Petroleum and Crude Oil – the Future of Oil Production
DW (2019) – only online until April 17th
This documentary analyzes the long term economic viability of the petroleum industry, in view of climate change, increasing competition from cheap renewable energy and shifting geopolitical allegiances.
It begins with an examination of the 2014 collapse in oil prices – with the cost of a barrel of oil dropping by over 70% between June 2014 and January 2016. Oil bottomed out at $26 a barrel in February 2016.
The filmmakers explore a number of factors keeping the oil price above $100 a barrel prior to 2014. Speculation in oil futures by big banks such as Goldman Sachs and Morgan Stanley seems to be the main one.
These high oil prices made the fracking boom possible. Fracking technology, whereby trapped oil and gas reserves are released by fracturing bedrock, is an extremely expensive technology. According to industry analysts, fracking is only financially viable with oil prices above $70 a barrel.
The fracking industry was a great boon to the US petroleum industry, enabling it to export oil and liquified natural gas (LNG) for the first time in decades.
The filmmakers point to two main reasons for the 2014 collapse in oil prices. The first was reduced oil demand (due to global economic slowdown) popping the speculative bubble created by the big banks. The second was Saudi Arabia’s attempt to destroy the US fracking industry by flooding the global market with oil.
This scheme seems to have backfired. While numerous small fracking operations went bust, the major oil companies had sufficient financial resources to continue fracking at a loss.
The low oil prices probably hurt Saudi Arabia more than the US, as the Saudis are extremely dependent on oil revenues to finance their national budget.
In 2017, Saudi Arabia and other OPEC* countries reached out to Russia to form OPEC Plus. The latter agreed to limit oil production to stabilize prices. The Saudi oil ministry fully expects Kazakhstan and other former Soviet republics will also join OPEC Plus.
Meanwhile oil producing countries (except for the US under Trump) have learned an important lesson from the 2014 price shock. Both Norway (the world’s largest oil/gas producer) and Saudi Arabia are rapidly diversifying their energy industries to protect themselves from future price volatility. Most industry analysts expect other countries to follow suit. At present China, the world’s largest oil importer, is also the largest investor in renewables. This, in turn, signals a significant reduction in their future oil dependency.
*Organization of Oil Exporting Countries – current members include Algeria, Angola, Austria, Cameroon, Congo, Ecuador, Equatorial Guinea, Gabon, Iran, Iraq, Kuwait, Libya, Nigeria, Saudi Arabia (the de factor leader), Syria, United Arab Emirates, and Venezuela.