Implications of a World Awash in Oil

Just a mere 5 years ago, many expects were proclaiming “Peak Oil” (world production gets maxxed out) occurring or about to occur, and that we would soon have to be dealing with oil at $200/barrel.

Then something big happened: technology unlocked “shale oil” by combining the ability to drill down then horizontally, and then “frac” the shale deposit to release the oil.  Oil production rocketed up in the US.  That, along with “in situ” oil sand technological advances and the ability to drill deeper and deeper into the sea beds, world production continues to advance at least as fast as world growth.  At the moment, it must be going even faster than what the world needs because the price has recently dropped from a recent high of about $110 to nearly $90/barrel.

Production the US has increased 40% or so in the last 5 years and about 30% in Canada over the same period.  The world now has lots of oil.


Even bigger is the prospect for “shale gas”.    The US alone appears to now have enough natural gas in the basins below to fill domestic requirements for up to 200 years at current usage rates.  Shale oil and gas basins are all over the world, not just North America:


So the big question is this: what does all this mean to the Green movement, ie the drive to eliminate carbon emissions from fossil fuels and replace it with clean energy such as that derived from wind power, solar power, geothermal energy, etc?   Just 5 years ago, Green proponents were looking forward to the day of $200 oil because that would then make most clean energy projects economically viable.  Now, the prospects of oil getting a whole lot past $100 for any sustained period of time is looking unlikely.

The only answer that is properly valuable to the world is an old one: technology.  It was technology that brought oil production back from an inevitable and rapid decline.  It will have to be technology that will make clean energy even more competitive than ever……and it is happening right now.

Here is one cool fact.  Since 2011 alone, the cost of solar power has dropped by a whopping 60%, and there is lots more cost reductions to come.  When we compare that with oil, it is true that oil companies have been able to find and produce lots more oil but the fact is, it is getting more and more expensive to find and produce.  So while oil may never get to $200/barrel, it may never need to get there to make solar projects competitive and even better, a cheaper source of energy.  I doubt that any new oil project could be justified for less than $80/barrel revenues.

Here is what the cost of solar power is doing:


So what’s happening is the best of both worlds.  While technology is rapidly making solar power much cheaper every day, we have oil to keep the world operating without the recession-making disruption of $200/barrel of oil in the meantime.

We have Tesla Motors getting better and better at electric cars and it won’t be long before solar panels on your house roof will power your house and car, and you can be sure that as soon as the numbers work, industrial companies will pile into solar for their power needs too.

Solar power projects are rapidly increasing as we speak.  In 20 years from now, the world will look a lot different:  cleaner, greener, and hopefully less meaner.

The next big problem will the be addiction of governments to oil revenues.  Not only does production generation huge government revenues, after production crude oil costs about .56/litre right now.  Add in refining costs into gasoline of .10/litre plus transportation and retailing costs, and there is a huge discrepancy between the costs and the pump price of about $1.30…..and a lot of it is going to governments.  What are they going to do when this revenue source starts to dry up?  Let’s hope solar gets real cheap real fast!


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