By Noel T. Braymer
Earlier this year the price of oil did something strange. Instead of buyers paying to buy oil on the world market. The oil sellers offered to pay oil users to reduce their oversupply of oil. This is no way to make money, but it did reduce the short term costs of storing oil. What we are beginning to see is oil turning into a “stranded asset”. In other words the costs of producing oil will cost more than what people are willing to pay to buy it. This is not a case of “running out of oil”. It’s just that new sources of energy such as renewable energy are competing with fossil fuels while being cheaper and cleaner to use. There has been an increase in use of Natural Gas aka methane. For now it is cheaper than burning coal or oil. But that price advantage is declining in the face of growing, cheaper renewable energy.
This trend goes back several years. This started when coal producers stopped bidding on new coal leases from the Bureau of land management a few years ago. Basically coal supplies were greater than market demand. This was an example of a stranded asset. In other words the coal underground has become worth less. This meant it was losing value for the coal companies as an asset. Now there is still plenty of coal being dug from existing mines. But there is little interest in digging new mines as the cost of doing so likely wouldn’t produce a return on investment.
Much the same thing is happening in the Oil and Natural Gas industries.The Shale Oil/Gas boom has basically gone bust in the last few months. Shale Oil/Gas has never really made a profit. But it was bankrolled with massive loans with very low interest rates. That money will likely never be paid back. Renewable energies such as solar, wind and stored energy continue to improve and become more economical to produce. Renewable energy is highly competitive with fossil fuels whose production costs are not declining while renewable energy continues to get cheaper. These developments are alarming to oil and gas producers which have billions of dollars invested in undeveloped oil and gas fields around the world.
Increasingly there is talk of the oil and gas industries finding that they are sitting on stranded assets which they may never recover much value if current trends continue. We will likely see more effort by the oil and gas industry to increase their subsidies from the government with increased tax credits.The oil and gas industry has years of experience dealing with tax codes.
The gas industry will likely find declining demand for “natural gas”.The challenger will be hydrogen gas. There is increasing research in using solar energy to produce hydrogen. What is being looked at is cheaper solar electricity. Water is H2O. That’s 2 atoms of hydrogen with one atom of oxygen. It takes a lot of energy to separate the oxygen and hydrogen in water. New methods and cheaper electricity may make it possible to use liquid hydrogen as a fuel. This will be a few years in the future. There is talk that hydrogen can be used when the price of hydrogen comes down to provide emission free energy for both jet airplanes and trucks, buses and trains. This is still a few years in the future.
While progress is being made, these and other improvements to create a more sustainable future will take time.With increasing investments in wind, solar, hydrogen and energy storage we will see a much cleaner, more economical and healthier planet and way of life.