Russia refused to go along with OPEC’s proposal to rescue the coronavirus-battered oil market by further cutting production at a meeting in Vienna on Friday. The standoff left the oil industry shell-shocked and sparked a 10% plunge in oil prices Friday. Crude oil was already stuck in a bear market because of a sharp drop in demand linked to the coronavirus outbreak…
— from CNN.com, March 9. 2020
I conducted some research, earlier this week, into the state of the global oil industry, and part of that research included listening to a 2015 interview with Dr. Omar Abdul-Hamid, the Head of Research for OPEC, the Organization of the Petroleum Exporting Countries, at OPEC headquarters in Vienna, Austria.
The interview lasts about 7 minutes, and was produced by Siemens, the German multinational conglomerate headquartered in Munich, and reportedly the largest industrial manufacturing company in Europe.
During the first part of the interview, Dr. Abdul-Hamid expresses his confidence (in 2015) that oil will remain the world’s primary energy source, long into the future.
About two-thirds of the way through the interview, we hear Dr. Abdul-Hamid state that he drives a diesel-engine vehicle when he’s in Vienna. At that point, Siemens reporter Andreas Kleinschmidt poses a slightly uncomfortable question.
“Omar, what would have to happen to make you exchange your diesel engine for an electrical motor?”
The Head of Research for OPEC hesitates, to consider his answer, but with a slight smile.
He realizes that this was the very question the entire interview was designed around.
“It will have to impact how much I will have to pay, at the end of the day, to transport from A to B,” he says. “But I tell you, being here in Vienna, for example, the fact that you have an excellent public transportation system, it offers you alternatives in how you go from Point A to Point B. You might reserve the use of the vehicle, whether it’s diesel or gasoline, to specific trips outside the city. If you can conveniently use the public transportation. Or walk. Or use a tram.
“However, the inconveniences that are associated with the current electrical vehicles will have to be addressed…”
Yes, good points. But the damage has already been done. We will probably pay, at the end of the day — in some fashion — for allowing the internal combustion automobile to rule the earth.
All of life on the planet may have to pay, in some fashion.
If you visit the Siemens website, you can find pages like this one:
With wind turbines spinning in the background, generating “free”, non-polluting electricity, a compact car sits at an electrical charging station, getting its battery charged.
The American landscape has developed, over the past century, around the convenience of the internal combustion engine and the liquid fuels that power it: gasoline and diesel fuel. For most of the past century, the amazing, energy-filled liquid known as petroleum was so easy to pump out of the ground, and thus so ‘affordable’, that suburban America thought nothing of living miles away from necessary services. Just hop in your car, and in a few short minutes, you’re there — at the shopping center, at the restaurant, at the post office, at the bank, at the gas station. The cost of the trip? Mere pennies.
At the end of the day, it seemed like we paid hardly anything. At the end of the day, it can seem like oil will be the world’s dominant energy source, especially for transportation, long into the future. But we’re not yet at the end of the day.
Back in March of last year, Russia and OPEC couldn’t seem to agree on the best policy for keeping the petroleum industry from going bankrupt. As we watched entire nations close their highways, their airports, their offices, their retail outlets, their schools — and urge everyone to stay home — the demand for gasoline naturally declined. The price of gasoline at the pump dropped, but comparatively few were buying it.
We’ve all been told the great success story: the US is now exporting more oil than it imports. Some have pointed to this fact as evidence that we’ve, quite simply, achieved ‘energy independence’. The situation, however, seems a bit more complex. The oil that we continue to import from the Middle East comes from vast reserves of liquid petroleum. The “new” oil that American drillers are obtaining is coming largely from shale deposits, and requires an expensive process commonly known as “fracking.”
The production costs from conventional oil wells varies, with Saudi Arabia reportedly able to produce oil the most cheaply — in some cases for less than $10 a barrel. The rest of the Middle East and North Africa are also very efficient, producing oil as cheaply as $20 per barrel. Worldwide, however, conventional oil production typically costs between $30 to $40 a barrel.
The difference with shale oil is that, instead of simply drilling down into a target deposit, the wells must take a 90-degree turn in the deposit and run alongside it horizontally. These wells typically go thousands of feet down to reach the shale deposit, but they also run thousands of feet horizontally. This type of well takes more time to drill, which means higher labor and equipment costs.
Some sources put the average break-even point for a fracked horizontal well at more than $60 a barrel… with higher-cost wells coming in at over $90 a barrel.
A global market where a barrel sells for $53 — the current price for West Texas oil — seems to pose an existential threat to US shale oil.
Daniel Yergin, energy historian and author of The Prize: The Epic Quest for Oil, Money and Power, took a more somber view of the situation, according to The New York Times.
“This is a clash of oil, geopolitics and the virus that together have sent the markets spiraling down. The decline in demand for oil will march across the globe as the virus advances… Low gasoline prices don’t do much for you, if schools are closed, you cancel your trip, or you’re working from home because of the virus.”
Does any of this news relate directly to life in small-town Pagosa Springs?
Well, I suppose it does…