View Full Version : Shell's Chief Strategist: Two Scenarios in Oil's Future
Shell's Chief Strategist: Two Scenarios in Oil's Future
NPR Morning Edition, April 22, 2008 •
As oil prices hit $117 a barrel this month, a forecast from Shell Oil outlines two very different possibilities for the future of the world's energy supply. Looking out to the year 2050, Shell strategist Jeremy Bentham says demand will go up, while oil supplies will be harder to find.
"We anticipate that you'll begin to see a plateauing of easily accessible conventional oil and gas around about the 2015, 2020 type of period," Bentham tells Steve Inskeep.
Bentham outlines two outcomes — one a "scramble" and the other a "blueprint" scenario — for addressing energy needs.
In the scramble scenario, he says, "a focus on supply security drives a lot of decision-making." For example, China is worried about its future supply of oil, so it decides that it needs to be friendly with Iran. Or the U.S., worried about its supply of oil, holds intensive talks with Saudi Arabia.
"That can kick off a dynamic where the tensions are perceived to be a fight between nations and hence a scramble for supply. The demand side is postponed, in terms of being managed, in that scramble outlook," Bentham says.
So, a fear of shortage of supply builds up, and the steps to manage the whole energy system holistically aren't taken, Bentham says. Instead of considering conservation or alternatives, people just grab for oil and other forms of energy.
The "blueprint" scenario, on the other hand, recognizes that forces can combine to affect change. "You see emerging coalitions coming together at the state level but also cross-border" to find solutions, Bentham says.
He points to climate-related legislation in California as an example.
"A set of interests were recognized among technology entrepreneurs and farmers and shrewd politicians which led, in this country in 2006, to the climate-related legislation in California," he says.
That legislation influenced thinking in other states, which in turn influenced thinking at the federal level. "So you get this spreading awareness and spreading regulatory activity; you get a set of actors who influence the national agendas," Bentham says, and a patchwork of standards and regulations begins to emerge.
"You don't get global agreements," Bentham says, "but you get a critical mass of sectors and countries having, for instance, some kind of carbon dioxide pricing in the blueprint scenario." And that approach would grow over time as people recognize the benefits, because it promotes energy efficiency and new technology developments, he says.
Shell has a preference for blueprint-type outcomes that address demand, supply and environmental issues together, Bentham says, because "it's better for society at large, but also it's better for business and investment."
I’ve had a number of conversations with a client who is the 1# oil trader in US. He has gone into great detail correlating current conflicts and power positioning of Russia, China, and the US. His opinion is that a sensible solution will only evolve when each of the major players has secured a tenable position in which they have a sense of security in the near term. And that the current positioning of each is the initial actions in securing that goal of near term security from which each can then negotiate and partner. Asked if he saw a solution, his answered that it would require the nation (US) to sacrifice on the level of the depression; while simultaneously developing a new Government agency like NASA for alternative fuels, engines etc., and expanding explorations for oil in the national interest, to the determent of the environment. He is not optimistic and foresees a continual era of conflict until the US makes a conceptive effort to become energy independent, At that point, the other powers will realize the intent and their security over energy issues will abate.
Thank you for this post, Sir!
It corresponds to a remarkable degree with Hirsch's study for DOE, Simmons book (Twilight in the Desert).
This line, in particular, caught my eye: Asked if he saw a solution, his answered that it would require the nation (US) to sacrifice on the level of the depression; while simultaneously developing a new Government agency like NASA for alternative fuels, engines etc., and expanding explorations for oil in the national interest, to the determent of the environment.
Such a solution would not be politically viable...
GratefulCitizen
04-23-2008, 11:53
you get a set of actors who influence the national agendas," Bentham says, and a patchwork of standards and regulations begins to emerge.
...gov't knows best...
you get a critical mass of sectors and countries having, for instance, some kind of carbon dioxide pricing in the blueprint scenario
Shell has a preference for blueprint-type outcomes that address demand, supply
A blueprint for demand and supply...
I think there's a term for that...
Asked if he saw a solution, his answered that it would require the nation (US) to sacrifice on the level of the depression; while simultaneously developing a new Government agency
Maybe they can call it "The Newer Deal".
NPR Morning Edition, April 22, 2008 •
NPR promoting such a thing?!?! I'm shocked! :rolleyes:
Monsoon65
04-23-2008, 14:52
Asked if he saw a solution, his answered that it would require the nation (US) to sacrifice on the level of the depression; while simultaneously developing a new Government agency like NASA for alternative fuels, engines etc., and expanding explorations for oil in the national interest, to the determent of the environment.
One thing that's always tightened my colon is that old saying about putting a man on the Moon. JFK said we'd do it by the end of the decade and we did! Now how come the US can't do something like that, or a Manhatten Project-like deal, and come up with something to replace oil???
What did Bruce Willis say in Armageddon? "You're NASA for crissakes! You should have a room of guys, thinking shit up, and a room of guys backing them up!" I don't think that's too much to ask for.
GratefulCitizen
04-23-2008, 15:22
One thing that's always tightened my colon is that old saying about putting a man on the Moon. JFK said we'd do it by the end of the decade and we did! Now how come the US can't do something like that, or a Manhatten Project-like deal, and come up with something to replace oil???
What did Bruce Willis say in Armageddon? "You're NASA for crissakes! You should have a room of guys, thinking shit up, and a room of guys backing them up!" I don't think that's too much to ask for.
Here's an idea: for at least 10 years, prohibit any taxation on the production, sale, transportation, use, etc. of methanol.
For at least 10 years, prohibit any taxation (of any form) on any machine, generator, vehicle, etc. which uses (85% or greater) methanol as its fuel.
It is important to exclude ethanol from this idea because of the potential effects on food supply.
Do this and watch how quickly the private sector solves the problem.
Red Flag 1
04-23-2008, 15:24
Great post Penn!
A lot of moving parts here! Oil companies are interested in profits and have been intra-national for decades; they are not on our side. I lived in Germany from 1979- 1981, fuel there was $3.00-$4.00/ gal then. We in the US are now seeing the real cost of fuel. Add political agendas and the problem really loses any center of gravity. It would seem the "NASA like" focus the best chance we will ever have. Better yet a global "NASA" approach.
RF 1
Great post Penn!
A lot of moving parts here! Oil companies are interested in profits....Why in the hell would you operate a company in the RED? if it was not there to produce a PROFIT!:confused:
Stay safe.
Red Flag 1
04-23-2008, 15:50
Guy,
You are right. Too long in the red = out of business.
It would seem that nations and national interests of host based multi-national firms would engage the basic’s principals of microeconomics for the welfare of its host citizenry. That is not the case, nor will it ever be. A multi-national is loyal to quarterly and yearend reports only. Its obligation is to its shareholders; and not the national interest of its host nation. That is not to say Exxon is not an American company, it is, but its decisions, as a firm, and it’s interactions with national interest to form policy are based on what is best for the company, not for the consumer of the host nation.
It does not care if per/bbl price is $117 or $52 the barrel. Its concern is point of extraction to point of delivery, period! It is understood from the perspective of the market. The firm factors the prices of goods and services and the cost production and that is what you are supposedly paying for; but you are not.
What you are paying for, is the belief that Exxon, delivers its product in a fair market environment, and that Exxon, has you in its frame of reference, when it extracted oil from the ground at $6.87per/55gal/bbl and processed it for another $2.40 per/bbl. and that the company was under extreme duress to accomplish this task; as a result, you are paying $4.00 a gallon at the pump. Look at the figures Exxon posted on production. Look at its ROI: 220 gals @ $4 per/gal = $880bbl gross before COS.
Now consider one other part of the equation. Refiner capacity is down; a documented fact, refineries were shutdown. Why were refiners closed? Is there a shortage, or have the companies become more technologically efficient? Are there gas lines? Is supply controllable? Do producer nation control output? Is the board of OPEC a multi-national? What is in the interest of producer nations whose only export is oil? What drives this market? Are you paying for the belief that supply is on the decline based on the information from the parties that control and market this resource? What is in the interest of regional powers to control this resource, and in that regard, where is the fault line that a world power would risk a true war to preserve its national interest. And conversely, where is the line in the sand where a producing nation would risk their annihilation looking into the abyss of breaching that fault line.
Gas is cheap at $4.00 a gallon.
Consider this nine year old article:
Pravda 1/29/1999
The US administration plans to launch an extensive economic intrusion in the Arctic from Alaska
The Russian government urgently needs to determine the basis of its state policy in the Arctic region. To make matters worse, politicians will probably have to face a serious problem from abroad too. It has recently transpired that the US administration plans to launch an extensive invasion in the Arctic region in order to oust potential partners from the oil-rich territory. The USA particularly plans to build airbases in Alaska, while US oil giants intend to develop the Arctic shelf. To mask the intrusion and make it look like a peaceful initiative, the USA would be ready to render humanitarian assistance to Russia to improve the living standard of “the impoverished northern nations of Russia.” In addition, Washington says that it will protect the whole world from the huge hole in the ozone layer of the Earth's atmosphere above the Arctic territory. This territory, however, belongs to Russia, but it seems that the fact does not bother the US administration.
One may thus infer that “American partners” claim to obtain the key role in the development and exploitation of the Russian territory. The ice-bound north is just a start. Russia urgently needs to take measures to move the Arctic economy forward and create investment-attracting conditions in the region. Otherwise, the people living in the Far North of the country will have a chance to see Chinese ice-breakers traveling by.
It is obvious that the development of USA's new objective in the Arctic region will be conducted within the scope of the nation's ambition to dominate the world. This intention is officially registered in the US National Security Strategy. The document entitles Washington to possess all necessary resources to influence the situation in all key regions of the globe. The Arctic has become one of such regions.
Since1999, Vladimir Putin has rectified that. A quick glance of the paper written by Dr. Olcott of the James Baker Institute for Public Policy at Rice University should clear that up. Title: “Valdimir Putin and the Geopolitics of oil”.
.http://www.carnegieendowment.org/files/wp-2005-01_olcott_english1.pdf
The Reaper
04-24-2008, 08:04
Anyone under 50 will not get this.
I do not care that much what gas costs, as long as I can get it.
Anyone else here who sat in line in 1973 and 74 waiting 45 minutes to buy 5 or 10 gallons at the time, and driving around with less than 1/4 of a tank and seeing station after station with "No Gas" signs out front knows what I mean.
When the government started tinkering with price controls over domestic production to prevent the massive oil company profits, they quit pumping it, and there was a serious lack of oil and gas.
Before you ask our idiotic elected representatives to solve this problem (who seem to think that what a spoiled, overpaid bunch of athletes put into their bodies is more important than the global threats that we are facing) let me tell you that they will make it much worse before it gets better.
The refineries were shut down or cutting back because the price spread between oil prices and refined products (mainly gasoline) was too low, or in some cases, inverted, so they cut back to run the price up to a point where they could make a profit.
BLUF: If the oil companies can't make a profit drilling and pumping oil, they will stop. If they cannot make a profit refining oil or selling gasoline, they will stop. You can't really make them start again, only the market can. Tight supply, increased demand, and speculators have driven prices up, and the companies are currently making a good profit. Sometimes, they lose money. It hurts a little to pay more, but at least we have a good supply. If we do not make some changes, that may not always be the case.
TR
Broadsword, In part, you are correct, but what I was referring to was the coalescence of oil and state policy. Not the effect of that involvement on the individual consumer. The Pravda article, written in 1999, set the stage publicly of what was Russia’s intent. It announced that the state needed to secure itself and its mineral resources. In that same year, Putin publishes his dissertation. That dissertation is now the current policy of Russia.
If you read the paper I linked: http://www.carnegieendowment.org/files/wp-2005-01_olcott_english1.pdf you will see what he accomplished is quite extraordinary. He or his base realized that the multi-national Russia oil companies were not interested in the welfare of state, but rather themselves. The paper is insight in understanding our current situation, policy influence, and the resulting conflict.
Anyone under 50 will not get this.
I do not care that much what gas costs, as long as I can get it.
Anyone else here who sat in line in 1973 and 74 waiting 45 minutes to buy 5 or 10 gallons at the time, and driving around with less than 1/4 of a tank and seeing station after station with "No Gas" signs out front knows what I mean.
When the government started tinkering with price controls over domestic production to prevent the massive oil company profits, they quit pumping it, and there was a serious lack of oil and gas.
Before you ask our idiotic elected representatives to solve this problem (who seem to think that what a spoiled, overpaid bunch of athletes put into their bodies is more important than the global threats that we are facing) let me tell you that they will make it much worse before it gets better.
The refineries were shut down or cutting back because the price spread between oil prices and refined products (mainly gasoline) was too low, or in some cases, inverted, so they cut back to run the price up to a point where they could make a profit.
BLUF: If the oil companies can't make a profit drilling and pumping oil, they will stop. If they cannot make a profit refining oil or selling gasoline, they will stop. You can't really make them start again, only the market can. Tight supply, increased demand, and speculators have driven prices up, and the companies are currently making a good profit. Sometimes, they lose money. It hurts a little to pay more, but at least we have a good supply. If we do not make some changes, that may not always be the case.
TR
Another dead on target post by TR.
Red Flag 1
04-25-2008, 12:31
TR,
YEP!
The Reaper
04-30-2008, 13:32
http://www.realclearpolitics.com/articles/2008/04/start_drilling.html
April 30, 2008
Start Drilling
By Robert Samuelson
WASHINGTON -- What to do about oil? First it went from $60 to $80 a barrel, then from $80 to $100 and now to $120. Perhaps we can persuade OPEC to raise production, as some senators suggest; but this seems unlikely. The truth is that we're almost powerless to influence today's prices. We are because we didn't take sensible actions 10 or 20 years ago. If we persist, we will be even worse off in a decade or two. The first thing to do: Start drilling.
It may surprise Americans to discover that the United States is the third-largest oil producer, behind Saudi Arabia and Russia. We could be producing more, but Congress has put large areas of potential supply off-limits. These include the Atlantic and Pacific coasts and parts of Alaska and the Gulf of Mexico. By government estimates, these areas may contain 25-30 billion barrels of oil (against about 30 billion of proven U.S. reserves today) and 80 trillion cubic feet or more of natural gas (compared with about 200 tcf of proven reserves).
What keeps these areas closed are exaggerated environmental fears, strong prejudice against oil companies and sheer stupidity. Americans favor both "energy independence" and cheap fuel. They deplore imports -- who wants to pay foreigners? -- but oppose more production in the United States. Got it? The result is a "no-pain energy agenda that sounds appealing but has no basis in reality," writes Robert Bryce in "Gusher of Lies: The Dangerous Delusions of 'Energy Independence.'"
Unsurprisingly, all three major presidential candidates tout "energy independence." This reflects either ignorance (unlikely) or pandering (probable). The United States now imports about 60 percent of its oil, up from 42 percent in 1990. We'll import lots more for the foreseeable future. The world uses 86 million barrels of oil a day, up from 67 mbd in 1990. The basic cause of exploding prices is that advancing demand has virtually exhausted the world's surplus production capacity, says analyst Douglas MacIntyre of the Energy Information Administration. The result: Any unexpected rise in demand or threat to supply triggers higher prices.
The best we can do is to try to influence the global balance of supply and demand. Increase our supply. Restrain our demand. With luck, this might widen the worldwide surplus of production capacity. Producers would have less power to exact ever-higher prices, because there would be more competition among them to sell. OPEC loses some leverage; its members cheat. Congress took a small step last year by increasing fuel economy standards for new cars and light trucks from 25 to 35 miles per gallon by 2020. (And yes, we need a gradually rising fuel tax to create a strong market for more-efficient vehicles.)
Increasing production also is important. Output from older fields, including Alaska's North Slope, is declining. Although production from restricted areas won't make the U.S. self-sufficient, it might stabilize output or even reduce imports. No one knows exactly what's in these areas, because the exploratory work is old. Estimates indicate that production from the Arctic National Wildlife Refuge might equal almost 5 percent of present U.S. oil use.
Members of Congress complain loudly about high oil profits ($40.6 billion for ExxonMobil last year) but frustrate those companies from using those profits to explore and produce in the United States. Getting access to oil elsewhere is increasingly difficult. Governments own three-quarters or more of proven reserves. Higher prices perversely discourage other countries from approving new projects. Flush with oil revenues, countries have less need to expand production. Undersupply and high prices then feed on each other.
But it's hard for the United States to complain that other countries limit access to their reserves when we're doing the same. If higher U.S. production reduced world prices, other countries might expand production. What they couldn't get from prices they'd try to get from greater sales.
On environmental grounds, the alternatives to more drilling are usually worse. Subsidies to ethanol made from corn have increased food prices and used scarce water, with few benefits. If oil is imported, it's vulnerable to tanker spills. By contrast, local production is probably safer. There were 4,000 platforms operating in the Gulf of Mexico when hurricanes Katrina and Rita hit. Despite extensive damage, there were no major spills, says Robbie Diamond of Securing America's Future Energy, an advocacy group.
Perhaps oil prices will drop when some long-delayed projects begin production or if demand slackens. But the basic problem will remain. Though dependent on foreign oil, we might conceivably curb the power of foreign producers. But this is not a task of a month or a year. It is a task of decades; new production projects take that long. If we don't start now, our future dependence and its dangers will grow. Count on it.
Copyright 2008, Washington Post Writers Group
Although production from restricted areas won't make the U.S. self-sufficient, it might stabilize output or even reduce imports. No one knows exactly what's in these areas, because the exploratory work is old. Estimates indicate that production from the Arctic National Wildlife Refuge might equal almost 5 percent of present U.S. oil use.
Let us suppose we drill all these areas. Let us suppose there are abundant supplies.
What happens when we use up those reserves? Should we use them to continue supporting 30 mile commutes? Is this really wise? Or should we retain them against the day when we need oil with a short supply line, and under our control? Perhaps against the day when the rest of the world is facing a painful energy crunch?
True, it buys time. Maybe enough time for me to be out of the game. But those with young children - or grandchildren - might wish to ponder the question. It is popular to propose sudden technological miracles. Maybe that will happen; but I think there is no guarantee that it will.
The Reaper
04-30-2008, 14:28
Although production from restricted areas won't make the U.S. self-sufficient, it might stabilize output or even reduce imports. No one knows exactly what's in these areas, because the exploratory work is old. Estimates indicate that production from the Arctic National Wildlife Refuge might equal almost 5 percent of present U.S. oil use.
Let us suppose we drill all these areas. Let us suppose there are abundant supplies.
What happens when we use up those reserves? Should we use them to continue supporting 30 mile commutes? Is this really wise? Or should we retain them against the day when we need oil with a short supply line, and under our control? Perhaps against the day when the rest of the world is facing a painful energy crunch?
True, it buys time. Maybe enough time for me to be out of the game. But those with young children - or grandchildren - might wish to ponder the question. It is popular to propose sudden technological miracles. Maybe that will happen; but I think there is no guarantee that it will.
The first effect would be an immediate impact on speculators and those who are trying to profit from the present situation. It also tightens the purses of those nations which have been profiting from the current situation at our expense.
Note that if we need oil at some point in the future, we can't just step up to the faucet there and turn it on. Drilling, pumping, and developing infrastructure takes lead time. So does increasing refinery capacity.
Secondarily, it would buy time for the leadership of this country to declare a Manhattan Project or man on the moon investment in finding a replacement for fossil fuels within the next ten years.
This would represent a short term sacrifice by the enviro-Nazis to achieve their long term goals.
Finally, it would make politics much more interesting, as it would render the oil producers significantly less of a concern as far our international interests go. Then we could leave the AO and tell them all what to go do with themselves, and their oil.
TR
Members of Congress complain loudly about high oil profits...
Google made $14.2 billion last year. Anyone calling for congressional hearings into their less-than-admirable activities regarding China?
Matta mile
05-02-2008, 18:54
This is a bit off topic but may be of interest.
HHO a process involving electrolosis that involves water and electricty. BLUF: the guy claims he uses 4 ounces of water to go 100 miles!
http://hight3ch.com/post/water-fuel-hho-gas/
MM
[Wall Street Journal (http://online.wsj.com/article/SB120977019142563957.html?mod=loomia&loomia_si=t0:a16:g2:r1:c0.152286)
This is one strange debate the candidates are having on energy policy. With gas prices close to $4 a gallon, Hillary Clinton and John McCain say they'll bring relief with a moratorium on the 18.4-cent federal gas tax. Barack Obama opposes that but prefers a 1970s-style windfall profits tax (as does Mrs. Clinton).
Mr. Obama is right to oppose the gas-tax gimmick, but his idea is even worse. Neither proposal addresses the problem of energy supply, especially the lack of domestic oil and gas thanks to decades of Congressional restrictions on U.S. production. Mr. Obama supports most of those "no drilling" rules, but that hasn't stopped him from denouncing high gas prices on the campaign trail. He is running TV ads in North Carolina that show him walking through a gas station and declaring that he'll slap a tax on the $40 billion in "excess profits" of Exxon Mobil.
The idea is catching on. Last week Pennsylvania Congressman Paul Kanjorski introduced a windfall profits tax as part of what he called the "Consumer Reasonable Energy Price Protection Act of 2008." So now we have Congress threatening to help itself to business profits even though Washington already takes 35% right off the top with the corporate income tax.
You may also be wondering how a higher tax on energy will lower gas prices. Normally, when you tax something, you get less of it, but Mr. Obama seems to think he can repeal the laws of economics. We tried this windfall profits scheme in 1980. It backfired. The Congressional Research Service found in a 1990 analysis that the tax reduced domestic oil production by 3% to 6% and increased oil imports from OPEC by 8% to 16%. Mr. Obama nonetheless pledges to lessen our dependence on foreign oil, which he says "costs America $800 million a day." Someone should tell him that oil imports would soar if his tax plan becomes law. The biggest beneficiaries would be OPEC oil ministers.
There's another policy contradiction here. Exxon is now under attack for buying back $2 billion of its own stock rather than adding to the more than $21 billion it is likely to invest in energy research and exploration this year. But hold on. If oil companies believe their earnings from exploring for new oil will be expropriated by government – and an excise tax on profits is pure expropriation – they will surely invest less, not more. A profits tax is a sure formula to keep the future price of gas higher.
Exxon's profits are soaring with the recent oil price spike, but the energy industry's earnings aren't as outsized as the politicians seem to think. Thomson Financial calculates that profits from the oil and natural gas industry over the past year were 8.3% of investment, while the all-industry average is 7.8%. And this was a boom year for oil. An analysis by the Cato Institute's Jerry Taylor finds that between 1970 and 2003 (which includes peak and valley years for earnings) the oil and gas business was "less profitable than the rest of the U.S. economy." These are hardly robber barons.
This tiff over gas and oil taxes only highlights the intellectual policy confusion – or perhaps we should say cynicism – of our politicians. They want lower prices but don't want more production to increase supply. They want oil "independence" but they've declared off limits most of the big sources of domestic oil that could replace foreign imports. They want Americans to use less oil to reduce greenhouse gases but they protest higher oil prices that reduce demand. They want more oil company investment but they want to confiscate the profits from that investment. And these folks want to be President?
Late this week, a group of Senate Republicans led by Pete Domenici of New Mexico introduced the "American Energy Production Act of 2008" to expand oil production off the U.S. coasts and in Alaska. It has the potential to increase domestic production enough to keep America running for five years with no foreign imports. With the world price of oil at $116 a barrel, if not now, when? No word yet if Senators Clinton and Obama will take time off from denouncing oil profits to vote for that.
Stay safe.