Rocketing production costs, proliferating write-downs, stranded assets pave the way for renewable renaissance
The latest data from the International Energy Agency (IEA) and other sources proves that the oil and gas majors are in deep trouble.
Over the last decade, rising oil prices have been driven primarily by rising production costs. After the release of the IEA’s World Energy Outlook last November, Deutsche Bank’s former head of energy research Mark Lewis noted that massive levels of investment have corresponded to an ever declining rate of oil supply increase:
"Over the past decade, the oil and gas industry’s upstream investments have registered an astronomical increase, but these ever higher levels of capital expenditure have yielded ever smaller increases in the global oil supply. Even these have only been made possible by record high oil prices. This should be a reality check for those now hyping a new age of global oil abundance."
"The most straightforward interpretation of this data is that the economics of oil have become completely dislocated from historic norms since 2000 (and especially since 2005), with the industry investing at exponentially higher rates for increasingly small incremental yields of energy."
"More than 80% of this spending [of between $700 and $850 billion annually by the 2030s] is required just to keep production at today’s levels, that is, to compensate for the effects of decline at existing fields. The figure is higher in the case of oil (at close to 90% of total capital expenditure)."
"Renewables, especially rooftop solar, will take a leading role in a distributed power revolution now underway. The utility industry is vigorously fighting distributed power’s advancement."
" who can, or will want to, fund the drilling of millions of acres and hundreds of thousands of wells at an ongoing loss? … The benevolence of the US capital markets cannot last forever for all players A more realistic outcome is that sections of the industry will have to restructure and focus more rapidly on the most commercially sustainable areas of the plays, perhaps about 40% of the current acreage and resource estimates, possibly yielding a lower production growth in the US than is currently expected."
"In turn, this would risk creating stranded assets over the medium to longer term both for the oil industry itself and owing to the central role of oil in energy pricing more generally for the global fossil-fuel industry as a whole."