracking Canada's wildfires and Nigeria's unrest, you can barely tell where oil's going in the next 25 minutes, let alone 25 years.

Someone has to try, though. So on Wednesday, the Energy Information Administration released its annual International Energy Outlook, with projections through 2040. It's a report that oil bulls should love: The EIA's reference case has global oil consumption at just shy of 121 million barrels a day by the time I (hopefully) retire. That is a full 31 million barrels a day higher than its baseline year of 2012 (the EIA takes a 28-year view, rather than 25) or roughly equivalent to adding an extra U.S. and China combined.Gulp, in every sense of the word.Any number of reasons can be put forward as to why that number may be close to or way wide of the mark. Rising population and incomes, especially in the developing world, are the main arguments in favor. Political momentum toward capping carbon emissions and advances in batteries and autonomous driving are big counter-arguments.But another question raised by that figure of 121 million barrels a day is: Where will the oil come from? Even over a span of 28 years, raising global oil production by 31 million barrels a day is no mean feat.

Reading that chart is a little tricky; sort of like saying "cast your mind back to 1993, and then cast that mind back to 1965." What you can see, though, is that by the early 1990s, we were coming off the wave of discoveries, in places such as Alaska and the North Sea, sparked by the oil crises of the 1970s. The bust of the late-1980s meant that, a decade later, the long-term trend of rising oil supply had been choked off -- setting up the bull market of the 2000s and the subsequent increase in supply from resources such as U.S. shale.In contrast, the EIA's reference case points to a much more stable future. Its projections imply oil production will grow beyond 2015 by an average of just over 1 million barrels a day every year and, apart from the outlier year of 2017, won't deviate much from that. Compare that to the record of the past 25 years....MORE