‘Peak oil’ set to arrive sooner than we think if Biden wins

A second Trump term might slow the process – there wouldn’t be the same investment in alternative energy, more federal land would be opened to fracking and more offshore waters to deep sea drilling and the US definitely wouldn’t recommit to the Paris accord – but it wouldn’t change the course of history.

The pandemic has already probably brought the point at which demand for oil (peak oil used to refer to a peak in supply, now it relates to a peak in demand) begins to slide.

The damage and likely permanent changes it has wrought to transport, particularly aviation, as demand for leisure and business travel shrinks and a lot of work that used to be conducted in central business district offices is done from home will be overlaid on the longer term structural changes to demand already underway.

More than 120 countries have now committed to net zero carbon emissions by 2050, solar and wind are now more than competitive with fossil fuels, battery technologies are improving rapidly and electric vehicles and the infrastructure required to make them a mainstream choice are starting to penetrate the market.

Big Oil has seen the writing on the wall. Shell already produces almost as much gas as it does oil and, with BP, has committed to net zero carbon emissions in its own operations by 2050.

Exxon, the world’s most valuable company by market capitalisation in 2014 is now only barely within the top 50 companies in the S&P 500. It has lost about two-thirds of its market value since the peak of the oil price in 2014, with its share price more than halving this year.

The most valuable company in the world today is Apple, with a market capitalisation of $US1.85 trillion. Exxon’s is $US143.7 billion.

During the election campaign much was made, by Trump, of Biden’s views on fracking. While he would stop the expansion of fracking on federal land all he really said was that he would transition away from the oil industry.

He is targeting a carbon neutral power sector in the US by 2035 and net zero carbon emissions by 2050.

Barring a completely unexpected reversal in the oil market, that transition will occur anyway. “Peak Fracking” may already have occurred.

With prices below $US50 a barrel (the oil price is currently below $US40 a barrel) much of the shale oil sector loses money. Already this year a record $US89 billion of shale-related bankruptcies have occurred. There are about 70 per cent fewer rigs operating in the shale sector than there were during the shale boom in the middle of the decade.

The International Energy Agency believes the impact of the pandemic has brought forward the end of the era of growth in global demand for oil to the 2030s.

Even OPEC has said that the peak in demand for oil in developed countries may already be peaking – it is placing its face in the demand for and developing economies continuing to rise to meet its forecast of a global peak in demand in the mid-2040s.

The International Energy Agency believes the impact of the pandemic has brought forward the end of the era of growth in global demand for oil to the 2030s.

Energy research group Rystad Energy says the peak will occur in 2028, two years earlier than it had predicted before the pandemic erupted, with demand falling by about 40 per cent from pre-pandemic levels by 2050.

Perhaps highlighting the extent to which an early peak in demand is now accepted by much of the industry, one of the world’s largest oil traders, Vitol, is diversifying into selling used cars. It expects peak demand in 2030.

The other potential outcome of a Biden win is how a Biden administration might deal with Iran and Venezuela. Trump walked away from the multi-national deal with Iran, easing sanctions in return for limitations on its nuclear program.

He has upped US sanctions on both Iran and Venezuela, dramatically curtailing their oil production and exports. Between them, about three million barrels a day of crude oil has been taken out of the supply side of the oil market.

There are some estimates that the pandemic has taken out a similar volume of demand, so any resumption of Iranian or Venezuelan production would weigh heavily on oil prices that are already depressed despite the largest production cuts in history that were agreed to, and largely abided by, OPEC and the Russians.

Biden isn’t expected to lift the sanctions on either country if he becomes president, although the Democrats have signalled that he’d be more open to renegotiating the deal the Obama administration agreed.

That would have implications elsewhere in the Middle East, particularly for the Saudis who developed a close relationship with Trump and his son-in-law, Jared Kushner. Biden has declared he would be a lot tougher on Saudi Arabia than Trump.

The combination of the pandemic and a Biden victory and the influence that an abruptly carbon-conscious America would have on the global economy and the economics of clean energy would mark an important moment for the shift towards lower carbon emissions, accelerating the existing trends and bringing forward the date on which peak oil arrives.