Economy

The Last Oil Boom?

If you're going to read just one thing this week, forget the intramural MUD histrionics and read Ambrose Evans-Pritchard's takedown of OPEC's World Oil Outlook.

Francisco Toro
Three converted Prius Plug-In Hybrids charging at San Francisco City Hall

If you’re going to read just one thing this week, forget the intramural MUD histrionics and read Ambrose Evans-Pritchard’s takedown of OPEC’s World Oil Outlook, 

…a remarkable document, the apologia of a pre-modern vested interest that refuses to see the writing on the wall.

The underlying message is that the COP21 deal is of no relevance to the oil industry. Pledges by world leaders to drastically alter the trajectory of greenhouse gas emissions before 2040 – let alone to reach total “decarbonisation” by 2070 – are simply ignored.

Global demand for crude oil will rise by 18m barrels a day (b/d) to 110m by 2040. The cartel has shaved its long-term forecast slightly by 1m b/d, but this is in part due to weaker economic growth.

One is tempted to compare this myopia to the reflexive certainties of the 16th Century papacy, even as Erasmus published in Praise of Folly, and Luther nailed his 95 Theses to the door of Wittenberg’s Castle Church.

Is OPEC the hard-nosed realist here, setting out sober forecasts based on sensible expectations? Or is the OPEC mindset catatonically blind to tectonic shifts in technology and society about to render its product obsolete?

I don’t know, but I don’t think Evans-Pritchard’s take can be dismissed out of hand.

OPEC says battery costs may fall by 30-50pc over the next quarter century but doubts that this will be enough to make much difference, due to “consumer resistance”.

This is a brave call given that Apple and Google have thrown their vast resources into the race for plug-in vehicles, and Tesla’s Model 3s will be on the market by 2017 for around $35,000.

Ford has just announced that it will invest $4.5bn in electric and hybrid cars, with 13 models for sale by 2020. Volkswagen is to unveil its “completely new concept car” next month, promising a new era of “affordable long-distance electromobility.”

The OPEC report is equally dismissive of Toyota’s decision to bet its future on hydrogen fuel cars, starting with the Mirai as a loss-leader. One should have thought that a decision by the world’s biggest car company to end all production of petrol and diesel cars by 2050 might be a wake-up call.

Goldman Sachs expects ‘grid-connected vehicles’ to capture 22pc of the global market within a decade, with sales of 25m a year, and by then – it says – the auto giants will think twice before investing any more money in the internal combustion engine. Once critical mass is reached, it is not hard to imagine a wholesale shift to electrification in the 2030s.

These are the strategic debates Venezuelans should be having but can’t have, because the acute instability of our politics makes discussion of anything more than two weeks in the future seem esoteric.

It’s unfortunate. We might be done with the future, but the future is not done with us.

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