Thursday, 20 April 2017

Why oil is doomed

According to Dieter Helm, an Oxford University economics professor with a track-record of correctly predicting oil prices, the oil market downturn has got a long way to run (cited by Jillian Ambrose in the Telegraph 17 April 2017). 

The main reason, he argues, is concern over climate change and the renewable energy revolution, in particular, electric cars. He says that the burgeoning market for electric vehicles is underestimated and 'could radically change' the outlook for oil demand. 

Even BP admits that electric car use could halve the demand of drivers for oil and that the number of electric vehicles could double from previous estimates of 57 million to 100 million in 2035. Even this is probably a vast under-estimation, considering the rate at which car companies are turning out new electric vehicles, Tesla being just one. BMW is planning to bring out several EV models and Chevy's Bolt offers a cheaper alternative with range of 400km on a single charge, comparable with Tesla and gas-powered engines. 

Helm argues that industry shifts to a low carbon future means prices may continue to fall ‘forever’ and so far only BP and Royal Dutch Shell are adjusting, albeit very slowly, away from oil to gas and towards low-carbon energy. He advises oil companies, with total assets of $1 trillion and $300 billion in gas assets to follow a 'ruthless harvest-and-exit strategy', slashing capital expenditure, pumping remaining reserves, cutting cost and paying out very high dividends.

(c) Johann van Rooyen, 20 April 2017