The past few years have been historic for as far as crude oil forecasts are concerned. Back in 2015 the view that crude oil demand could peak during the 2020s or 2030s was still met with disbelief (and some ridicule…). Economic growth had been pushing crude oil demand up ever year for decades already, so why would things become different, so the reasoning went. Today, however, essentially all major energy forecasters, including BP, Shell, Total, DNV-GL, the IEA and even OPEC, have come round and acknowledge Peak Oil Demand as a realistic possibility.
The strategic response of the Oil Majors to this possibility has differed. But so far, none seem to have won over the investment community. What could be the reason for this? And does this leave the Majors at risk of being cut-off from capital?
Crude Oil during the 20th century
As Admiral of the Royal British Navy, Winston Churchill took a decision that not only shocked his nation, but also defined the role crude oil would play in the global economy during the 20th century.
Great Britain had become the world’s leading nation thanks to its invention of the steam-engine, coupled with an abundance of coal in the country. This enabled the country to be the first to mechanize industry, which made it not only the world’s industrial heartland, but also its leading military power, as Britain’s mechanized industry was able to churn out warships that were much larger and more heavily armed than its rivals could produce. And by fitting them out with steam-engines, these British warships were also able to travel faster and further, independent from wind. In other words, thanks to the steam-engine and coal, Britain became “the empire on which the sun never sets”.
Nevertheless, in 1912 Winston Churchill decided that the British Navy’s future would be based on crude oil, when he ordered construction of the Queen Elizabeth class of super-dreadnoughts based on an internal combustion engine design. Many were outraged. Steam-engines needed coal, of which Britain had plenty. But Churchill’s internal combustion engines needed liquid fuels derived from crude oil, of which Britain had only a negligible amount. So what on earth was he thinking? But Churchill was convinced that warships which coupled the technology of the internal combustion engine with the physics of crude oil could be made larger, more heavily armed, faster, and with a greater range of operation, than any warship that utilized a coal fired steam-engine. The introduction of the internal combustion engine would therefore ensure that in the competition with France, Russia and Germany, the British Navy would remain superior.
Churchill turned out to be right. Judging by speed, range, ease of operation, reliability and economics, the internal combustion engine fueled by a crude oil derivative did indeed outperform all other transportation solutions. And, as it turned out, these advantages applied not only to (war)ships,…
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