Windfall
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As a result, even before global prices: Saudi price cuts began in early 2014 and continued throughout the year. “Saudi Aramco Cuts Price of Crude,” Arabian Oil and Gas, January 7, 2014, www.arabianoilandgas.com/article-11638-saudi-aramco-cuts-price-of-crude/; Nicole Friedman, Benoit Faucon, and Summer Said, “Saudi Price Cut Upends Oil Market,” Wall Street Journal, November 3, 2014, www.wsj.com/articles/saudi-oil-price-cut-upends-market-1415063053; Emiko Terazono, “Oil Slides After Saudi Arabia Cuts Prices in US,” Financial Times, November 4, 2014, www.ft.com/intl/cms/s/0/e15b4e4e-6382-11e4-8a63-00144feabdc0.html#axzz45VgynGqP.
The world expected OPEC: “Until about three days ago the absolute and total consensus in the market was the Saudis would cut,” said Robert McNally. Ron Bousso and Joshua Schneyer, “Exclusive: Privately, Saudis Tell Oil Market—Get Used to Lower Prices,” Reuters, October 13, 2014, www.reuters.com/article/us-oil-saudi-policy-idUSKCN0I201Y20141013.
Global supply and demand would subsequently settle: See “Oil at $50,” Economist, January 7, 2015, www.economist.com/blogs/graphicdetail/2015/01/daily-chart-1, which demonstrates a range of fiscal breakeven prices from the low $70s to $140. The Gulf states and Saudi Arabia would all have met their fiscal needs at $100 at that time.
But investment into oil: Francisco Monaldi, “Here’s what happens when oil prices crash—and it is not pretty for producers,” The Guardian, January, 12, 1985, www.theguardian.com/commentisfree/2015/jan/12/what-happens-oil-prices-collapse-cheaper-fuel-us-europe.
For instance, OPEC cut millions: “OPEC Spare Capacity in the First Quarter of 2012 at Lowest Level Since 2008,” U.S. Energy Information Administration, May 24, 2012, https://www.eia.gov/todayinenergy/detail.cfm?id=6410.
Widely referred to as: “#53 Ali Al-Naimi, The World’s Most Powerful People,” Forbes, November 4, 2014, www.forbes.com/profile/ali-al-naimi/; Summer Said and Benoit Faucon, “Saudi Arabia’s Celebrity Oil Minister Ali al-Naimi Prepares for Potential OPEC Swan Song,” Wall Street Journal, June 4, 2015, www.wsj.com/articles/saudi-arabias-celebrity-oil-minister-ali-al-naimi-prepares-for-potential-opec-swan-song-1433422421.
Born in 1935 to one of: For details about al-Naimi, see John Lawton, “Naimi: ‘I Hope to Tell Him Objective Accomplished,’ ” in Saudi Aramco World Magazine 35, no. 3 (May/June 1984); and David Lamb, The Arabs (New York: Random House, 1987), 276–78.
And Russia was producing: U.S. Energy Information Administration, “Russia is world’s largest producer of crude oil and lease condensate,” August 6, 2015, www.eia.gov/todayinenergy/detail.php?id=22392.
Collectively, non-OPEC producers: Additional non-U.S., non-OPEC production in this period was 4.7 mnb/d. Derived from data in Table 3.6 of International Energy Agency, World Energy Outlook 2015 (Paris: OECD Publishing, 2015), November 10, 2015, 135, https://www.iea.org/publications/freepublications/publication/WEO2015.pdf.
By some estimates, the field required: “Kazakhstan’s Kashagan Tagged World’s Most Expensive Energy Project,” Tengri News, November 29, 2012, http://en.tengrinews.kz/industry_infrastructure/Kazakhstans-Kashagan-tagged-worlds-most-expensive-energy-project-14913/.
The average cost to drill: See “Trends in U.S. Oil and Natural Gas Upstream Costs,” U.S. Energy Information Administration, March 2016, https://www.eia.gov/analysis/studies/drilling/pdf/upstream.pdf, 4.
Compliance with the 2008 agreement: “OPEC Cuts Supply, But More Work Needed to Fulfill Deal,” Financial Tribune, February 5, 2017, https://financial/tribune.com/articles/energy/58885/opec-cuts-supply-but-more-work-needed-to-fulfill-deal.
The meeting, designed to explore: For more details on this meeting and the proposal on the table, see Jay Solomon and Summer Said, “Why Saudis Decided Not to Prop Up Oil,” Wall Street Journal, December 21, 2014, www.wsj.com/articles/why-saudis-decided-not-to-prop-up-oil-1419219182.
The Saudis apparently had spent: Raval, “The Big Drop: Riyadh’s Oil Gamble.”
Jamie Webster, an oil market analyst: Jamie Webster, in-person conversation with author, Cambridge, MA, November 13, 2013.
That same month, Ibrahim al-Muhanna: Solomon and Said, “Why Saudis Decided Not to Prop Up Oil.”
Later reports of stress tests done: Raval, “The Big Drop: Riyadh’s Oil Gamble.”
Headlines such as “Cancel Thanksgiving”: Miles Udland, “Cancel Thanksgiving: The Most Important OPEC Meeting in Years Is Happening on Thursday,” Business Insider, November 24, 2014, www.businessinsider.com/opec-november-27-meeting-preview-2014-11.
OPEC’s then-twelve members: Indonesia had rejoined OPEC in 2015, bringing its numbers to thirteen; Indonesia again suspended its membership in November 2016.
Members had agreed to maintain: Alex Lawler, Amena Bakr, and Dmitry Zhdannikov, “Inside OPEC Room, Naimi Declares Price War on U.S. Shale Oil,” Reuters, November 28, 2014, www.reuters.com/article/us-opec-meeting-shale-idUSKCN0JC1GK20141128.
many speaking on a not-for-attribution: Ibid.
Just as surprising to many: At a 2014 oil industry event in London, OPEC’s secretary-general Abdalla El-Badri told reporters, “If prices stay at $$85, we will see a lot of investment going out of the market. About 65% of the producers, they have high costs. Not OPEC.” Alex Lawler and David Sheppard, “OPEC’s Badri sees little output change in 2015, says don’t panic on oil drop,” Reuters, October 29, 2014, www.reuters.com/article/us-opec-oil-idUSK0II0XD20141029.
According to an analyst: This observation was made in early 2016. Christopher Harder, “Oil Plunge Sparks Bankruptcy Concerns—Energy Journal,” Wall Street Journal, January 12, 2016, http://blogs.wsj.com/moneybeat/2016/01/12/oil-plunge-sparks-bankruptcy-concerns-energy-journal/.
Russian president Vladimir Putin publicly mused: Chris Mooney, “Why There Are So Many Kooky Conspiracy Theories About Oil,” Washington Post, December 23, 2014, www.washingtonpost.com/blogs/wonkblog/wp/2014/12/23/putin-is-trotting-out-conspiracy-theories-about-oil-hes-not-the-first/.
Iranian president Hassan Rouhani was only: Reuters, “Iranian President Blames Oil Price Fall on Political Economy,” CNBC, December 10, 2014, www.cnbc.com/id/102256076#.
Bolivian president Evo Morales: Mike Whitney, “Did the U.S. and the Saudis Conspire to Push Down Oil Prices?,” Global Research, December 29, 2014, www.globalresearch.ca/did-the-u-s-and-the-saudis-conspire-to-push-down-oil-prices/5421890.
Writing for the magazine Foreign Policy: Andrew Scott Cooper, “Why Would the Saudis Deliberately Crash the Oil Markets?,” Foreign Policy, December 18, 2014, http://foreignpolicy.com/2014/12/18/why-would-the-saudis-crash-oil-markets-iran/. Also see Liam Denning, “OPEC’s Weapon of Mass Inaction,” Wall Street Journal, November 27, 2014, www.wsj.com/articles/opecs-weapon-of-mass-inactionheard-on-the-street-1417105500.
Instead, it would cause: Izabella Kaminsky, “Why Saudi Arabia’s Best Bet May Be to Increase Output,” Financial Times, October 27, 2014, http://ftalphaville.ft.com/2014/10/27/2020412/why-saudi-arabias-best-bet-may-be-to-increase-output/.
“If in the process”: Solomon and Said, “Why Saudis Decided Not to Prop Up Oil.”
Pointing to a fiscal breakeven price: Even more dramatic was the more than 50 percent jump in fiscal breakeven prices between 2010 (before Mubarak’s ouster) and 2014. “Breakeven Fiscal Oil Prices, US dollars per barrel,” International Monetary Fund, http://data.imf.org/?SK=388DFA60-1D26-4ADE-B505-A05A558D9A42&ss=1479331931186.
Al-Naimi’s satisfaction after the November: Alex Lawler, David Sheppard, and Rania El Gamal, “Saudis Block OPEC Output Cut, Sending Oil Price Plunging,” Reuters, November 27, 2014, www.reuters.com/article/us-opec-meeting-idUSKCN0JA0O320141127.
but it was not until later: Solomon and Said, “Why Saudis Decided Not to Prop Up Oil.”
Talking to the Middle East Economic Survey: “MEES Interview with Ali Naimi: ‘OPEC Will Never Plan to Cut,’ ” Middle East Economic Survey 57, no. 51/52 (December 22, 2014), http://archives.mees.com/issues/1562/articles/52258.
Two: The New Oil Order
For two years
: This would be equivalent to under $20 in prices of the day. “Real Prices Viewer,” U.S. Energy Information Administration, April 11, 2017, https://www.eia.gov/outlooks/steo/realprices/.
Despite the dramatic cover, the Economist: “Drowning in Oil,” Economist, March 4, 1999, www.economist.com/node/188131.
In 2015 and 2016, for the first time: See International Energy Agency, World Energy Outlook 2016 (Paris: OECD Publishing, 2016), 65.
Proponents of this view tend to think: One such proponent is Tim Gould, head of the oil supply division of the International Energy Agency. See International Energy Agency, World Energy Outlook 2016 (Paris: OECD Publishing, 2016), 142–43; another is Shell’s chief executive Ben van Beurden. Christopher Adams, Anjli Raval, and David Sheppard, “Royal Dutch Shell Warns of Risk of Oil Price Spike,” Financial Times, October 6, 2015, www.ft.com/intl/cms/s/0/a6226c44-6c1a-11e5-8171-ba1968cf791a.html#axzz4ATfSa7OO. Also see Emily Gosden, “Oil Demand Peak ‘Not in Sight’ as Stage Set for Boom and Bust, Says IEA,” Telegraph, November 16, 2016, www.telegraph.co.uk/business/2016/11/16/oil-demand-peak-not-in-sight-as-stage-set-for-boom-and-bust-says/.
A public relations manager: William M. Alley and Rosemarie Alley, Too Hot to Touch: The Problem of High-Level Nuclear Waste (Cambridge: Cambridge University Press, 2013), 6, http://assets.cambridge.org/97811070/30114/excerpt/9781107030114_excerpt.pdf.
He hung up, returned to the stage: M. King Hubbert, “Nuclear Energy and the Fossil Fuels,” paper, Spring Meeting of the Southern District Division of Petroleum, American Petroleum Institute, Plaza Hotel, San Antonio, Texas, March 7–9, 1956, https://web.archive.org/web/20170525165507/www.hubbertpeak.com/hubbert/1956/1956.pdf.
it had taken 500 million: Ibid., 4.
Based on this theory: Ibid., 22, 24.
Morgan Davis, the head of Humble Oil: Alley and Alley, Too Hot to Touch, 7.
He noted, “The oil business”: Kenneth S. Deffeyes, Hubbert’s Peak: The Impending World Oil Shortage (Princeton: Princeton University Press, 2001), 3.
Crude oil production in the United States: “U.S. Field Production of Crude Oil,” U.S. Energy Information Administration, October 31, 2016, https://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=pet&s=mcrfpus2&f=m. Crude oil production is one component of “overall oil production” or “total liquids production”—categories that also include natural gas liquids or NGLs.
In 2005, U.S. EIA: Guy Caruso, “When Will World Oil Production Peak?,” presentation, 10th Annual Asia Oil and Gas Conference, Kuala Lumpur, Malaysia, June 13, 2005, www.industrializedcyclist.com/EIAspeakoil4cast.pdf.
In fact, the notion that the world: Robert L. Hirsch, Roger Bezdek, and Robert Wendling, Peaking of World Oil Production: Impacts, Mitigation, and Risk Management (Washington, DC: U.S. Department of Energy, February 2005).
In 2010, a think tank associated: See Stefan Schultz, “Military Study Warns of a Potentially Drastic Oil Crisis,” Der Spiegel, September 1, 2010, www.spiegel.de/international/germany/peak-oil-and-the-german-government-military-study-warns-of-a-potentially-drastic-oil-crisis-a-715138.html.
it has been the inspiration: See Paolo Bacigalupi, The Windup Girl (San Francisco: Night Shade Books, 2012); “A Picky List of Peak Oil Resources,” Transition Voice, accessed November 5, 2016, http://transitionvoice.com/a-snarky-guide-to-peak-oil/peak-oil-resources/.
Many declared the end: Nathan Bomey and Roger Yu, “Low Oil Prices End 21st Century Gold Rush,” USA Today, March 17, 2016, www.usatoday.com/story/money/2016/03/17/crude-oil-prices-us-economy/81318012/.
But eventually, after U.S. crude oil production: Overall U.S. production includes crude oil plus natural gas liquids—or “NGLs” as they are frequently known. See “U.S. Field Production of Crude Oil,” U.S. Energy Information Administration, https://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=pet&s=mcrfpus2&f=m.
Despite lower prices, in their: In 1970, the overall U.S. oil production (crude plus natural gas liquids) was approximately 11.4 mnb/d. (Crude oil production alone was 9.6 mnb/d). According to the IEA’s New Policy Scenario (its “most likely” scenario), overall U.S. oil production could reach 14.1 mnb/d by 2020. According to the EIA reference scenario (its “most likely” scenario), overall U.S. oil production could reach 14.5 mnb/d by 2020. These numbers were calculated from the following sources: “IEA Oil Information Statistics: World oil statistics,” International Energy Agency, http://stats.oecd.org.ezp-prod1.hul.harvard.edu/deliverdotstat?cid=id10763&institution_name=Harvard+University+Library&baseurl=http%3a%2f%2fstats.oecd.org%2fwbos%2fbrandedview.aspx&doi=data-00474en&return_ur1=http%3a%2f%2fwww.oecd-ilibrary-org%2fcontent%2fahahtoc%3ffmt%3dahah&lang=en&oecdstat=oil-data-en&itemId=%2fcontent%2fdata%2fdata-00474-en; “U.S. Gas Plant Production of Natural Gas Liquids and Liquid Refinery Gases,” U.S. Energy Information Administration, https://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=MNGFPUS2&f=A; “U.S. FieldProduction of Crude Oil,” U.S. Energy Information Administration, https://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=pet&s=mcrfpus2&f=a; “Table: Petroleum and Other Liquids Supply and Disposition,” Annual Energy Outlook 2017, U.S. Energy Information Administration, www.eia.gov/outlooks/aeo/data/browser/#/?id=11-AEO2017®ion=0-0&cases=ref2017~lowprice&start=2015&end=2050&f=A&linechart=lowprice-d120816a.3-11-AEO2017~lowprice-d120816a.19-11-AEO2017&ctype=linechart&sid=ref2017-d120816a.19-11-AEO2017~ref2017-d120816a.3-11-AEO2017~lowprice-d120816a.3-11-AEO2017~lowprice-d120816a.19-11-AEO2017&sourcekey=0; International Energy Agency, World Energy Outlook 2016 (Paris: OECD Publishing, 2016), 136.
There are shale fields: Dan Murtaugh, “Texas Isn’t Scared of $30 Oil,” Bloomberg, February 3, 2016, www.bloomberg.com/news/articles/2016-02-03/texas-toughness-in-oil-patch-shows-why-u-s-still-strong-at-30.
Even in this low-price scenario: In the EIA’s low-price scenario, overall U.S. oil production (crude plus natural gas liquids) reaches 12.4 mnb/d in 2020, roughly one million barrels higher than the 1970s high of 11.4 mnb/d. In 2050, this amount falls to 11.4 mnb/d, the same as the 1970 peak. “Table: Petroleum and Other Liquids Supply and Disposition,” Annual Energy Outlook 2017, U.S. Energy Information Administration, https://www.eia.gov/outlooks/aeo/data/browser/#/?id=11-AEO2017®ion=0-0&cases=ref2017~lowprice&start=2015&end=2050&f=A&linechart=lowprice-d120816a.3-11-AEO2017~lowprice-d120816a.19-11-AEO2017&ctype=linechart&sid=ref2017-d120816a.19-11-AEO2017~ref2017-d120816a.3-11-AEO2017~lowprice-d120816a.3-11-AEO2017~lowprice-d120816a.19-11.
in 2015, the United States and Canada: Rosalie Starling, “EIA Expands Global Shale Oil and Natural Gas Resource Assessment,” HydrocarbonEngineering, www.energyglobal.com/downstream/gas-processing/15122015/EIA-expands-global-shale-oil-and-natural-gas-resource-assessment-1979/.
The fact is that: See International Energy Agency, World Energy Outlook 2016 (Paris: OECD Publishing, 2016), 128.
As of the end of 2015: Ibid.
Argentina, Russia, Mexico, Colombia: “World Tight Oil Production to More Than Double from 2015 to 2040,” U.S. Energy Information Administration, August 12, 2016, www.eia.gov/todayinenergy/detail.cfm?id=27492.
At that point, tight oil production: See ExxonMobil, The Outlook for Energy: A View to 2040 (Irving, TX: ExxonMobil, 2016), 59, http://cdn.exxonmobil.com/~/media/global/files/outlook-for-energy/2016/2016-outlook-for-energy.pdf.
“For the last forty years”: Bob Belfer, in-person conversation with author, Cambridge, MA, May 5, 2016.
The decade from 1997 to 2007: From 1997 to 2007, overall global energy consumption grew at 2.4 percent a year on average. This number was 0.89 percent for OECD countries and 4.93 percent for non-OECD countries. BP p.l.c., BP Statistical Review of World Energy 2016 (BP, June 2016), www.bp.com/content/dam/bp/excel/energy-economics/statistical-review-2016/bp-statistical-review-of-world-energy-2016-workbook.xlsx.
China, whose focus on heavy industry: “GDP Growth (Annual %),” The World Bank, accessed November 5, 2016, http://data.worldbank.org/indicator/NY.GDP.MKTP.KD.ZG?locations=CN.
In just the few years: Fredrich Kahrl and David Rol
and-Holst, “Growth and Structural Change in China’s Energy Economy,” Energy 34 (2009): 894. BP p.l.c., BP Statistical Review of World Energy 2016 (BP, June 2016), www.bp.com/content/dam/bp/excel/energy-economics/statistical-review-2016/bp-statistical-review-of-world-energy-2016-workbook.xlsx.
By 2007, China’s needs: In 2007, China’s energy consumption (including that of Hong Kong) accounted for 18.6 percent of what the whole world consumed that year. If we consider energy demand growth, as opposed to looking at energy demand in the absolute, we find that China, including Hong Kong, accounted for 45.2 percent of global demand growth. BP p.l.c., BP Statistical Review of World Energy 2016 (BP, June 2016), www.bp.com/content/dam/bp/excel/energy-economics/statistical-review-2016/bp-statistical-review-of-world-energy-2016-workbook.xlsx.
Global energy demand growth: BP p.l.c., BP Energy Outlook 2035: January 2017 (London: BP, 2017), http://www.bp.com/content/dam/bp/excel/energy-economics/energy-outlook-2017/bp-energy-outlook-2017-summary-tables.xlsx.
Looking forward, various companies: For instance, see the data tables of BP Energy Outlook 2017 and EIA IEO 2016: BP p.l.c., BP Energy Outlook 2035: January 2017 (London: BP, 2017), http://www.bp.com/content/dam/bp/excel/energy-economics/energy-outlook-2017/bp-energy-outlook-2017-summary-tables.xlsx.; “Table: World total primary energy consumption by region,” International Energy Outlook 2016, U.S. Energy Information Administration, https://www.eia.gov/outlooks/aeo/data/browser/#/?id=1-IEO2016®ion=0-0&cases=Reference&start=2010&end=2040&f=A&linechart=Reference-d021916a.28-1-IEO2016&ctype=linechart&sid=Reference-d021916a.28-1-IEO2016&sourcekey=0.
In part, these trends are due to: With the exception of the expansion of the middle class—the rate of growth of these parameters will slow either in the immediate years ahead out to 2020 and beyond, or in the case of economic growth, in the decade beyond 2030. For example, people will continue to move to urban areas, boosting city dwellers from just over half of the world’s population in 2014 to two-thirds in the midpoint of this century. But the quintupling of urban residents from 1950 to 2014 will neither be matched in absolute numbers nor in rates of growth from 2014 to 2050. Similarly, over the years to 2025, the global urban population is expected to grow at 1 percent a year, but this is still significantly less that the 1.3 percent annual growth rates realized from 1992 to 2012. See United Nations, Department of Economic and Social Affairs, Population Division, World Urbanization Prospects: The 2014 Revision, Highlights (United Nations, 2014), www.esa.un.org/unpd/wup/Publications/Files/WUP2014-Highlights.pdf.