THE FOUR MEGA TRENDS
The world seems chaotic and unpredictable.
It is a time of changes and the world we are living in is going through major structural changes. We call them MEGA TRENDS
Understanding those mega-trends is paramount to proper investment positioning as they provide the backbone of the scenarios that will unfold in the years to come.
In this series of posts before the end of 2018, we examine the FOUR MEGA TRENDS that are currently at play and that will be shaping our world for the coming decade, and they are :
1. The End of America
2. The End of the Oil Era
3. The End of Technology
4. The End of Radical Islam
Some of these trends have been at play for some time already, and we have written extensively about them, while some are just starting.
Looking at the end of trends rather than the beginning of new ones has nothing negative, it is just much easier to characterize the end of existing trends than to rightly describe the beginning of new trends that are, by definition, unpredictable in the way they will unfold.
The current uncertainty is precisely about the certainty of the ending of some given and accepted situation and the uncertainty of the upcoming new world.
Enjoy the reading !
2. THE END OF THE OIL ERA
We have been developing this theme since 2008 at a time where oil prices were pushed up to 148 by investment banks touting a very doubtful “Peak Oil Theory’ whereby supply of oil would soon end.
We then highlighted the complete disconnect between the hard facts and figures of the supply-demand equation for oil and the gyrations in prices that were caused by speculation and the vested interests of some countries and some industrial concerns.
We went as far as calling the manipulation of oil prices an illegitimate and undue taxation on the citizens of the world by a cartel of producers.
In a way, Donald Trump’s call to Saudi Arabia to stop pushing oil prices higher in the summer of 2018 was in the same vein.
In 2009, as we predicted, oil prices fell from 148 to 26 US$.
Then they rose again towards 110 in 2014, where, again, we predicted they would collapse to 25, something they did in 2016 before OPEC and Russia reached and agreement to reduce production and lift prices again towards US$ 75 in August 2018.
In September 2018, we shorted oil again at US$ 75 and the black gold is trading at around US$ 46 at the time of writing.
OIL PRICES – Long period
The above chart of the Crude Oil active future contract goes back to 1982 and shows a clear regression and a long term channel trending mildly upwards with oil prices trading between US$ 10 and US 40 $.
Until 2003, oil prices were relatively stable within that well established channel.
In 2003, after the Iraqi war and the infamous “Weapons of Mass Destruction” with Dick Cheney’s Texan oil clique in power, Oil prices broke out of the long-term equilibrium channel and sky-rocketed towards 160.
Oil is a commodity that has a short life cycle from extraction to consumption/transformation. It usually never stays in crude form for more than 5 to 15 days and storage costs are extremely high.
In the past 40 years, apart from very limited episodes of war threats, there has never been any tension on physical supply or demand.
But the oil futures market is one of the largest commodity market and speculation is massive.
And this explains why oil prices could rise so sharply after 2003 and fall equally sharply when the market turns.
Oil prices gyrations have much more to do with speculation and manipulation of supply than with real changes in demand.
The following chart of West Texas Intermediate (WTI or NYMEX) crude oil prices per barrel is adjusted for inflation using the headline CPI and goes back to 1946. It is shown on a logarithmic scale.
The interesting observation about this second chart is the Inflation-adjusted price of oil behavior and how, after the 1974 and 1979 oil shocks, political events by nature, oil prices came back down to their natural US$ 20 level, until another supply manipulation sent them shooting up again in 2003 with the Iraqi war.
In both cases, they tend to revert naturally towards their natural price of US$ 20 to US$ 40 even on an inflation adjusted basis.
A bit of History
Crude oil, or petroleum, and its refined components, collectively termed petrochemicals, are crucial resources in the modern economy. Crude oil originates from ancient fossilized organic materials, such as zooplankton and algae, which geochemical processes convert into oil.
Petroleum is often called mineral oil. It is classified as “mineral oil” instead of as “organic oil”, such as olive oil for instance, because its organic origin is remote (and was unknown at the time of its discovery), and because it is obtained in the vicinity of rocks, underground traps and sands.
The 19th century was a period of great change and rapid industrialization.
The discovery of oil drilling in 1859 in Pennsylvania and the discovery of the Spindletop geyser in 1901 drove huge growth in the oil industry in America.
The first oil corporation, which was created to develop oil found floating on water near Titusville, Pennsylvania, was the Pennsylvania Rock Oil Company of Connecticut (later the Seneca Oil Company).
Within a year, more than 1,500 oil companies had been chartered. Titusville and other towns in the area boomed. One of those who heard about the discovery was John D. Rockefeller.
Because of his entrepreneurial instincts and his genius for organizing companies, Rockefeller became a leading figure in the U.S. oil industry. In 1859, he and a partner operated a commission firm in Cleveland. They soon sold it and built a small oil refinery. Rockefeller bought out his partner and in 1866 opened an export office in New York City.
Standard Oil was created. By 1870 Standard had become the dominant oil refining firm in Pennsylvania.
In 1933, Standard Oil secured the first contract to drill for oil in Saudia Arabia.
And, from then on, oil became the dominant fuel of the 20th century and an integral part of the American economic development.
COAL was the energy that powered the Industrial revolution of the 18th and 19th century, in England first and then in the rest of the world through the British empire.
Coal powered the railroads, electricity generation plants, ships and industries by generating heat and steam. A highly polluting combustible, it was responsible for London’s smog and is today responsible for China’s polluted air.
OIL became the energy of the 20th century
and it was a truly American Phenomenon
Oil replaced coal as the main source of energy, it was the determining factor behind the development of the Automobile industry, the invention of plastic and the development of the entire petro-chemical industry.
Oil also favored the spreading of electricity as producing and transporting Oil was cheaper and more efficient than coal.
Oil was also the energy that powered the emergence of America as the world’s leading economic power after the UK
The UK remained a primarily coal-powered economy when the US made extraordinary headways using Oil.
The use of Oil spread to the entire world and is today the largest source of energy.
Over the 20th century and until 2018, the world consumed 1.16 Trillion Barrels of oil and there are another 1.6 Trillion of Barrels of proven reserves available.
Until this day, America is the world largest Oil producer and consumer.
However, as is the case with coal, Oil is extremely polluting and it is now widely accepted that carbon emissions are the main cause of climate changes.
In addition, plastic, made of petroleum, has become a major concern in terms of pollution due to the hundreds of thousands of years needed for plastic to degrade itself naturally.
Political pressure is mounting considerably for lower pollution and therefore lower oil consumption.
RENEWABLE and non-polluting energies are now in full development and will replace Oil as the main source of energy in the 21st century.
The following chart shows the world total consumption of oil in Millions of barrels per day since 1965.
The interesting part of this chart is that over the 37 years between 1980 and 2017, oil consumption rose from 63.5 Million Bpd to 98.2 Million, Final consumption rose by less than ONE million barrel per day each year, or less than 1.5 % growth per annum on average.
If the Oil market was efficient and prices correlated to final demand and supply and freed form speculation, than from an average price of US$ 20 at the beginning of the 1980s, oil prices should now be in the vicinity of US$ 30 today.
This is what the regression trend of the period between 1980 and 2003 also points to.
Of the 100 Million Barrels consumed every day, 60 millions are used for transportation as the entire auto industry developed since 1900 around vehicles powered by internal combustion engines (ICEs)
Transportation is the largest consumer of oil and the one that has seen the largest growth in demand in recent decades. This growth has largely come from new demand for personal-use vehicles with the development of markets such as China and India.
Transportation accounts for approximately 71% of the oil used in the USA and 55 % of the oil consumed in the rest of the world.
40 % of oil consumption comes from the petroleum-chemical industry
The petrochemical industry is the downstream sector of the oil industry and it deals with the transformation of petroleum products.
A major part of it is constituted by the plastics (polymer) industry.
According to Transparency Market Research, the global petrochemical market is estimated to reach a total value of just over $791 billion by 2018, up from $472.06 billion in 2011.
The petrochemical market achieved a growth rate of 6.7% per annum over the period.
The biggest driver of this growth is increased consumption of petrochemical products by a range of industries, such as construction, plastics, packaging, healthcare and textiles. tes.
In terms of materials, ethylene dominates the market, mostly due to increased demand for its derivative polyethylene. The fastest growing segment is methanol, with a compound annual growth rate of 10.3% through 2018.
Single use Plastic containers represent 15 % of the entire consumption of oil by the petro-chemical industry.
The largest consumer of petrochemicals is China, using a quarter of the global production.
OIL DEMAND IS PEAKING
There is no consensus on when world oil demand will peak but one thing is for sure : Oil demand is in the process of peaking.
There are 3 factors that will have a significant impact over final oil demand in the coming ten years :
. The Development of Renewable energies
. The Electric Vehicle Revolution
. The phasing out of Single-Use plastic containers
These trends have already started, the remaining question is how fast the changes will take place and will the impact be on oil prices.
The chart below shows that the IEA projections incorporating wide-ranging adoption of new and cleaner technologies could see Oil demand peak as early as 2020 and decrease by 20 million barrels/day by 2040, a 20 % fall in final demand.
. Switching to Renewable Energies
Overwhelming evidence of carbon-fuelled climate change led to a complete change of perspective when it comes to the energy of the future.
Political initiatives ranging from Al Gore’s crusade to the COP 21 Paris conference have led to a significant shifts in political will and drastic legislations in terms of pollution controls.
Besides pollution, another important factor is the fact that clean energies are renewable energiesand zero-marginal cost energies.
The world is moving into an era of endless and extremely low cost energy.
In many countries, and China in particular, billions have been spent in subsidies for alternative technologies such as wind and solar power reducing the costs of production to a fraction of what it used to be 20 years ago.
China is today the second largest consumer of oil but the energy policies over the past decade have made it the leader is solar power and Wind power as well as the leading manufacturer and the largest market for Electric Vehicles. China’s oil consumption should peak at 13.8 million Barrels / day in 2025.
Investment in solar power is rising rapidly and even Saudi Arabia, the de-facto leader of the Organization of the Petroleum Exporting Countries, is supporting the industry, creating the world’s biggest solar power project.
Solar and Wind Power costs have come down massively in the past ten years leading to large-scale adoption.
The cost of solar power is decreasing so rapidly that it is now cheaper than coal.
Energy from utility-scale solar plants — plants that produce electricity that feeds into the grid — has seen the biggest price drop: an 86% decrease since 2009.
The cost of producing one megawatt-hour of electricity — a standard way to measure electricity production — is now around $50 for solar power, according. The cost of producing one megawatt-hour of electricity from coal, by comparison, is $102 — more than double the cost of solar.
The rapidly declining cost of solar is a sign that the world has started a dramatic change in how we power our buildings, vehicles and factories.
Wind power is following the same path and is even more pormising.
The extremely sharp decline in wind production costs led to a massive acceleration in wind powered generation capacity.
Annual wind power new capacity additions in 2018 will reach 60 GW, with 29 GW of that installed in Asia, the Global Wind Energy Council (GWEC) forecasts.
China will remain the main growth driver in the sector. In 2014 it added an “astonishing” 23 GW of new wind power generation capacity and surpassed a cumulative total of 114 GW.
According to GWEC, the country is well on the way to reach its 200-GW wind goal well before 2020.
Europe will remain the second biggest wind power market between now and 2019, with 16 GW being installed every year on average.
AWEA’s U.S. Wind Industry Second Quarter 2018 Market Report reveals wind farms totaling 5,322 megawatts (MW) started construction during the second quarter of 2018, bringing total construction activity to 18,987 MW.
The entire near-term U.S. wind farm development pipeline grew 13 percent over the previous quarter to a grand total of 37,8 GW under construction or in advanced development.
The U.S. wind industry installed 626 MW this quarter, bringing year-to-date installations to 1,032 MW. Those installations mean American power capacity cracked 90 GW nationally, extending wind’s lead as the largest source of U.S. renewable energy capacity.
The country’s 90 GW of total installed wind capacity is capable of generating enough affordable, clean electricity to power over 27 million average homes, almost 20 % of the US populations.
The US Department of Energy’s International Energy Outlook 2017 suggests wind will be providing around 3 million TWh annually by 2040.
According to the same report, solar PV will contribute a little under 2 million TWh, illustrating the importance of Wind Farms and Solar power in the future energy complex.
Renewable energies are already the main source of NEW Power generation capacity.
A report from groups including the United Nations environmental arm and Bloomberg New Energy Finance (BNEF) shows renewable energy installations were responsible for 61% of the world’s net power capacity additions in 2017, more than double the new-builds from fossil fuel-powered generation.
Nearly $161 billion was invested worldwide in solar power technology in 2017.
A record 157 GW of renewable power generation were commissioned last year, up from 143 GW in 2016. By comparison, a net of about 73 GW of fossil fuel generation came online in 2017—121 GW of new coal and gas-fired power capacity, less 48 GW of gas and coal that were retired. Nuclear generation increased by a net 11 GW.
2017 marked the eighth straight year with more than $200 billion in worldwide investment in renewable energy technologies. $280 billion were spent on renewable energy projects of which nearly $161 billion was invested in solar power technology.
The world added more solar capacity than coal, gas, and nuclear plants combined.
As renewables altogether are still far from providing the majority of electricity means that the trend of replacement of fossil fuels by non-fossil fuel still has long way to go and should actually accelerate in the years to come.
A report from the North American Electric Reliability Corp. (NERC) said U.S. power generation from renewable sources, along with natural gas, would produce enough electricity to offset retirements of U.S. coal and nuclear units over the next 10 years.
The following chart shows the evolution of net electricity generating capacity in the US since 2010
The chart below shows the long term trends in power sources for producing electricity based on the IEA standard assumptions and the life expectancy of existing Fossil fuel power plants.
The fast deployment of renewable energies such as Solar and Wind power will accelerate in the coming decade as prices keep going down and political pressure to contain pollution increases.
Oil consumption for electricity generation is bound to decrease sharply and the speed at which it decreases depends on the increases in efficiency of the renewable energies network.
History shows that the learning curve in new technologies accelerates exponentially, meaning that oil consumption could decrease much faster than originally expected.
. The Electric Vehicles Revolution
Under the push of visionary companies such as America’s Tesla and China’s BYD, Electric Vehicles are bound to replace Internal Combustion Engine Vehicles over the coming decades.
In the 20th century, the development of Oil led to the development of the entire automobile industry, vehicles powered by Internal Combustion Engines (ICE).
Today, the entire automobile industry is shifting from the ICE towards the Electric Vehicle (EV).
This move amounts to a quantum leap for the entire industry.
Electric vehicle (EV) ownership will balloon to about 220 million by 2030, spurred by policies that encourage drivers, fleets and municipalities to purchase clean-running cars, according to the International Energy Agency.
That marks a big jump from 2017, when the IEA estimated there were 3.1 million electric vehicles in use, up 54 percent from the previous year.
Policies in place today will make China and Europe the biggest adopters, in the IEA’s view. In China, credits and subsidies will help EVs grow to account for more than a quarter of the car market by 2030.
Meanwhile, tightening emissions standards and high fuel taxes in Europe will boost the vehicles to 23 percent of the market.
As for the United States, the IEA sees electric vehicle deployment growing at two speeds. While it sees “rapid market penetration” in places like California and other states with zero emissions plans, relatively low taxes on fuels and the Trump administration’s intentions to scale back vehicle emissions standards could hold back growth.
China is already becoming a behemoth in the space. New electric car sales surged by 72 percent, or 580,000 units, in 2017, pushing total ownership over 1 million vehicles.
The country is also driving growth in electric buses and two-wheeled vehicles, accounting for about 99 percent of the world’s stock of the fast-growing categories.
Norway remains the leader when it comes to market share. Electric vehicles accounted for 39 percent of Norway’s new car sales last year, and already 6.4 percent of the country’s cars are powered by electricity.
To understand how revolutionary it is for the auto and energy industries, let’s go back to basics.
A petrol/diesel engine has 20,000 individual parts, an electrical motor has 20 parts.
Electric Motors are very simple technologically. They are made of rotors.
It takes only 10 minutes to remove and replace an electric motor.
Your electric motor malfunction light goes on, so you drive up to what looks like a service station and your electric motor is replaced while you have a cup of coffee.
Faulty electric motors are sent to repair shops that repair them with robots in almost no time. They can be used and re-conditionned several times.
Petrol pumps will disappear and be replaced by charging stations
Street corners will have meters that dispense electricity and every home and parking space will be equipped with electricity dispensers.
When looked at it this way, it is clear that the massive resources, plants, and engineering capabilities developed by the auto industry in the past 50 years may become useless.
Entire chunks of the existing engineering and manufacturing capabilities dedicated to combustion, carburation, ignition, injection, pistons, segments, metal blocks, cooling and so on will just become useless and disappear.
The cost of buying a vehicle will come down drastically and the cost of operating them even more.
The massive logistical structures installed by the oil industry for storing and delivering petrol will disappear. The network of Petrol stations will be converted into charging stations that are continuously connected to the grid, providing an unlimited supply of cheaper energy.
The EV revolution will have the same impact as the shift from paper to digital in the photo industry.
The Electric vehicle revolution is a key transition away from fossil fuels.
Transportation is by far the largest component of oil consumption and out of total transportation, only aircrafts and sea vessels may continue to use fossil fuels in the long run. That is until the hydrogen revolution takes place.
How Fast will EV replace ICE vehicles ?
Electric Vehicles today represent a very small proportion of the 2 billion vehicles that are in circulation.
With roughly 3’000’000 EV’s projected to be sold in the world in 2019, they still represent less than 5 % of the total number of vehicles sold in the world every year.
The speed of adoption depends on two factors : the cost of the vehicles and the mix of autonomy/deployment of charging stations.
When it comes to the costs, it is often stated that at battery prices of $100/kWh, EVs will successfully compete with ICEVs and replace them quickly.
The EV disruption is already visible in the premium sedan segment of the market where the car manufacturers concentrated their efforts first.
Industry research suggests that EVs will be better and cheaper than ICEVs at the value end of the biggest volume segments (small SUV and compact car) by 2022.
At the higher-priced end of these segments, EVs will already be at parity by 2019.
By 2024–2025, EVs will outcompete on both features and price in pretty much every vehicle segment.
In terms of features, EVs are already superior in many respects to their ICEV counterparts.
However, there are two remaining features that have room for improvement relative to ICEVs. These are autonomy and fast recharging.
Specifically, potential buyers who have gotten used to ICEVs like to own a vehicle that can drive for several hours and hundreds of kilometers without refueling.
Even though long trips are in reality a tiny fraction of journeys, the automobile has come to represent personal freedom and the ability to go anywhere at anytime.
Until now, low autonomy and long recharging times have acted as a deterrent on adoption of EVs.
The good news though is that long range and fast charging will be here soon. Much sooner than mainstream analysts predict.
In practical terms, to approximate ICEV refueling speeds, fast charging during road trips means 350+ kW chargers, and vehicles able to accept such charge.
These charge rates allow a vehicle to add 280 kilometers of range in 15 minutes. 280 kilometers is equivalent to 2.5 hours at 113kph.
15 minutes is a comfortable minimum break duration if you’re in the middle of a long journey. Enough time to visit the bathroom and grab a coffee and a bite to eat.
Statistics show that most drivers make a break of at least 15 minutes every 2.5 hours or 300 kms.
The above metrics should allow mass market adoption pretty soon, and things should evolve quite fast as the cost and efficiency of technologies increase.
Basically, while powertrains on ICEVs and EVs are different, much of the rest of the vehicle (chassis, interior, paneling, paint etc) are equivalent.
ICEV powertrains are inherently more complex and expensive than EV powertrains. The ICE, transmission, exhausts, and all the peripherals cost around 22–24% of the total vehicle cost.
Ever tightening emissions regulations are making ICEVs ever more expensive, whilst volume and learning are making EV powertrains ever less expensive.
Vibration tolerances, engine heat and noise insulation, simplifying auxiliary systems (alternators, etc.), and other savings can also be made by EVs.
However, energy storage on an ICEV is basically a cheap gas tank with a pipe attached. An EV battery is much more expensive up front.
This is where the cost/efficiency of batteries must reach $100/kWh for EVs to compete with ICEVs.
At the end of 2017, Tesla’s Model S 100D needs at most 16% of the vehicle price ($94,000) to cover the cost of the battery pack ($15,000 or under).
In October 2015, GM stated it was paying LG Chem $145/kWh at the cell level. Factoring an additional 31% to reach battery pack prices, that represented $190/kWh pack price.
In June 2017, 20 months later, Audi revealed it was paying $114/kWh cell price. Converting to a $150/kWh pack price, that’s a 21% price reduction over those 20 months, so around 14% per year.
Tesla plays its battery cost cards very close to its chest, but its November 2017 guidance on semi truck pricing, for sale in late 2019, implied a projected battery pack price of $75 to $90/kWh by that date.
That’s a 50% to 60% price reduction over 3.5 years, around an 18% cost reduction per year.
Given this, calculating that these largest EV battery players at the end of 2017 are below $150/kWh and achieving 15% cost reduction per year over the next several years seems a safe bet.
Doing the math, that means breaking the $100/kWh barrier between 2019–2020, $70/kWh between 2021–2022, $50/kWh between 2023–2024, and so on.
THE EV REVOLUTION IS RIGHT AROUND THE CORNER !
Battery production volume is quickly increasing, R&D investment is increasing, and we are still pretty early on the technology maturation curve.
If history is any guide, the history of solar PV pricing is certainly one to keep in mind. Batteries will likely have a similar journey.
The real disruption will occur when EVs out-compete in the much higher volume “compact SUV” and “compact car” segments that make up at least 35% of the market.
In sum, assuming battery pack prices continue a 15% annual cost reduction trend, value-end small SUVs and compact cars will reach the same price as ICEV equivalents by 2022.
At the higher end of both of these segments, the parity will come in 2019.
Across these segments, the EV version will feel more responsive, smoother, quieter, and more refined than its ICEV counterpart, will have much lower running costs, will offer much higher reliability, and will be the more desirable vehicle.
The only remaining uncertainty is around when 15 minute charging becomes available in a global and easily reachable network.
The infrastructure is already being built out in Europe by the IONITY consortium, which includes Audi, BMW, Ford, Mercedes, and Porsche.
E.ON has announced plans for a large European charging network, with 350 kW options, to be in place by 2020.
Similar initiatives are underway in the US. Obviously, automakers also plan to release vehicles that can charge at these rates, but the release timing of such vehicles is currently an unknown, except for Porsche, which will release such a vehicle in 2019. Tesla is also working towards 350+ kW chargers and vehicles.
EV Charging going wireless
The first EV from a major automaker will ship with wireless charging in 2019. Everything is going wireless and EVs are no different.
As BMW recently started promoting, Wireless charging will be easier than refueling.
In 2018 the SAE global standard for wireless EV charging has been finalized, demonstrating that wireless power transfer is being embraced by all automakers.
From making the EV experience more consumer-friendly, to enabling AV robo-taxis – wireless EV charging is on track to become ubiquitous.
Building on existing investments of circa $2B from EV charging companies, automakers, property owners, and others, 2018 has brought announcements of planned investments in EV charging stations in the North American market to exceed $8 billion.
After 2025, EVs in every category will only get cheaper whilst ICEV versions will get more expensive both to purchase and to run and maintain.
Cities and states will increasingly feel obliged to outlaw ICEVs for their local and global pollution effects, since no reasonable argument will remain for their continued existence.
Will consumers still buy ICEVs? Some might do so for sentimental reasons, but most will buy EVs and that will be the end of the ICEVs.
Considering the fact that the average life of an ICEV on the road today is 7 years, it is extremely likely that by 2022 + 7 = 2029 a significant chunk of the existing 2 billion ICEV will have disappeared.
The chart below plots the industry projections for EV adoption.
Considering the fact that transportation accounts for 60 % of the oil consumed in the world today, a 20 % decrease in the number of ICEVs on the road will mean 12 million less barrels of oil consumed every day by ICEs.
This is where the oil industry will enter its final death spiral !
. The phasing out of Single-Use plastic containers
Plastics and our throwaway society
The billions upon billions of items of plastic waste choking our oceans, lakes, and rivers and piling up on land is harmful to plants and wildlife. Plastic pollution is very real and single-use plastics are small but have a large impact.
The following 9 facts shed light on how single-use plastic is a large problem that is now taking center stage in political agendas around the world.
In 2016, world plastics production totaled around 335 million metric tons. Roughly half of annual plastic production is destined for a single-use product
The main cause for the increase in plastic production is plastic packaging. Plastic packaging was 42% of all plastic produced in 2016, and it also made up 52% of plastics thrown away
Humans buy about 1,000,000 plastic bottles per minute in total. Only about 23% of plastic bottles are recycled within the U.S
Americans purchase about 50 billion water bottles per year, averaging about 13 bottles per month for every person in the US.
4 trillion plastic bags are used worldwide annually. Only 1% of plastic bags are returned for recycling. Americans throw away 100 billion plastic bags annually. That is about 307 bags per person per annum.
Half a million straws are used in the world every day. 500 billion disposable cups are consumed every year.
Americans alone throw away 25 billion styrofoam coffee cups every year. Styrofoam cannot be completely recycled. Most of the Styrofoam disposed of today will still be present in landfills 500 years from now.
A full 32% of the 78 million tons of plastic packaging produced annually is left to flow into our oceans; the equivalent of pouring one garbage truck of plastic into the ocean every minute. This is expected to increase to two per minute by 2030 and four per minute by 2050. By 2050, this could mean there will be more plastic than fish in the world’s oceans
The same properties that make plastics so useful — their durability and resistance to degradation — also make them nearly impossible for nature to completely break down.
Most plastic items never fully disappear; they just get smaller and smaller. Many of these tiny plastic particles are swallowed by farm animals or fish who mistake them for food, and thus can find their way onto our dinner plates. They’ve also been found in a majority of the world’s tap water.
In the last decade, dozens of national and local governments around the world have adopted policies to reduce the use of disposable plastic.
Africa stands out as the continent where the most countries have adopted a total ban on the production and use of plastic bags. Of the 25 African countries that have banned the bags, more than half have done so in the last four years alone. China is another country where single-use plastic containers have been banned.
Awareness is growing rapidly and general public campaigns are now multiplying around the world under the auspices of the United Nations.
Bans around the world on single use plastic items such as carrier bags will dent growth in oil demand over the next two decades, according to BP research department
Spencer Dale, the group’s chief economist, said: “Just around the world you see increasing awareness of the environmental damage associated with plastics and different types of packaging of one form of another.
“If you live in the UK that’s clearly been an issue, but it’s not just a UK-specific thing; you see it worldwide, for example China has changed some of its policies.”
Theresa May has branded plastic waste an environmental scourge, and MPs have called for charges on plastic bags to be extended to disposable coffee cups.
Dale predicted such measures around the world could mean 2m barrels per day lower oil demand growth by 2040.
It could actually go much faster than that.
When looking at the demand side of the equation, there is not much to believe that Oil consumption is going to surge in the coming decades. Oil consumption grew at 1.5 % per annum over the past 40 years despite the emergence of giants such as China, India and many other parts of the world.
On the other hand, there are structural changes that will have a very significant impact on final consumption : Renewable energies, Electric Vehicles and the ban of Single-Use plastics.
The key question is not whether oil demand will peak, but when will it peak and how fast will it decline.
We are of the view that the coming decade, 2020 -2030 will see a major and lasting decline in final oil demand.
Oil will be remembered as the energy of the 20th century and its 1.7 Trillion Dollar industry will see considerable changes.
More than four billion metric tons of oil is produced worldwide annually or 36.5 Billion Barrels of crude oil per annum.
Nearly one third of this amount is generated in the Middle East region.
Saudi Arabia and the United States are the world’s leading oil producers, each responsible for around 13 percent of the total global production.
Russia is the third-largest producer, generating over 12 percent of the world’s total oil production.
The following Statistics from the Energy Information Administration (EIA) list the top 10 oil producing countries. The numbers are for 2017 and include total production of petroleum and other liquids.
1. United States. Production: 15,647,000 bpd
The US has been described as a swing producer because its production fluctuates alongside market prices. The International Energy Agency forecasts that the country will continue to satiate the world’s appetite for oil as the leading producer of Shale oil.
As mentioned, Trump has criticized OPEC’s cuts, saying they have driven oil prices artificially high. He has also instigated sanctions against both Russia and Iran, and pulled the US out of the Iran nuclear deal.
2. Saudi Arabia Production: 12,090,000 bpd
The Middle Eastern Kingdom possesses 18 percent of the world’s proven petroleum reserves and ranks as the largest exporter of petroleum. Its oil and gas sector accounts for about 50 percent of its GDP, and about 85 percent of its export earnings.
In 2016, Saudi Arabia played a key role in OPEC’s decision to curb oil output. However, in 2018 the country has increased its output by 1 million bpd, and prices have dipped.
3. Russia. Production: 11,210,000 bpd
Despite coming in as the third top 10 oil-producing country, Russia is the world’s largest producer of crude oil and the second-largest producer of dry natural gas, according to the EIA. Most of Russia’s reserves are located in West Siberia, between the Ural Mountains and the Central Siberian Plateau, and in the Urals-Volga region, extending into the Caspian Sea.
4. Canada. Production: 4,958,000 bpd
Nearly all of Canada’s proven oil reserves are located in Alberta, and according to the province’s government, 97 percent of oil reserves there are in the form of oil sands.
Energy exports to the US account for the vast majority of Canada’s total energy exports. However, because of economic and political considerations, Canada is developing ways to diversify its trading partners, especially by expanding ties with emerging markets in Asia.
5. China Production: 4,779,000 bpd
China’s annual oil output decreased in 2017, going down to 4,779,000 bpd from 4,863,000 bpd in 2016. China is the world’s second-largest consumer of oil and moved from being the second-largest net importer of oil to the largest in 2014.
China receives much of its oil from the Middle East and Iran, but has started to buy oil from the US within the context of the Trade War between America and China.
6. Iran Production: 4,695,000 bpd
Iran’s oil output increased last year, rising to 4,695,000 bpd from 4,215,000 bpd in 2016. According to the EIA, Iran holds the world’s fourth-largest proven oil reserves and the world’s second-largest natural gas reserves.
Iran has been hit with US sanctions — although they were only implemented officially on November 5, speculation surrounding them had already begun to turn the tide against the country for months.
Blocking Iran’s access to crude carriers will have a huge impact on the nation’s oil industry, as well as its largest buyers in Asia. In fact, some predict that this could halve Iran’s daily crude shipments.
7. Iraq Production: 4,455,000 bpd
The Middle Eastern country marginally increased its oil production from 4,448,000 bpd in 2016 to 4,455,000 bpd in 2017. It holds the world’s fifth-largest proven oil reserves at 144 billion barrels; that represents nearly 18 percent of the reserves in the Middle East and almost 9 percent of global reserves.
8. United Arab Emirates Production: 3,721,000 bpd
The United Arab Emirates is an OPEC member, and has ranked among the top oil-producing countries for decades.
The country holds the world’s seventh-largest proven oil reserves at 97.8 billion barrels; most of those reserves are located in Abu Dhabi. The other six emirates combined account for just 6 percent of the country’s total reserves.
9. Brazil. Production: 3,363,000 bpd
With the biggest increase in production year-over-year out of the top 10 oil-producing countries, Brazil came in at number nine. Last year, Brazil’s oil production jumped dramatically from 3,240,000 bpd in 2016 to 3,363,000 bpd in 2017.
The recent surge in production and exports is said to be the result of years of large investments by state-run Petróleo Brasileiro (Petrobras).
10. Kuwait. Production: 2,825,000 bpd
Kuwait’s oil and gas sector accounts for about 60 percent of country’s GDP and about 95 percent of its export revenues.
Oil reserves are an estimate of how much oil can ultimately be recovered. This broad definition is also called oil in place.
It includes undiscovered or “yet to find” reserves. It’s based on the probability of finding reserves in certain geological areas. It also assumes new types of technology will make it economically feasible to extract the oil.
In January 2017, there were 1.665 trillion barrels of proven reserves of oil in the world.
That’s enough to last another 50 years since the world uses 98.5 million barrels per day. Only proven reserves are counted in the total world reserves. This number changes only slightly every year.
The world’s largest proven reserves are in just a few geologically unique areas. Reserves are the graveyards of prehistoric plants and tiny marine organisms. Their remains settled at the bottoms of ancient oceans and lakes 300 million to 400 million years ago.
Most of the big fields in the proved oil reserves are in the Middle East, Venezuela, and Russia.
Here’s the number of barrels of proven oil reserves for the top 20 countries:
- Venezuela – 300.9 billion.
- Saudi Arabia – 266.5 billion.
- Canada, which includes shale oil – 169.7 billion.
- Iran – 158.4 billion.
- Iraq – 142.5 billion.
- Kuwait – 101.5 billion.
- United Arab Emirates – 97.8 billion.
- Russia – 80 billion.
- Libya – 48.4 billion.
- Nigeria – 37.1 billion.
- United States – 36.5 billion, which is up significantly from 20.68 billion in 2013 thanks to Shale Oil.
- Kazakhstan – 30 billion.
- China – 25.6 billion. In ranking, it replaced Qatar in 2017.
- Qatar – 25.2 billion.
- Brazil – 13.0 billion.
The market price of fossil fuels is driven more by production capacity versus demand than by reserves.
This capacity depends on investment decisions made by a small number of decision-makers in Saudi Arabia, Kuwait, Venezuela, and Russia.
The IEA expects U.S. oil production to grow by 1.3 million barrels per day (mb/d) in 2019. But oil prices could significantly impact those projections.
Last Month’s G20 meeting in Buenos Aires and OPEC meeting in Vienna reminded us that the Big Three of oil – Russia, Saudi Arabia and the United States – whose total production represents about 40% of the global total, are the dominant players.
Cooperation between Russia and Saudi Arabia is now the basis of production management with these two countries having a large capacity to swing output one way or the other.
For both, low oil prices would place their budgets under great stress.
For the third of the Big Three, the United States, which is at the same time the biggest producer and the biggest consumer, low oil prices are desired, however, a. certain level of prices is needed to sustain investments in shale oil production.
While the US was not present in Vienna, nobody could ignore its growing influence.
On the day OPEC ministers sat down to talk, an important piece of data was published: according to the Energy Information Administration, in the week to 30 November the US was a net exporter of crude and products for the first time since at least 1991.
In 2018 to date, US net imports have averaged 3.1 mb/d. Ten years ago, just ahead of the shale revolution, the figure was 11.1 mb/d.
As production grows inexorably, so will net imports decline and rising US exports will provide competition in many markets, including to some of the countries meeting in Vienna.
Time will tell how effective the new production agreement will be in re-balancing the oil market. The next meeting of the Vienna Agreement countries takes place in April, and we hope that the intervening period is less volatile than has recently been the case.
Contrary to what happened in 2016, when Russia and Saudi Arabia succeeded at trebling oil prices from 26 to 75 in 18 months, Last month’s cuts win production failed to stop the drastic fall in prices that started in September 2018.
Production and reserves are such that traditional oil exploration will be more than enough to power the world for the next 50 years if needed.
But besides the three factors that will make final demand decrease substantially in the coming decades, another supply factor came into the equation in the past 15 years :
The Shale Oil Revolution
New US drilling technologies have shifted nations’ rank for energy potential, and rising production in the US and throughout Asia has reduced prices, exports and GDP growth for Russia.
Thanks to the development of Shale Oil, the US has passed Russia as the largest producer of oil, and research from Samsung Economic Research Institute suggests that “China, one of the world’s biggest energy importers, has the potential to become the world’s largest shale gas producer, with reserves estimated to be larger than the US.”
The shale oil revolution is one of means. In traditional oil exploration, rigs can cost 100 of millions of dollars and fields must be large and exploited for many years to be profitable.
Shale oil fields can be exploited with investments of less than 5 million Dollars and can be exploited for short period as the fracking equipment can be moved to another spot easily.
As a result, cast areas of oil sands that were deemed to be non-profitable previously became extremely profitable and highly exploitable, adding considerable supply potential to the oil industry.
U.S. shale oil growth is highly sensitive to oil prices. Higher oil prices trigger significant increases in production while oil prices below US$ 40 lead to rig closures.
As such, Shale oil is a natural regulator of price and supply.
One major obstacle to the development of the shale sector in the past has been pipeline constraints, as the existing network of pipeline was not sufficient to ship the existing production to harbors.
U.S. shale producers and pipeline companies have deployed a variety of methods to mitigate the impact of pipeline constraints. Their efforts should start paying off in 2019
The higher-than-expected production figures from U.S. shale this year largely come down to the ability of producers and pipeline companies to work around the swelling bottleneck, particularly in the Permian.
Pipeline operators have used drag reducing agents to speed up the flow of oil through the lines, allowing them to ship more oil than the nameplate capacity suggests.
Also, the Plains All American Sunrise pipeline came online ahead of schedule, which also relieved some congestion. No major outages occurred in 2018, which has been “an element of luck” given the high throughput rates, the IEA said in its Oil Market Report.
More projects are set to come online in 2019, which should reduce the pressure on oil producers. The Bridgetex and the Sunrise expansions will add 40,000 and 175,000 bpd in the first half of 2019, respectively. Another 100,000 bpd will come from the Cactus 2, while Enterprise Products Partners could add 200,000 bpd by converting a natural gas liquids pipeline to crude oil.
By the end of 2019, there should be very few midstream constraints holding back the shale industry.
New planned export terminals will also clear the path for oil to be shipped overseas in ever rising volumes. “Pipeline and export projects slated for completion by 2020 should unchain North American oil production growth early in the next decade,” Bank of America Merrill Lynch wrote in a recent report.
Shale oil already represents almost 10 % of the total oil production
Oil output from seven major shale formations in the United States is rose to 7.6 million bpd in October according to the U.S. Energy Information Administration.
The IEA expects Shale oil production to increase by 2 Million Bpd in the coming three years, if oil prices stay above US$ 40.
Regardless of the efforts of Russia and Saudi Arabia to boost oil prices through production cuts, the long term trends in supply – demand are clearly negative.
In the 21st century, Oil will no longer be the energy of choice and China, the emerging superpower has clearly understood the need to switch to renewable energies and Electric vehicles.
As long as demand continues to grow or remains stable, price cuts may impact oil p[rices, but when final demand will Strat to decrease, oil producers will rush to sell as much oil as they can at the highest possible prices.
This will happen at some point in the c coming decade, and oil prices are bound to fall towards their equilibrium price of around 25 US$ or less.
The consequences on the oil industry will be massive