This is an excellent post. However, I suspect that oil producers will, when looking back from 2020, only wish $50/bbl had been the floor. They may be lucky to see an average price of $25/bbl from today to 2020.



Saudi oil minster Ali Naimi alluded to the possibility in a recent conference when he asked “Is there a black sawn that we don’t know about which will come by 2050 and we will have no demand?”



He might have said Saudi Arabia and other oil exporting countries face twin Swans. On the supply side there is the fracking swan. On the demand side there is the conservation swan. The two could eat all of the oil market.



Fracking seems to be doing to oil and gas production what the personal computer did to main frame computing. The first gas well was fracked in 1999. At the time the largest oil and gas companies were planning to spend billions to import natural gas into the US. Fifteen years later they are now hoping to export gas. Meantime the price of natural gas has not risen above $3/mcf ($18/bbl) since 2009. As prices fall the experts tell us that drilling for gas will stop. They have been wrong. Moore’s law applies. The costs are falling so fast firms are still making money at $2/mcf.



Fracking came later to oil. The impact has been even more dramatic. US oil production is double the level projected five years ago. Again the experts tell us drilling will stop. Again the companies drilling say that they will just drive down costs and boost productivity. Again, Moore’s law is at work. The fracking swan is eating into the market OPEC expected to have.



Meantime, hydrocarbons are being pushed out of markets by conservation and renewable. Productivity of solar panels and vehicle engines are improving rapidly. Coal is being displaced by natural gas as is diesel and gasoline. Oil producers are under a siege - and there seems to be no way out.

