A few days ago, I read an article entitled “Will Oil Matter in 2040?”and I wondered if there was any truth in the question, or could 20-years be extrapolated to 30 or 50-years?
Global climate change policies and its application in conjunction with ESG (Environmental, Social and Governance), and oil (or hydrocarbons) are always in the crosshairs (and rightly so). I won’t debate climate change here but will share some thoughts on the reality of reducing or eliminating dependence on hydrocarbons and its impact across the globe.
HAS THE SHIP (OR OIL TANKER) SAILED?
As referenced in the article, in Mexico and Trinidad and Tobago, large reserves of oil have been discovered. For those countries and their economies, it’s a glimmer of good things to come from potential revenues and jobs that can be created from exploration, production and finally trading. As the saying goes, “A day late and a dollar short” that begs the question, “Has that ship sailed?”
Though more nations adopt green solutions and their dependence on hydrocarbons lessens, oil markets will remain bullish at least for next 50-years until there are alternative sources of energy that meet the following trifecta:
- Energy efficiency
- Reliable sourcing
- Production and distribution costs
Certain modes of transportation and usage are more than decades away to adopt sustainable, economical, and readily available energy sources. Shipping and air-based modes will require a very robust technology and fuel source for it to operate safely and efficiently.
There is one sector for any country or government around the world that will require even more time and that’s National Security. Does anyone believe a country will move to EV tanks or land-based automobiles to move supplies or personnel when currently, a small EV takes an hour to charge for 30-45 miles usage?
LOOKING AHEAD: THE FUTURE OF OIL
A much bigger question is what is the future of oil prices when developed countries or early adopter nations no longer require the same masses of oil and underdeveloped nations, or late adopters do? Will the laggards pay huge premiums?
It may be in the best interest for those countries to somehow secure long-term contracts at a lower premium today than to pay higher premiums 10 or 20 or 30 years from now. Or even buy proven/producing assets for future consumption. That’s where the ’glimmer of hope’ lies for the likes of Mexico and Trinidad & Tobago.
Trading companies and government trading operations will need to employ better scenario-testing where the near-future might not move much but longer-term might. And so there is a need to closely monitor and measure risk. Traditional flat shock applications won’t suffice.