The Future of Oil – The View from December 2017

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  The oil industry has enjoyed its best 4 months in 2 and a half years, with the price of Brent crude holding steady above $60 per barrel (pb) since the last week of October. Falling global inventory, temporary disruptions and geopolitical risks in the Middle-East have combined to fuel this rally. And the agreement announced at the end of November, between OPEC and other oil producing countries to extend the 1.8 million barrels per day (bpd) production cuts until the end of 2018, should encourage the continued drawdown of stockpiles that will sustain the price gains. Many commentators now believe that market rebalance is underway. Major banks have progressively boosted oil price predictions in their monthly forecasts. Goldman Sachs, for example, has cited stronger commitment from OPEC as the reason that prices will increase by 9% over the next year. Oil majors enjoyed a bumper 3rd quarter, with profits growing by 30 – 60%, compared to the same quarter last year. Predictions of Brent crude price reaching $80 pb in 2018 is no longer out of the ordinary, as the industry is on the verge of its next boom cycle. Yet, strong headwinds remain. Since the last review published six months ago, electric vehicles (EVs) have grown from strength to strength. In response to urban air pollution and as a means of cutting carbon emissions, key European countries have announced definite dates to ban the sale of new petrol and diesel cars, following the strong pivot to EVs by both China and India announced earlier this year. if successfully implemented, such bans would surely decrease oil use in the transport sector. Furthermore, every significant automaker has jumped onto the EV bandwagon, and hundreds of models have been announced for release within the next five years, ensuring that consumers have a plethora of options that would enable them to make the jump. Efficiency gains from tightening fuel efficiency standards and the emergence of ride sharing platforms like Uber are other developments that will also diminish future oil demand for transport. However, an immediate concern that could inhibit this rally is the action of US Shale producers, who seem poised to exploit the improving oil price. They have shown restraint so far, focusing on improving their cashflow, but are in a position to swiftly ramp up production whenever the circumstance dictates. Some commentators believe out that shale production will not increase significantly until prices cross the $70 pb threshold. And such a scenario is no longer far-fetched in the current climate, so how the oil industry plays out over 2018 is going to be interesting.

Short-term

Simply put, the OPEC-led cuts are working. According to data from the International Energy Agency (IEA) and OPEC, global oil inventories peaked this past summer and dropped to 130 million barrels above the 5-year average in November. In the US, recent data show that inventories have fallen to the lowest level for this time of year since 2014. Oil futures price curves have also flipped to backwardation, a condition where oil that is available for immediate delivery sells at a premium to that to be delivered in future months. This encourages those holding large inventories to sell them off, bringing down storage levels further. The success of the OPEC-led cuts can be largely ascribed to a remarkable level of compliance to the agreement. After compliance waned in June and July, a monitoring meeting was held where all signatories were implored to honour their commitments. A sharp production decline swiftly followed. A Bloomberg survey estimated that OPEC production fell by 80k bpd in November, compared to the previous month, dropping to 32.47 million bpd, a six-month low. Saudi Arabia has been instrumental, by absorbing a greater share of the cuts. It has been hyping a 2018 IPO for 5% of Saudi Aramco, and requires higher oil prices to hit its targeted valuation of £2 trillion for the company. Moving forward, the partners will find it harder to maintain such high compliance levels. One player that will struggle to hold down production is Russia. It was initially reluctant to extend the cuts, but got on board after it won some concessions. Maintenance at a couple of fields off its eastern coast helped lower production between August and October, but both are now back in full production, rising Russian production by 50K bpd. In November, 385k bpd total production came online on the Russian Arctic coast, which will introduce challenges in meeting its 300k bpd cut quota. The production cuts may even be working too well, in light of other developments are supporting a price rally. Temporary disruptions, like Hurricane Harvey in September, which caused the shutdown of US production and refinery operations in the Gulf coast have also fuelled the price rally. An enduring consequence of Hurricane Harvey is the increased difference or spread between Brent and WTI prices, which reached $8 at some point in October from an average of $2 earlier this year. The US Energy Information Administration (EIA) sees a spread of $6 persisting into the first quarter of 2018, due to limited pipeline capacities and other bottlenecks that hinder the delivery of surging production from the Permian. The spread has also boosted US oil exports, which reached record levels of 2 million bpd in November. A spill from the Keystone pipeline in the US also necessitated a shutdown for weeks, cutting deliveries through the 590k bpd pipeline by 85 percent. In the UK, INEOS shut down the Forties pipeline for repairs after a crack was discovered. Repairs are estimated to take up to 4 weeks to complete. The Forties pipeline carries 450k bpd, about 40% of North Sea crude, so more than 80 platforms also have to shut down operations, along with the Grangemouth refinery in Scotland that processes some of the crude. Something else that is supporting a price rally is Middle East geopolitics. Kurdistan, a semi-autonomous region in Northern Iraq, held a successful independence referendum, which was not recognized by the government in Baghdad. This increased the risk of disruption, as the Iraqi government initiated military action to secure its oil fields that were in the hands of the Kurdish security forces. Similarly, Saudi Arabian military action in Yemen, its confrontation with Qatar and its intervention in Lebanese politics has heightened destabilisation concerns. Yet, it is internal Saudi political manoeuvring, which culminated in the arrest of a number of prominent princes, that has been a greater cause for concern. Saudi Arabia & Iraq have a combined supply of 14.5 million bpd, which dwarves the 4.8 million bpd combined production of OPEC members Nigeria, Libya and Venezuela that have been sources of the supply concerns over the past couple of years. So, any disruption from either nation would have a greater impact on oil markets. Nigeria and Libya, initially exempted from the production cuts, have now agreed to cap their production at the current levels of 2.8 million bpd. This means little as both will find it difficult to produce more than their current levels. Venezuela remains a concern, its production dropped by 250k bpd in 2017 to below 2 million bpd, its lowest level in 3 decades. The Venezuelan oil company, PDVSA, has also been sued by China’s Sinopec over missed payments, a sign of a worsening situation as China was one of the few backers of Venezuela, offering more than $50 billion in loans over the past decade in exchange for oil. President Trump’s decertification of Iran deal and his recognition of Jerusalem as Israel’s capital have produced no observable effects so far, but both steps have the potential to trigger disruptive actions by aggrieved parties, which could eventually impact oil prices. The major beneficiaries from the OPEC-led cuts, disruptions and geopolitical manoeuvring sappear to be US shale producers, as US production has grown from 8.5 since cuts were announced at the end of 2016, to an EIA-confirmed average of 9.48 million bpd in September. Recently, EIA weekly data showed that US production hit a record high of 9.78 million bpd. Rig count has largely been flat as US Shale producers are hesitant to ramp up drilling in response to OPEC-led cut extension. They are facing pressure from investors to improve their cash flows. Bloomberg profiled several prominent shale producers and the shift from growth-at-all-costs to a focus on profits appears genuine. But, some analysts see the recently passed tax reform bill stimulating both US drilling and oil demand. Nevertheless, the number of drilled but uncompleted wells (DUCs) have surged in the past year, mainly in the Permian region and currently number over 6000. These DUCs would enable shale producers to swiftly bring more production online with further price increases, which should then lead to supply increases that will stymie the price rally. The IEA even holds the view that US shale production would grow so sharply in the 1st half of 2018 that it would bring back inventory builds. Additional production should be able to lock in prices above $50pb, as according to a Wood Mackenzie survey, there was a 147% increase of new hedging contracts in the 3rd quarter compared to the 2nd quarter. The EIA forecasts total US production to average 9.9 million barrels a day in 2018, marking an all-time high. Total non-OPEC supply (including US Shale) is expected to grow by 1.6 million bpd in 2018, according to the IEA, which could potentially end the strong inventory drawdowns of the past 6 months. Saudi oil minister Khalid al-Falih has said that OPEC and its partners will consider their next steps by June, particularly in regards to an exit strategy for the cuts. With close to 2 million bpd of spare capacity, Saudi Arabia can also bring back supply to the market if it so desires. Overall, demand has grown by 1.5 million bpd this year, on the back of robust demand from China. It is believed that much of the growth from China of the past few years has gone into its strategic petroleum reserves (SPR), as it has taken advantage of low prices to stockpile. Some analysts fear that growth will slow down as the SPR fills up. But according to satellite data, China might actually be stashing oil in its SPR at a smaller rate than initially thought, which implies that a robust demand will continue. Oil demand in OECD countries is also on the rise, reversing the reductions achieved between 2005 and 2014. Several years of cheap gasoline has resulted in consumers going for heavier SUVs and trucks, despite policies intended to encourage fuel efficiency. Based on current trends, the IEA estimates that 62% of the OECD decline could be reversed by the end of 2018, which would contribute to a 1.3 million bpd total demand growth in 2018. This, along with strong compliance for the OPEC-led cuts and continued moderation by US Shale producers, should see the gains of the past 6 months sustained and Brent crude price begin to flirt with $70/bbl shortly.

Long-term

Climate change continues to loom large over the fossil fuel industry – coal, oil and gas. Researchers around the globe have linked 21 out of 27 extreme weather in 2016 to human-induced climate change, including coral bleaching in the great barrier reef, droughts in Southern Africa and wildfires in North America. A study from the Lancet claims that more than a billion people could be forced to flee their homes due to higher temperatures, with the movement of people and other effects of climate change having the potential to trigger a major health crisis. This year even saw the unprecedented feat of 3 Level 4 Hurricanes – Harvey, Irma and Maria – making landfall in the US. The record rainfall from Hurricane Harvey has been directly attributed to climate change. Meanwhile, President Trump’s vow to pull the US out of the Paris agreement, leaves the US as the only holdout, as the two other nations – Nicaragua and Syria – joined the agreement this year. At the Bonn climate conference in November, there was another US delegation that dogged the official one, made up of states, cities and businesses that insist that they are still in the Paris agreement. Addressing climate change will require a shift to a global energy system dominated by renewables. The shift to renewables has already begun, as fossil fuels, particularly coal, coming under sustained assault. According to data from IEA’s World Energy Balances, coal-fired power plants are being retired all over the world, and consumption continues to fall as China, the US and the UK switch off coal power generation in favour of gas and renewables. At the Bonn climate conference, a UK and Canadian initiative saw more than 25 countries and regions pledging to phase out coal power generation in favour of renewables by 2030. After 3 years in which CO2 emissions plateaued, emissions are on course to grow by 2% in 2017, due in part by a rebound in coal use in China. Yet, China has moved to halt construction on 150 GW of new coal-fired power generation capacity worth $80 billion, with $20 billion already spent, to be replaced by solar PV. The Chinese government aims to eliminate old inefficient plants and upgrade its coal fleet to be more efficient and keep the country’s total coal power capacity below 1,100 GW by 2020. China has also pledged to derive 42% of its electricity from renewables by 2030. This rapid transition to renewable energy could lead to a glut of coal-fired power plants, it could be stock with $90.4bn worth of “stranded coal assets” by 2030, plants that will never make a return on investment. China’s energy companies are scheduled to deliver nearly half of the new coal generation in the next decade, more than 700 new plants at home and abroad. India, the second-biggest coal consumer and importer, has endured record breaking levels of air pollution this year. In August, it cancelled plans for 14 GW of coal-fired power plants, and should hit peak coal demand for its power sector within a decade, according to new analysis, levelling off a lot sooner than previous projections. The IEA estimates that two thirds of capacity added to the global energy system in 2016 was renewables. It is likely that the solar industry will surpass 100 GW of installations for this year, that’s up from 76 GW a year ago, after growing exponentially from 8.1 GW installed in 2009. In the last 8 years, the levelized cost of electricity for utility-scale solar and wind dropped an average of 15.5% and 13% for per year respectively. And investments in electricity exceeded that for oil and gas for the first time ever in 2016. The emergence of EVs has made electricity a greener alternative to oil as a transport fuel. Consequently, France and the UK have enacted laws to end the sale of petrol/diesel vehicles by 2040, with the Netherlands targeting 2030. France has even gone as far as passing a law that bans all oil and gas production from any of its territories from 2040, though it is a mostly symbolic gesture, as local production accounts for 1% of its consumption. The UK plans to spend £1 billion by 2021 to promote EVs and other low-emission vehicles. Natural gas and fuel cell (hydrogen) vehicles are other viable options that should also come in play, particularly for trucking. Beyond road transport, the International Maritime Organization (IMO) has set a new limit for fuel sulphur content that is due to come into force in 2020. The average sulphur content of residual fuel oils which is the current fuel of choice for majority of ships is much greater than the new limit. Therefore, liquefied natural gas (LNG), which essentially contains no sulphur, is being touted by a number of oil majors as the fuel that would enable ships to comply with the new limit. And for some time now, gas has been recognised as the bridge fuel in the transition to a renewable energy system. Solar PV and wind cannot be relied upon to constantly provide electricity due to their intermittency, and need to be paired with a balancing source to kick in when demand exceeds supply. Gas-fired power plants function as a balancing due to their flexibility. Advances in lithium-ion batteries, especially for EV application, puts gas in danger of being overtaken by energy storage. The world’s largest battery storage facility was installed by Tesla in South Australia at the end of November amid great media fanfare, but is due to be surpassed by a larger facility in South Korea that will be operational in February. It is estimated that the global energy storage market will double six times between 2016 and 2030, with storage costs continuing to decline significantly over the next five years, mainly due to technological improvements, along with economies-of-scale and standardization. This is a similar trajectory to the remarkable expansion that the solar industry went through from 2000 to 2015, in which the share of solar PV as a percentage of total generation doubled seven times. Electricity is also being considered for air transport, an industry that accounts for 2% of global CO2 emissions, and is expected to triple by 2050 as demand for air travel accelerates. Airbus, Rolls-Royce and Siemens plan to collaborate on a hybrid-electric test aircraft that will fly by 2020. Boeing has taken a stake in aerospace start-up Zunum, which aims to have a 10 – 12 seater all electrically powered aircraft flying by 2022 and to eventually scale up to 50-100 seaters by 2030. Although battery technology is developing exponentially in response to EV demand, 10 times more power density is required to apply to air transport. Lithium producers are struggling to keep up with demand as sales of EVs have gone from almost zero to half a million within a decade. Prices of lithium carbonate have more than doubled in the five years to 2016. More lithium mines are being planned in Australia, Chile and Argentina, and reserve figures keep rising. Other materials used in lithium-ion batteries, like cobalt, are vulnerable to supply chain disruption and could slow down production. However, alternatives such as flow batteries, zinc-air batteries and solid-state batteries are currently being developed and could become commercial within a decade. The most critical challenge to the fossil fuel industry remains the actions of the financial sector. This year saw a proposal by the Norwegian sovereign wealth fund, the world’s largest at $1 trillion, to ditch its oil and gas shares because of the volatile oil price, and not due to climate change argument. Banks like JPMorgan Chase and HSBC have promised hundreds of billion in financing for clean energy through 2025. HSBC also plans to reduce its support for coal and expand its the disclosure of the bank’s climate risks. A growing number of insurance companies increasingly affected by the consequences of climate change are selling holdings in coal companies and refusing to underwrite their operations. About £15bn has been divested in the past two years. And it is not only coal that is on the chopping block. In October, BNP Paribas said that it would no longer lend to shale and oil sands projects. Dutch lender ING then announced that it is cutting off finance for upstream oil and gas by 2019. And now, the World Bank has officially stated that it will not finance upstream oil and gas after 2019. ExxonMobil even recently bowed to shareholders and has agreed to provide more disclosure related to its potential risks to climate change. However, Bank of America Merrill Lynch’s November European fund manager survey showed that oil industry was still the most popular. Though fund managers are beginning to rethink their oil exposure, they say the shift will be slow. What began as a divestment movement a few of years ago is beginning to snowball and could lead the oil industry down a similar path of coal. Petrochemicals will provide a refuge, though the increasing spectre of plastics in oceans and the eventual global action to address it, indicates some additional challenges down the line.

Medium-term

Based on automakers’ pronouncements over the past year, the number of EV models will shoot up from 21 models this year to more than 200 within 5 years. Most of these models aim to achieve a minimum range of 200 miles per charge. Tesla, the pioneer in this field, has been struggling to ramp up production of the mass-market Model 3 to meet its 400k pre-orders, nevertheless the emergence of EVs is now bigger than Tesla. GM Bolt US sales have surpassed those of all Tesla vehicles, and hit a record of almost 3,000 units in Novembers, with a total of over 20,000 sold to date. GM now plans to launch a new family of electric vehicles in 2021 that will cost less to build. Nissan has launched a new version of its moderately successful Leaf, with a longer ranch of 160 miles per charge, to go on sale next year. Volvo announced that it’ll be ditching internal combustion engines (ICE) vehicles by 2019 to focus on EVs and hybrids. Jaguar Land Rover plans to achieve something similar by 2020. BMW aims to release new electric Minis in 2019. Volkswagen targets a $40 billion spend on EVs, and provide an electric option for its 300 models by 2030, as it pivots away from diesel-gate to restore its reputation. Toyota has gone all in for EVs, reaching an agreement with Panasonic to develop its own battery cell pack, and aims provide an electric or hybrid option all of its vehicles by 2025. Demand for EVs is expected to grow exponentially, as more options become available and EVs become cheaper. The cost of EVs is closely linked to cost of lithium-ion batteries, which has fallen by 75% from $1000/kWh between 2010 – 2016 primarily due to competition among manufacturers. Tesla expects to be able to achieve $124/kWh by relying on economies-of-scale once its Giga factory is completed in Nevada and achieves full production capacity. According to Bloomberg New Energy Finance (BNEF), Sales of EVs and hybrids are 63% higher compared to a year ago, driven by strong demand in China, which has accounted for more than half of global sales, amid government efforts to curb urban air pollution. EV sales should surpass 1 million units this year for the first time, then account for 8% of vehicle sales by 2025, and 24% by 2030. This translates to just under 25 million units sales by 2030, with about 35% of sales coming from China. The implication is that lithium-ion battery production will need to expand by about 30 times current capacity to meet this forecasted demand. Volkswagen projects a huge battery shortage by 2025, with the industry needing 40 Gigafactories. Some commentators claim that battery production capacity will need to increase tenfold from 2020 to 2037, the equivalent of adding 60 new Gigafactories. There are plans afoot by battery manufacturers LG Chem, Samsung SDI, Panasonic, Tesla, Siemens, Daimler, Sonnen and BYD to massively expand their manufacturing capacities, with 26 factories currently either in production or under construction. Following the experience curve, it is expected that battery costs will drop by 28% with every doubling of capacity. EV charging infrastructure is also expanding globally to support the proliferation of EVs on the road. For instance, there are now over 50,000 charge points (both public and private) operating in the US. In Europe, Shell and Allego have teamed up to install fast chargers at selected Shell service stations in the UK and the Netherlands, which aim to be operational by the end of the year. Among the oil majors, Shell and Total have been making aggressive plays for renewables. Shell in particular, has zeroed in on EV charging infrastructure, partnering with IONITY – a joint venture between BMW, Daimler, Ford and Volkswagen – to deploy ultra-fast chargers on Europe’s highways, initially to 80 highway sites in 2019. Shell’s CEO went as far as to say that his next car would be an EV, an extraordinary statement from an oil major executive that says a lot about the future of oil as a transport fuel. Recent oil demand growth has mostly come from China and India. Both nations have made much-publicised EV pivots to address excessive urban air pollution, which will undoubtedly impact oil demand. China, in particular, is mandating automakers to sell enough EVs or hybrid vehicles that equate to 12% of auto sales by 2020. The Chief Economist at Saxo Bank claimed that oil prices could decline to $35 a barrel next year if China and India speed up the adoption of EVs. In response, a number of automakers have revealed plans to develop EV models for the Chinese market. Tesla plans to open a factory in China that will start producing cars in 2020. Volkswagen said it would spend $12 billion by 2025 to create 40 new models for China. Ford is also partnering with a Chinese automaker to build EVs in China. Toyota intends to roll out 10 new EV models in China first, before introducing them to other markets. Heavy-duty trucks have also come into sharp focus this year, with Tesla unveiling its Semi in November. Although, trucks only make up 10% of vehicles on the road and 20% of miles driven, they emit about 40% of all vehicle emissions. Tesla claims that its semi is cheaper and safer to diesel semis than, and it has 500 miles of range, which is more than plenty considering driving regulations in the US and Europe. Tesla plans to install “Megachargers”, to provide 400 miles of charge in 30 minutes, which makes range a non-issue. Tesla Semi production will begin in 2019, in the meantime, every other week sees another company announcing a record number of pre-orders, with UPS currently holding the record of 125 trucks. The Tesla Semi already has competition with companies like Nikola (collaborating with Bosch), Volvo, Scania, Cummins, Daimler, Toyota and BYD moving aggressively into this segment with solutions that include hydrogen and natural gas for both intra-city and long range freight. With all these EV developments, OPEC revised up its EV adoption forecast to 235 million units by 2040, a 5 times increase from its 46 million estimate a year ago. This follows revisions from the IEA, ExxonMobil & BP, who have all significantly boosted the numbers from previous estimates. These forecasts still dismiss the impact of EVs on oil demand, and see ride sharing platforms and tightening fuel efficiency standards having more of an effect. However, BNEF forecasts 530 million EVs on the road by 2040, which is more than 2 times that of OPEC. They see EVs accounting for 54% of new vehicle sales, including electric buses and trucks, with the significant implication of displacing 8 million bpd oil demand by 2040. In a bid to keep ICE competitive, oil majors ExxonMobil, Shell, BP and others have teamed up with automakers like Ford and Fiat to develop the next generation of engine lubricants, which could help boost fuel efficiency and stem a tide of consumers turning to EVs. Oil majors are also looking to boost supply in medium term by aggressively pouring money in shale drilling technology in search of innovations. For example, Chevron has allocated $4 billion in investments in 2018 to boost production from the Permian Basin, with a target to exceed 400k bpd over the next few years. ConocoPhillips is also directing new investment into US shale, and plans to only invest in projects that can be profitable at an oil price below $50 per barrel. However, researchers at MIT claim that EIA’s official forecast for the growth of shale production is inflated. The researchers say that recent growth is primarily due to drillers to focusing only on the sweet spots, not on technology as the EIA has assumed. Therefore, production could be 10% lower than EIA forecasts by 2020, a disparity that will widen in subsequent years. Shale development is also progressing in other countries like Canada, with Chevron is at the forefront, and in Argentina where ExxonMobil is active. Argentina’s YPF aims to raise its unconventional output by 150%, to have shale oil and tight gas account for half of the country’s production by 2022. Offshore production has also received significant spending this year, with projects such as Eni-led Zabazaba project reaching final investment decision. According to Wood Mackenzie, more projects have received the greenlight in the 1st half of 2017 compared to the whole of 2016, as oil majors “re-engineer” projects to lower costs and accelerate the speed of development. Much of the savings have come from squeezing oilfield service companies that provide equipment and build infrastructure. However, activity remains far below the annual average of 40 major projects between 2007 – 2013, as more than 100 projects have been delayed since 2014. This is why Halliburton expects oil prices to spike sometime in 2020 or 2021, as the $2 Trillion cuts in investments over the past couple of years has led to a situation where there may not be enough supply coming online to satisfy future demand.

What next?

With a market rebalance underway, the oil industry is entering another boom cycle and will remain the darling of investors in the near future, guaranteeing handsome returns albeit with some volatility. But for how long? In its World Oil Output, OPEC sees oil demand growing from 96 million bpd to 111 million bpd by 2040, with demand growth from China and India driving this. But, both China and India have initiated policy actions that will encourage the shift to EVs, so it is difficult to see this demand will come from. Similarly, the IEA expects oil demand to continue to grow irrespective of the proliferation of EVs, as freight (heavy-duty trucks) has accounted for 40% of total oil demand growth since 2000. The IEA correctly points out that current focus is on passenger vehicles, where many EV models are being developed to compete with ICEs. But they appear to overlook efforts by Tesla, Daimler and others, who are developing and trialling alternatives to diesel trucks. The expansion of lithium-ion battery manufacturing capacities in the next few years will result in EVs achieving cost parity with ICE passenger vehicles before 2025, which would trigger a massive shift to EVs. And allied with the growth of ride-sharing and tightening fuel efficiency standards, this will cause peak oil demand to arrive within a decade. At that point, the battle for market share will see low-cost producers easily carrying the day, as they outlast all others in the war of attrition that will result from chasing flat or slowly declining demand for oil. In the meantime, new oil discoveries are at all-time lows and non-OPEC producers (excluding US Shale) will struggle to boost production at current prices. Shale companies will also find it increasingly difficult to keep ramping up as they deplete their most profitable wells in choice acreages and have to move to higher cost reserves. So, oil prices will need to rally above $70, before US supply increases significantly and causes OPEC problems. And with the current state of global affairs, the odds are that another disruption or geopolitical event may just tip the balance. As the industry embarks on this next boom cycle, which is likely to be its last, tough choices need to be made if organisations that have dominated the energy industry for decades are to remain relevant. It took only a 2 million bpd glut to upend the industry, and the proliferation of EVs alone can potentially eliminate the same amount from oil consumption by 2030 and bring back the pain of the past 3 years. This is even without factoring the impact of ride sharing platforms and tightening fuel standards. When the next bust hits, the industry will likely find credit taps turned off, a logical outcome brought on by the commitments being made by major players in the financial sector. Wood Mackenzie expects that as global oil demand growth slows to a crawl and gasoline use peaks in the next decade, oil majors will accelerate their shift to natural gas and chemicals. Bolder strategy will be required to successfully navigate what is ahead. With the purchase of First Utility, Shell just made an intriguing move, but it is the direction that it takes with its this and similar purchases that will determine its position in the new energy landscape. It is not only the oil majors that need to act, technology providers, engineering companies and service providers also have up their game, lest they find themselves clutching the coat tails of upstarts. The global transition to a renewable energy future is still wrought with challenges, with intermittency a tough but accessible nut to crack. Here lies the opportunity for those willing to take it. The risk may be great, but the rewards will be greater still.

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