Saturday, 2 July 2011

The Most Recent Deutsche Bank Peak Oil Report

I reckon many if not most Doomers would read the latest Deutsche Bank Peak Oil Report as spelling doom because they come out and say they expect a peak oil price shock as early as Q2 2013.
Taken out of context that's only two years away so if at that point we were to experience global supply drops, increasing demand (from e.g. China and the Mid-East) combined with no available substitutes we would be doomed.

We're not, however, doomed. Here's why: The Deutsche Bank report although it's an outstanding piece of analysis (and I congratulate them on it) are missing the substitution effect that natural gas vehicles will bring to bear. They have, however, provided what I can only describe as a near-perfect analysis of the effect hybrids, plug-in hybrids and electric cars will have on the transportation market and by extension, the oil price.

To quote from the report what I personally consider to be the most salient setion:
"The market is trying to shift US behaviour towards long term greater efficiency, and as we
have highlighted, that process is starting with the bankruptcy of the US auto industry and the
imposition of greater MPG requirements that may yet prove to be, in our view, be the largest
and least appreciated achievement of the Obama first term. As we have highlighted, and
expected, as automakers compete to build hybrids and electrics their costs will fall, lowering
the oil price at which they become economically attractive. As shown below, we are not at a
high enough price yet to incentivise a US consumer to buy a Prius instead of a Corolla for
purely economic reasons based on greater efficiency vs relative price premium, but that point
is rapidly approaching and explains why our long term price charts have falling real prices. By
2014, US consumers will be incentived to buy a hybrid rather than conventional car at
$3/gallon and falling."

here's my observations and analysis from this piece:
1. Americans are stubborn SOBs and the major problem is that Americans don't want to give up driving big trucks. But they *will* and it will happen within the next five years.
2. There's likely to be another recession in the US around Q4 2013 forced by high oil prices
3. The costs of driving hybrids and electrics will fall due to lowering battery prices and competition so much that it will be a no-brainer to do so. Especially when faced with the choice between taking the bus or driving a smaller electric vehicle. All those F-150s will be left sitting on the driveway and kept only for cases where it's economic to use them (like driving to Disneyland with a family of four as opposed to flying).
4. 2013-2014 is going to be interesting
5. The Canadian dollar will likely be significantly higher than the US dollar during 2013.
6. Electric vehicles such as the Nissan Leaf and Plug-in Hybrids such as the GM volt will likely be sold out and going for higher than sticker price during 2013
7. Diesels will likely also be sold out and going for higher than sticker price during 2013
8. There will be a secondary market in conversions to natural gas for those who can't get their hands on electrics or plug-in hybrids or diesels.
9. I predict I myself will be driving a volt or a nissan leaf or equivalent or else a natural gas vehicle on or before 2013.


Jimi said...

Hello again!

Thank you for your answer to my question in the section below.
Talking about price-spikes and a possible new recession, I’ve been wondering about a discussion you had with another blogger some months ago, in which the question of lacking investments in none-oil infrastructure due to dept and financial difficulties was raised.
I don’t recall your exact reply nor have I been able to find the post itself, so I will simply ask the question here:

isn’t there a chance that the world, due to the aftermath of the financial crisis will be cast into disarray and even further dept by the 2013 recession, making the shift from oil to electrification harder if not impossible?

Now this position is in itself rather dommerish (which is of course a bad thing), and it has been shown that private companies are able to make the shift
themselves without government aid. The question still stands though, as state funding and initiative will be crucial once peak oil finally hits.

I remain optimistic though :)

DB said...

Well here's the thing Jimi.
You're being very western-centric in your viewpoint.

The reason is that not the entire world has been "thrown into disarray" by the finanical crisis. And neither has capital financing been thrown into disarray. Sure some *western* governments are struggling to raise funding for their bloated state expenditure but in pretty much any area in the private sector where you can get a good return on your money, there is funding available.

China has plenty of money. As does Russia. As does Brazil. As does Saudi. Now these are not Western countries but they certainly are part of human *industrial civilization* right?

So if we take the extreme doomer position that perhaps *western* civilization might decline, then that's not the same thing as saying we're looking at a total global collapse is it?

Also: if China keeps on manufacturing, supplied by Russian Oil and Australian coal, there's no reason they couldn't ship millions of electric bikes or cars to us and lend us the money to be repaid in yuan-renminbi as well as building out the infrastructure. In the 1950s American companies were everywhere in Europe helping to rebuild after WWII (for a profit of course). Perhaps in the 2020s Chinese companies will be doing the same thing in Europe and the USA.

That said, there are still Western Countries that have money:
I *seriously* doubt that Norway will be lacking in funding. Likewise Canada. Likewise Germany.
Likewise France. Likewise Australia.

The UK is in trouble and so are the PIIGs and so is Ireland and so is the USA (though not to the same extent as the PIIGs or the UK/Ireland) but they do not constitute the entire spectrum of industrial civilization.

Also: there's something else you're forgetting. Peak Oil isn't so much a problem of diminishing oil supplies as a problem of increasing prices for transportation. If you can swap out to a *currently* more expensive but *stable* price NOW rather than waiting till you're out of time with prices continually rising, then you're far more likely to be able to mitigate.
Given that's the case, I see no reason why one of the countries who are benefitting from peak oil can't lend us the money to switch over.

Jimi said...

Ah yes :)
Though we must not forget that China may be heading into its own dept related problems within the next few decades (as the dept of its regional goverments has become large)

Again it is hard to see what the future may bring.

Jimi said...

I would like to say sorry for my rather doomish attitude as of late (my latest statements)

Thing is that the state of the world in terms of finance (including my own country) and watching governments like Spain cutting back on green projects (they have more or less removed their support to solar) and new reports showing that the will to make wind farms has declined.

This kind of made me wonder if we would indeed have the willpower and the means to do what we need to do. Though one would think major oil prices on their own would force us to do so.

I understand that I may have been foolish to despair, thinking that America and Europe would collapse if stuck by a new crisis before having recovered from the financial crisis. I would blame the rather bleak atmosphere in the media and newspapers (to which I am exposed on a daily basis)

mrFerox said...

What do you think about the fact that China's massive economic growth has been partly due to the West (as in their factories and businesses being 'exported' over there and the importation of those goods back to America and Europe). If the West starts to seriously struggle financially and stops buying plastic crap from China, will China then start to suffer financially? (especially considering that some believe China has grown too much too quickly)