In a new report, Greenpeace writes that international oil companies, particularly Shell (RDS-A), are in an unsustainable business that will be so changed in the future that they will be screwed.
The crux of the argument is that oil production is getting more expensive and that, as it does, alternative energy becomes more compelling. If oil’s price rises enough to offset the increased costs of development, in Greenpeace’s opinion, economies will use less of it, thus driving the price down.
Specifically, Greenpeace says we are on the wrong side of peak oil. Over the next decade, more oil will come from unconventional sources like tar sands or deep water drilling. Oil from those sources will have to be sold at $70-$90 for the companies to break even.
At those prices, the economy is put at risk, though. A recent analysis by Doug Westwood says when oil prices equate to 4% of GDP, we usually hit an economic slowdown. Therefore, if oil prices hit $80, the economy sputters. The economy skids, demand falls and price of oil slips.
In the report, Greenpeace quotes BP CEO Tony Hayward who says consumers changed their behaviour last summer as oil neared $90 a barrel. They drove less, and tried like hell to avoid higher oil prices. The alarm and panic brought on by $147 barrels last year laid the groundwork for permanent demand destruction. This is why the IEA say the United States is past its peak for oil demand.
What about emerging markets, though? Certainly, they’ll pick up the slack ? Not necessarily, says Greenpeace. China’s aggressive and comprehensive energy policy is focused on one thing–security. Volatile, high, oil prices are a risk to the nation. Therefore, it is doing what it can to reduce its reliance on oil.
China is working hard to develop an electric car market. The Greenpeace report quotes executives from both Ford and GM who say they think Asia will be a leader in alternative auto technologies.
Add all this together, Greenpeace says, and it means that window for oil sands projects to squeeze in profitably is tiny. Since Shell plans on getting most of its oil from oil sands in the next 10 years, the company is at risk.
Greenpeace’s proposed solution is for Shell and other oil companies to become “energy service companies,” act like VCs looking at clean tech and invest in renewable energy. No surprise there.
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