Looking through the Crystal Ball: Oil – Part 1

How important is oil to our future? Will prices continue to decline as new sources of power take their place, or will they sky rocket as world economies continue to shake. In the first of a two part series, the P4Capital executive team speculates on what the future holds.

Stay tuned.

 

Transcript


Amanda: Last week CEO Jim Carlson speculated on looking through the crystal ball to see the future of oil. In the first of a two part series, the P4Capital executive team does just that. Join us as we speculate on the future of renewable energy, the economy, and if fossil fuels will become fossils themselves.

Jim: Today’s topic is, is oil relevent for the next 20 – 30 years? We examine the impact of the recent price decrease in oil as a natural resource, and some of the findings that have been published as new manufacturing direction under industry 4.0, which is basically to paraphrase: a smart factory.

Shaheerah: Okay, just to recap a little bit from our last Podcast, demand is low because of weak economic activity, increased efficiency, and a growing switch to other fuels instead of oil. America has become the world’s largest oil producer. Although ti does not export crude oil, it imports much less. And so that’s creating a spare supply. Saudi’s and their Gulf allies have decided not to sacrifice their own market share of oil, so they decided not to lower their production supply. Countries that they don’t like, like Iran and Russia would benefit from that so, they don’t want to give up their market share. Saudi Arabia can actually tolerate lower prices quite easily. They have 900 billion dollars in reserves, and their own oil costs only 5 – 6 dollars per barrel to get out of the ground.

Amanda: That’s Saudi Arabia, right? Do you know anything about Dubai?

Jeremy: Well, it’s interesting that you bring up Dubai Amanda. I don’t know what their cost of oil production are, I image they’re similar to Saudi’s same general area of the world, but if we’re betting on the future of oil it looks like United Arab Emirates and Dubai in particular, have been trying to diversify their economy and kind of position themselves as a modern-day Disney World for adults. That where they see oil going.

Jim: Coming back to market share as Shaheerah pointed out, Iran and Russia obviously see the benefits of being a net exporter of oil. The other nations that are being analyzed right now is North America itself. The oil sands coming out of Alberta and regardless of when the pipeline will be commissioned into operations, that will give North America a complete footprint from the ground into pump, where the need for importing of oil will be dramatically reduced. Therefore what you’ve done is you’ve taken the appetite from oil and now said to the major oil producers, I really don’t need your oil to come across the seas as it is right now. I can produce my own.

Archana: Talking about Alberta, yes I mean, it is a very oil dependent economy, but there is a major push in fact on Alberta’s premiere to make it more resistant to these oil shocks. When the economy is so dependent on oil and the sustenance of the economy depends on upheavals that are going on in the market, it can be quite a volatile situation. So there is a major push in Alberta to diversify and to look at other avenues as well. Also, another thing to be noted is that this week, Canada’s top banks are expected to bring out their results this week, and it is expected that the results would show a major decline in investment banking profits, primarily due to the oil prices.

Jim: The crystal ball of the future, which is not too much in the future, says smart manufacturing is going to be the way the, quote unquote western economies will be headed, and they are in fact headed their right now. Which is a heavy adaptation of technology with the use of breakthroughs, and the internet of everything, cybernetics, etc. Currently, if one looks at global manufacturing, the engine is China, and China has to import all its fuel to keep its manufacturing plants up and running. And the interesting part about what China does, is they do first and secondary manufacturing, but finishing manufacturing normally goes back to the domiciled country. So therefore, manufactured parts have got to be, the raw materials have got to be shipped to China, and to the semi-finished parts have to be shipped to another country. That requires a huge amount of fossil fuels to make that happen right now. As I mentioned int he crystal ball, that model is now under attack primarily from the western based economies saying “Wait a minute, if I can manufacture at a lower cost than I can currently right now, I don’t have to rely on China and I don’t have to rely on the price of fossil fuels in my overall manufacturing price, so that’s what’s happening right now – as we speak, in the technology fields.

Jeremy: Now I’m no geologist, I don’t know what you guys heard, but how does China – a country that’s almost as big in terms of land mass as Canada or the United States, fourth biggest in the world, how do they not have a major domestic oil production of their own?

Jim: If you’re asking me the question becomes rhetorical, because I have no idea of what the answer is.

Amanda: It should be noted that P4Capital is capital experts, not necessarily geographers.

Shaheerah: I also wanted to mention some recent advances in technology and science. Last year in April, the US navy scientists actually found a way to turn sea water into fuel. This new fuel is initially expected to cost around 3 – 6 dollars per gallon, according to the US naval research laboratory. They have actually already flown a model aircraft on that as well. So the scientists found a way to extract carbon dioxide and hydrogen gas from sea water, and then these gases are then turned into a fuel by a gas process with the help of catalytic converters.


 

That was the P4Capital team discussing the future of oil and what could replace it. Want to know more? Stay tuned for part two next week, or check out our website  at http://www.planet4it.com or follow us @p4capital. Thanks and see you next time.

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