This book examines the ways that oil economics will impact the rapidly
changing global economy, and the oil industry itself, over the coming
decades. The predictions of peak oil were both right and wrong. Oil
production has been constrained in relation to demand for the past
decade, with a resulting four-fold increase in the oil price slowing the
entire global economy. High oil prices have encouraged a small increase
in oil production, and mostly from the short-lived "fracking
revolution," but enough to be able to claim that "peak oil" was a false
prophecy. The high oil price has also engendered massive exploration
investments, but remaining hydrocarbon stocks generally offer poor
returns in energy (the energy return on investment or EROI) and
financial terms, and no longer replace the reserves being produced. As a
result, the economically powerful oil companies are under great
pressure, both financially and politically, as oil remains the backbone
of the global economy.>Development scenarios and political pressure for
growth as a means of solving economic woes both require more net energy,
which is the amount of energy available after energy (and thus
financial) inputs required for new sources to come on line are deducted.
In today's economy, more energy usually means more oil. Although a
barrel of oil from any source may look the same, "tight oil" and oil
from tar sands require much higher prices to be profitable for the
producer; these expensive sources have very different economic
implications from the conventional oil supplies that underpinned
economic growth for most of the 20th century. The role of oil in the
global economy is not easily changed. Since currently installed
infrastructure assumes oil, a change implies more than just substitution
of an energy source. The speed with which such basic structural changes
can be made is also constrained, and ultimately themselves dependent on
fossil fuel inputs. It remains unclear how this scenario will evolve,
and that uncertainty adds additional economic pressure to the investment
decisions that must be made. "Drill baby drill" and new pipeline
projects may be attractive politically, but projections of economic and
associated oil production growth based on past performance are clearly
untenable.
