Is the oil era coming to an end?

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This post was last edited by yinkuilin6868 on 2015-12-21 09:31. The most notable event in the global commodity markets in 2014 was the \"black swan\" incident of the sharp drop in oil prices, which triggered a crisis in the Russian ruble. In July 2014, the international crude oil price was still above $100, but by early 2015, the price of crude oil in New York had dropped to $50; within just half a year, the international crude oil price fell by half. In the second half of 2015, oil prices remained above $40 for an extended period. Until the OPEC meeting on December 4th at the end of the year concluded amid fierce disputes, OPEC refused to cut production in an effort to retain market share; no new production targets were set, and oil prices dropped to as low as $35. Will oil prices remain low in the long term? Does this mean the decline or even end of the oil era? In the 1970s, Henry Kissinger said, “If you control oil, you control everything.”** ； If you control the food, you control everyone ； If you control the currency, you control the entire world. However, everything has a life cycle of emergence, development, and decline. The history of energy evolution shows that every type of energy has gone through stages of emergence, development, prosperity, stability, and decline, and oil is no exception. Oil is, in itself, a commodity. The factors that determine the price of a commodity include supply and demand, the cost of the commodity, its substitutability, and international political relations, among others. In fact, since 2012, these factors in the oil market have undergone dramatic changes. In the supply and demand market, since 2012, the concept of \"unconventional oil and gas\" has come to people’s attention. It became clear that the theory of oil depletion was no longer valid; the existence of resources such as shale oil and gas and natural gas hydrates showed that there are resources on Earth that could be exploited for hundreds of years. The United States took the lead in this area, using advanced technologies to develop shale oil and gas resources within its own country. As a result, the U.S. experienced an unprecedented surplus in its natural gas imports and exports. A country with high energy consumption began to export more energy than it imported, making it increasingly difficult to reach a consensus on how to control energy supply. The International Energy Agency (IEA) stated in its monthly oil market report at the end of 2015: “Global oil demand growth reached its highest level in five years in 2015, with an average increase of 1.8 million barrels per day.” This figure will drop to 1.2 million barrels per day by 2016. ”This will be closer to the long-term trend in global oil demand changes. A slowdown in global oil demand may mean that the situation of supply exceeding demand in the crude oil market will continue. Moreover, once sanctions on Iran are lifted, it is likely that Iran will increase its production to capture market share, resulting in more crude oil entering the international market and exacerbating this situation. The landscape of the global commodity market, led by oil, is changing; oil has shifted from a seller’s market to a buyer’s market. In this new environment, the focus has shifted from competing for resources to competing for markets. As the world’s largest oil importer, a decline in China’s demand has also been a major factor behind the sharp drop in international oil prices. Oil costs: The balance between supply and demand will be completely disrupted, as technological advancements will make it increasingly cheaper to extract unconventional oil and gas. American investor Sam Zell once said that thanks to advances in shale oil technology, it is still possible to make a profit by selling oil at $40 per barrel from some wells in the American West; and as technology continues to advance, extraction costs will keep falling. The cost of extracting conventional oil and gas in the Middle East is even lower; Saudi Arabia’s marginal cost of producing oil is less than two dollars per barrel, and when the initial capital investment is taken into account, the cost remains below six dollars per barrel. In terms of costs, even if oil prices remain at $20 for a long time, OPEC **can still make a profit. The era of high oil prices has led to rapid development of new energy sources. Due to their superior environmental benefits, these new energy sources are receiving **increasing support, and their development limits the possibility of high oil prices. If oil prices remain high, the development of new energy sources will accelerate, thereby capturing more of the oil market. This forces OPEC to lower oil prices in order to curb the growth of new energy sources. It is foreseeable that this decline in oil prices will last for a long time. OPEC aims to drive out its competitors, eliminate those production capacities with higher costs than its own (such as U.S. shale oil) in order to gain market share, and also suppress investment in renewable energy sources, particularly in battery technologies for electric vehicles, thereby delaying the emergence of alternatives to oil. It is obvious that low oil prices will prevail in the long term. Oil substitution: Oil has become a strategic resource due to its irreplaceability in the field of transportation. Why weren’t electric vehicles widely adopted for so long? It is due to energy storage technology; lithium-magnesium batteries have a storage capacity of 200 watt-hours per kilogram. If a car is to travel 300 to 500 kilometers, the weight of the battery alone would be 1.5 tons, which is too heavy compared to the weight of the car itself. Advances in energy storage technology are key to the next energy era. Whether it’s wind energy, hydroenergy, or solar energy, all discrete forms of energy can be combined to generate high-density electrical power; aggregation becomes simple, and so does usage. Batteries with such high concentrations can supply energy for household use, or they can be installed in cars as a power source. Tony Seba, a professor at Stanford University, assumes that the price of a standard electric vehicle is roughly three times the cost of its batteries. Such vehicles have a battery capacity of 50 kWh and an range of 200 miles. Given that the cost of lithium-ion batteries decreases by about 16% per year on average, it is estimated that by around 2020, mid-range electric vehicles with a price of around $31,000 will surpass gasoline cars in terms of both price and performance. In 2022, budget electric vehicles (priced at $22,000) will completely surpass gasoline cars. By the end of 2017, Tesla’s Model 3 will be available on the market, with an estimated price range of $35,000 to $50,000; its performance is expected to exceed that of the BMW Series 3 in terms of both price and size. In the field of renewable energy, an exponential progression in storage technology can be clearly observed; \"graphene batteries\" are also becoming increasingly mature. OPEC’s decision to allow international oil prices to plummet is aimed at suppressing European investment in storage battery technology and extending the lifespan of petroleum-based energy sources. It is foreseeable that the world will enter an era of cheap oil in the future. Environmental Requirements From November 30 to December 11, 2015, the 21st United Nations Climate Change Conference was held at the Porte de Versailles exhibition center on the northern outskirts of Paris. On December 12, nearly 200 parties to the United Nations Framework Convention on Climate Change agreed unanimously to adopt the Paris Agreement in order to ensure strong global action on emission reductions. Vehicle exhaust emissions are a major source of pollution that needs to be reduced globally. As the number of vehicles in use worldwide continues to increase, the pollution caused by vehicle exhausts to the air is also growing, posing a serious challenge to the ecological environment. It harms the urban environment, causes respiratory diseases, leads to high levels of ground-level ozone, exacerbates the urban heat island effect, and contributes to the deterioration of the urban environment. Countries are making every effort to promote new energy vehicles. Taking China as an example, it has introduced a series of policies to boost the sales of electric vehicles, aiming to sell 500,000 units by 2015 and 5 million units by 2020. As electric vehicles gradually take over the traditional automobile market, demand for oil will also slowly decline. Due to political factors, the energy landscape has undergone significant changes, altering the security system of the world that was based on oil. Oil is no longer as important as it used to be, which in turn has directly changed the nature of wars. The frequent conflicts in the Middle East are due to the oil beneath the ground; in the past, various countries fought over Iraq, not because they were looking for weapons of mass destruction – and indeed no such weapons were found – but rather for the oil. The several rounds of sanctions imposed on Iran over its nuclear program are also rooted in the issue of oil. Since oil is no longer the essence of war, its importance has declined; strategic oil reserves and oil protection are less crucial, and there will be no international forces stepping in to intervene in fluctuations in oil prices. There are even reports that the United States will lift its ban on crude oil exports, which has been in place for over forty years; this not only indicates an excess supply of crude oil within the U.S., but also seems to be a precursor to oil being removed from the category of strategic resources. As the largest oil producer, Saudi Arabia has always played a leading role in OPEC by urging it not to reduce production in order to maintain prices, to keep quotas in place, and even to actively drive down prices. As a Sunni religious power, Saudi Arabia has been in a long-term struggle with the Shiites, which has forced it to rely on American support. After the Iraq War, the Shiites rose to power; in fact, the Shiite Crescent region took historic control of the political affairs in the Mesopotamian region. Saudi Arabia needs to join forces with the United States to suppress the Russian forces behind Syria and Iran. The partnership between Saudi Arabia and the United States is driven not only by geopolitical considerations, but also by the conflicts within the Arab world as well as the conflict between Arabs and Israelis, all of which rely on American mediation. The power struggle between Saudi Arabia and Iran is, in fact, a conflict between Sunnis and Shiites. Saudi Arabia can take advantage of falling oil prices to maintain the world market’s reliance on conventional oil, thereby preventing U.S. shale oil from encroaching on the global crude oil market ； At the same time, increasing production helps to prevent Iran from seizing the market after the sanctions are lifted, and it also delays the time at which oil will be replaced by new energy sources ； Moreover, the local public discontent caused by low oil prices can be alleviated through financial investments, and it is not sufficient to threaten the feudal imperial system of the Saudi royal family. So Saudi Arabia and the United States have also reached a consensus on the decline in oil prices. It is stated in the book \"The Aftermath of Oil Depletion\" that \"before one energy source is replaced by another, its price often serves as a highly sensitive indicator; the price of the old energy source tends to experience sharp fluctuations. This is a natural consequence of the law of value, and it can generally be regarded as a precursor to the process of energy substitution.\" ”Oil may soon follow in the footsteps of rubber and steel and lose its status as a strategic resource. The end of the oil era was not due to a lack of oil, but rather the discovery of better energy sources. The end of an energy era does not mean a complete replacement of one energy source by another; rather, it is reflected in the proportion each source holds in the market. With the rise of natural gas, unconventional oil and gas, and renewable energy sources, the future will no longer be an era of energy polarization. From the wood era to the coal era, from the coal era to the oil era, and from the oil era to an era of diversified energy sources, the global trend in energy consumption is a shift from high-carbon to low-carbon sources, as well as a transition from energy sources with low concentrations to those with high concentrations. The end of the oil era may be in ten years or twenty years, but we must be fully prepared to ensure domestic energy security as we transition to alternative energy sources.