The oil industry is declining at a rapid pace

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Abstract: The oil industry will not disappear, but a turning point in oil consumption in the transportation sector is approaching soon. The decline of the oil industry may be faster than that of the coal industry. Source: Energy Magazine. The oil industry will not disappear for a long time to come; future growth in oil consumption will mainly come from the chemical industry, and a turning point in oil consumption in the transportation sector is approaching soon. Image source: Shetu.com. As a journalist with over 10 years of experience covering the energy sector, I have a few opinions regarding the oil industry; feel free to criticize them if you don’t agree! The oil industry, which has been prosperous for over a hundred years, is now on its decline; its glory is about to fade away. The decline of the oil industry could be much faster than expected, even faster than that of the coal industry. For a long time to come, the oil industry will not disappear; the future growth in oil consumption will mainly come from the chemical industry, and a turning point in oil consumption in the transportation sector is approaching soon. International oil prices will remain low for a long time, and high oil prices may never return. Unless there is a large-scale war in oil-producing regions, international oil prices will not even have a chance to recover. 1 It was originally thought that the decline of the oil industry would be a gradual process, but the current situation shows that this assumption was completely wrong – the crisis in the oil industry has arrived earlier than expected. Given that international oil prices have remained low over the past two years, it can be inferred that the upstream sector of the oil industry is under considerable pressure, while demand in the downstream sector continues to grow, so there are no concerns on that front. But it seems that this judgment is also wrong; the crisis in the mid- and lower streams has already arrived. The ongoing battle over refined oil prices in East and North China is spreading across the whole country, with the intensity of this conflict increasing. In particular, the involvement of the two major companies, CNPC and Sinopec, indicates that the crisis within the oil industry as a whole is accelerating. For a long time, reducing the prices of refined oil has been a competitive strategy for private gas stations; the three major oil companies rarely participate in this practice, and they even tend to avoid such price cuts. However, the fundamental reason behind the significant price cuts made by CNPC and Sinopec this time is that there is a structural surplus in the domestic refined oil market, forcing them to reduce prices in order to maintain their existing market share. In our country, reforms in the oil and gas sector have lagged behind. Upstream oil fields are almost entirely under the control of the three major oil companies, and the permission to import crude oil also depends on their production plans. As a result, for many years, private oil companies in China, especially those involved in oil processing at the downstream stage, have been unable to obtain the necessary resources to operate. In 2014, China partially relaxed the regulations regarding the import of crude oil by private oil companies, which gave local refineries more opportunities. Over the past two years, the refining capacity of these private refineries has continued to increase, and coupled with the excess refining capacity of the three major state-owned oil companies, this has led to a situation of structural surplus in the market for refined oil products. An oversupply isn’t the worst thing; what’s truly frightening is the declining growth in the consumption of refined oil products. Although car sales in China reached a new record high in 2016, at 28 million units, there was a decline in the growth rate of gasoline consumption for the first time in history from January to April 2017. Data shows that from January to April 2017, China’s total apparent consumption of gasoline was 40.1254 million tons, a decrease of 0.37% on a year-on-year basis. In contrast, during the period from 2011 to 2016, the average annual increase in total apparent gasoline consumption from January to April was 10.42%. Undoubtedly, this is a bad sign for the oil industry. 2 The slowdown in the growth rate of refined oil consumption is the result of a combination of various factors, but the increase in alternative energy sources is one of the key reasons. Electric vehicles have become increasingly common in recent years. Throughout 2016, China added over 500,000 new electric vehicles, with an annual growth rate of more than 50%. Data released by the China Association of Automobile Manufacturers show that by the end of 2016, the number of new energy vehicles in China had reached 1.07 million, of which 741,000 were pure electric vehicles. Based on an annual mileage of 20,000 kilometers per new energy vehicle and a fuel consumption of 10 liters per 100 kilometers, gasoline consumption can be reduced by over 1.4 million tons per year. On the other hand, car-sharing is gaining momentum in China. Once the scale of car-pooling sharing expands, a substitution effect with regard to crude oil will emerge; if electric vehicles are used for car-sharing, then this substitution effect will increase even further. Although the currently popular shared bicycles are not very noticeable, they have had a significant impact on the consumption of refined oil. According to an internal report issued by PetroChina, just due to shared bicycles alone, China will see a reduction of 1.5 million tons in gasoline consumption each year – a figure that exceeds 1% of China’s total annual gasoline consumption. Add to this the replacement by electric vehicles, and currently gasoline consumption is reduced by around 3 million tons per year. What does that figure mean? If we calculate based on CNPC’s average yield of 0.215 tons of gasoline per ton of crude oil, then 3 million tons of gasoline would require approximately 14 million tons of crude oil – a amount that **exceeds the annual output of CNPC’s Liaohe Oil Field**. It’s not that I didn’t know; once I calculated it, I was shocked! Although the current number of electric vehicles in use is still small, their annual growth rate exceeds 50%. If there are major breakthroughs in energy storage technologies, wireless charging, hydrogen-powered vehicles, or anything of the kind, the fuel vehicle industry will collapse instantly. Just imagine: if a charged vehicle could travel over 1,000 kilometers on a single charge, who would still drive fuel vehicles? 3 And technological progress is almost unstoppable. This is also the key evidence supporting the view that \"the oil industry is declining at a faster pace than even the coal industry.\" In the history of human energy use, there have been an era of wood and firewood, an era of coal, and an era of oil and gas. Although the coal era is now in the past, coal remains one of the main sources of energy in many countries, including China. But almost everyone believes that coal does not represent the future; this energy source has been on a decline over the past few decades. However, since the main source of electricity still comes from fossil fuels such as coal, coal will not disappear from the stage in the short term. For now, since green energy sources such as hydroelectric power, wind power, and photovoltaic power can only serve as partial substitutes, coal remains in use on a large scale despite its high emissions and pollution levels; it may continue to be utilized extensively in the coming decades. In contrast, oil is not so lucky. Globally, nearly half of oil consumption comes from the transportation sector; if there is a disruption in the industry of electric vehicles (or other fuel alternatives), the oil industry will quickly decline sharply, and the entire sector will face a catastrophic crisis. Of course, the oil industry will not disappear, because in addition to the transportation sector, industries such as the chemical industry are also major consumers of oil. Moreover, with the increase in population and the improvement in people’s living standards, demand for oil as a chemical raw material in this sector continues to rise. In other words, the oil industry will not disappear for a long time to come; the increase in oil consumption in the future will mainly come from the chemical industry, while consumption in the transportation sector will decline sharply. 4 The reduction in oil consumption will undoubtedly **suppress international oil prices. Currently, international oil prices have remained low for over two years; $50 per barrel has become a turning point, and this price level is causing many oil-producing countries, including numerous upstream companies, to suffer greatly. Venezuela, a traditional oil-producing country, has experienced severe inflation due to falling oil prices; describing its situation as dire would be no exaggeration at all. Russia, which is struggling to hold its ground amid low oil prices, has seen its ruble suffer a severe decline; not only is its fiscal situation strained, but domestic prices have also skyrocketed. Take China’s Daqing Oil Field as an example: once it helped rid China of its label as a country lacking oil resources, and was once a heroic city that was extremely wealthy, it is now trapped in a quagmire of losses. Due to the severe depletion of resources in the Daqing Oil Field and rising extraction costs, losses will undoubtedly continue at current international oil prices. Tragically, however, the sharp rise in international oil prices has almost no basis. Unless there is a large-scale war in oil-producing countries, the possibility of international oil prices soaring again is virtually zero. There are many factors that influence international oil prices, and undoubtedly, the supply and demand balance is the decisive factor. In recent years, the once-heated theory of an oil peak has disappeared. It is evident that, with the revolution in unconventional oil and gas in North America, the supply of oil has increased significantly, leading to a severe surplus in oil production capacity on a global scale. Currently, the oil supply in the international market is around 96 million barrels per day, while consumption is about 94 million barrels per day, resulting in a surplus of around 2 million barrels per day. Although this amount is not large, it has a devastating impact on international oil prices. In fact, what currently determines international oil prices is no longer the basic production volume of oil (94 million barrels), but rather its flexible production volume (2 million barrels); any change in this flexible production volume leads to significant fluctuations in international oil prices. Moreover, the flexible production capacity is itself prone to change; given the low costs of Permian shale oil in the United States, once international oil prices rise, the production capacity of these fields can be brought online quickly, thereby pushing oil prices back to their original levels. This is the main reason why OPEC has repeatedly cut production in recent years, resulting in low international oil prices. Last year, after the publication of an article by energy expert Mr. Chen Weidong titled \"Oil Is Heading Towards Its Decline,\" the president of a Chinese university even convened a meeting with university leaders to discuss how the institution should transform in the future. Yes, as an industry on its decline, the oil industry has become a \"declining aristocracy\" with few good days left. For universities that train professionals, as well as for those working in this industry, it is time to discuss taking proactive steps toward transformation