Trump’s Folly: Oil is a Worthless Commodity and Saudi’s Crown Prince Knows It

By Juan Cole | (Informed Comment) | – –

Crude oil prices are cratering, down 20% this year, in the biggest 6-month free fall in years.

As Annie Pei of CNBC notes, Investment guru Dennis Gartman admitted in an interview with the network that petroleum is “a worthless commodity.”

Gartman said that prices could rally a bit in a couple of weeks, but added “I’ll tell you one thing: in the long run, crude oil is heading egregiously lower. . .” Egregiously here means like shockingly.

Of Saudi Crown Prince Muhammad bin Salman, Gartman said, “He understands that crude oil, over the course of the next 20 to 40 years, is going to be a worthless commodity . . . It will be supplanted by something else.”

He is referring to the prince’s Vision 2030 plan for the kingdom, which hopes to get it off dependence on oil imports in only 4 years. That is, the crown prince knows that he is holding lakes worth of a stranded asset.

Some 70% of petroleum is used for transportation. Its use for electricity production in industrialized countries is rare.

The future of transportation is mass transit and electric vehicles. It took a decade for electric cars to reach 1 million on the road, in 2015. But in 2016 they doubled to two million, in just one year.

India, which has very little petroleum of its own, wants to cut down on its import bill, and avoid the kind of mega-smog now blanketing New Delhi. Its environment minister has therefore announced that he would like to see the Indian private automobile fleet be 100% electric by 2030!

India has about 70 million vehicles on the road. To replace them on this schedule, they’d have to buy about 5 million EV’s a year, 5 times more than were bought in the entire world last year. The Indian government says it will subsidize the process. If the Indian government subsidizes the engineering of an inexpensive Indian electric vehicle as well, it could take over the entire Asian market, tout de suite. Chinese EVs are already popular– the Chinese bought half a million of them last year (that is, half of all the EVs bought in the world).

Government incentives work. Norway is transitioning to EVs faster than any other country on earth (despite being an oil state itself), largely through government programs.

Insiders know all this, which is why Muhammad bin Salman is in such a hurry to find something else for his kingdom to do for a living.

Dubai, part of the United Arab Emirates–one of the world’s major oil exporters– has serious plans for a green future. One of the major solar energy concerns is Masdar, based in Abu Dhabi, also part of the UAE. New bids for solar installations in the UAE are being let for 2.4 cents per kilowatt hour. That’s a fossil-fuel killer.

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21 Responses

  1. Carbon energy can not compete with non-carbon energy for several reasons:

    – All carbon energy that can be harvested for very little cost has already been used up. All the carbon energy left requires more and more costs to harvest. Long term the cost to produce a kilowatt of carbon energy will have to go up.

    BUT . . .

    – The cost of non-carbon energy is decreasing every day as the technology evolves. That is, non-carbon energy technology is following a curve very similar to CPUs, memory chips, image sensors, etc.

    – Right now we have a carbon energy glut because conversion from carbon energy to non-carbon energy plus massive energy conservation has drastically lowered the demand for all forms of energy much faster than most people anticipated and that trend is accelerating.

    As a result, as professor Cole noted Saudi Arabia is sitting on an asset that is losing value by the day, especially as most countries (but not the USA) have figured out for any country to thrive by 2050, it MUST be energy self-sufficient so their wealth is kept at home and not drained by others.

    So by 2050 at the latest, Saudi Arabia will have no market for its oil, just like coal producers are running out of markets for their product right now. Within a few short years there will be no active coal mines in the USA because they will not even be able to give coal away (unfortunately, due to USA politics, the coal workers will be in terrible shape – instead of fighting market forces the USA should be educating and moving coal miners to other parts of the USA).

    I helped designed some of the technology we have today and I see non-carbon energy following the SAME PATH which will make carbon energy producers into the buggy whip makers of today.

    • ….making Putin even more dangerous. How will the hollow giant that is Russia respond when its leaders realize their primary source of wealth is going away for good?

      May you live in interesting times, eh.

  2. The average age of an American auto is over 11 years and the number of cars 16 to 24 years old is around 44 million.

    Many of these probably do very little miles but car reliability is now so high a car can be run for 20 years. In India, with lower GDP, cars are likely to be kept going even longer.

    If the oil price drops, these old autos get even cheaper to run. Unless there is a program to remove them from the roads, petrol powered cars will be with us for decades to come.

    In India the middle income car owner will bitterly resent having their functional vehicle forced off the road, while the poor would be the losers if the government provided subsidies to car owners.

    A 100% electric fleet in only 13 years in India is nearly as unlikely as the Saudis dropping oil without becoming an impoverished desert state.

    • You’re not paying attention. Norway jiggered things so it is. cheaper to trade in old vehicle for ev. Also India is on verge of doubling fleet & Norway type policy can ensure people want evs.

    • I’m looking at that exact problem right now, and doing the numbers on my 10-year-old Passat, the one that jumps out is not the gas- it’s the maintenance. Fixing what is likely to go wrong from here on with that fantastically complicated 2-Liter dual turbo- not to mention the transmission- is going to be a considerable expense. If I go for a Leaf for daily commute I can let the Passat sit and I won’t pay that maintenance. And the maintenance on the electric car is pretty near zero, forever.

      Looking at cost of ownership, the maintenance cost differential is one that didn’t occur to me originally- but really jumps out when you have a look at costs over time. It makes the all-Electric a no-brainer, really. It’s that much cheaper.

    • I think as more and more medical studies show the health risks from diesel particulates in populated areas, you will see programs to retire diesel cars or ban them from urban areas. In some parts of Europe diesels are the primary form of car. So something will have to replace them.

  3. How much of the total oil and other fossil fuel production is not used as fuel? What percentage is used as chemical feed stock, lubrication, plastics, furtelizer, etc? In other words how much oil must we continue to pump in an all electric future?

  4. It’s really too bad that the United States has cheerfully surrendered most of its leadership positions under the pretext of “becoming great again.” In technology, we want to go back to the beginnings of the Industrial Revolution. In politics, we like feudalism. In international relations, we like mercantilism. In journalism, whatever sells advertising is what gets printed or broadcast or put on the main web page. (“Donald Trump”)

    The “journalism” part is particularly damaging. Not only has news been dumbed down and reduced to “one big thing per day, at most”, a whole major segment of the US population believes all the news that contradicts what they want to hear MUST be “fake.” The US may be in a hole that it can’t dig itself out from.

    • The worship of the past is what holds the Right together. Misrepresenting that past into an absurd cafeteria of self-serving injustices is what keeps its leaders on top. But all these different pasts share the characteristic of inequality, of making “our kind” the masters. Other pasts, like say that of the Amish or the Aboriginies, are conveniently absent.

  5. If Gartmann is correct and I believe he is, though off on timing, and MB Salman has seen the light then MBS must be hiring a horde of snake-oil salesmen to schlep his Aramco on to unsuspecting foreigners for a purported $2 trillion.
    Indeed Gartmann ought to have clued in much earlier when the Rockerfellers divested their ENTIRE petroleum holdings when crude was still fetching triple figures.

  6. Is the EV all non-carbon? The mix is still heavily coal, NG, nuclear, wind, solar in descending order in most heavy carbon countries (us, china, India … ) can we expect a radical shift to carbon neutral in the big carbon states before we all melt/drown?

  7. Great write up on energy and transportation trends. I hope that BICYCLES along with mass transit and electric vehicles are the future of transportation. I work commute mostly by bicycle and mass transit (Metro Trains in LA) and drive a Prius once in a while.

  8. Is there even enough oil left to enable a sustained economic recovery?
    Just before the blowout in 08 cheap gasoline was $4.29 in my area. Bouncing around 5 bucks other places.
    That was a huge hit on truckers, landscapers, construction and others who used a lot of liquid fuel. Fuel costs drive material costs, along with supply. Everything used to build a house went way up. Copper wire went from 45 to 145 for 250′ of 12/2. Lumber went up what, 50%? Strangely production of hand drive nails moved to China and prices more than doubled for 1# of nails.
    08 was a combination of bad stuff not just the bank fraud. Because of demand prices became unsustainable.
    Even without the fraud oil prices would have eventually crashed the economy.
    I think there’s not enough oil to rebuild the economy so green is essential if this is going to ever happen.
    Any resource if demand outstrips production by even a tiny bit, prices will skyrocket. It’s a natural limit on growth.
    Cheers

    • Even with fracking, it is unlikely that petroleum could meet world demand in 2050 if there were not EVs or renewables. Since there are, we won’t ever find out.

  9. The Trump EPA budget “zeros” the EnergyStar Program because POTUS Petty Vindictive hates the program, 11 of 14 of Trump’s hotels fail to comply with the standard. On a scale of 1 to 100, a Park Avenue complex owned by Trump that was formerly the Mayflower Hotel rated 1¬†point.

    Someone needs to tell Trump that the EnergyStar Program was not an Obama initiative but a Poppy Bush program.

    link to usatoday.com

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