Why Gas Prices are so high

Investment Analysis Clubs Macro Economic Trends and Risks
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“Besides, passenger vehicles consume only about 26 percent of the oil used worldwide. Given these stubborn realities and the fact that electric vehicles still represent a tiny portion of new-car sales, reaching a peak in oil demand by 2040 would require more than widespread conversion to electric-powered cars.”

https://theconversation.com/how-electric-vehicles-could-take…

Jaak: My opinion is that we will reach peak oil demand in 3-5 years is based on the following:"

No way. Only a fraction of oil demand is for personal transport. Europe is ahead of the game, partly due to always high gas/diesel prices now in the $8 to $10/gal range. European countries like Germany will convert massively. However, that will barely dent oil demand as most EU cars are probably getting 30-40 mpg now. The rest of the world is ramping up oil use - China’s aviation sector is growing by leaps and bounds. Worldwide air transport is up and would be up more if it weren’t for pilot/crew shortages. The demand for chemicals, fertilizers and the other 10,000 products made from oil will increase as population increases and folks move up the economic ladder.

Jaak:“1. Climate change is accelerating and destroying infrastructure, agriculture, water resources, forests and land faster than previously estimated and which is more valuable than previously estimated. There will be mass migrations due to climate change in ever increasing numbers.”

Hasn’t happened yet, and the exact opposite is true. Folks in ‘mild’ IL and NY are leaving for southern places. TX, AZ, FL growing by leaps and bounds as northern climate folks retire and get tired of snow shoveling and high taxes.

AS northern climates warm, farming belts will move north. Folks in southern areas will grow crops more suited and use genetically modified and hybrid crops that will withstand higher temps.

Jaak:“2. To mitigate these climate change effects there will be worldwide regulations adopted to reduce CO2 emissions from transportation, industry, buildings and power generation.”

Maybe but I don’t think most of Africa, Asia or China will do anything else other than say ‘that’s good’ and totally ignore them.

Jaak: “3. These regulations will force energy companies to develop alternative energy sources.”

Magical energy pills you pop in your gas tank?

Jaak:" 4. The efforts have already been made within the energy industry in finding alternative to the fossil fuel. One such alternative generating is hydrogen. The most abundant chemical element in the universe has become of particular interest due to its potential as an energy carrier. Similar to oil it may serve as a feedstock or main ingredient for transportation fuels, energy generation and storage, and also chemicals production."

Most hydrogen today is made from NG. A net energy loser. Until gigantic mass hydro and solar farms can generate gigawatts of excess power not needed by the grid, it’s a no go.

Jaak: “5. Already hydrogen is being used in power generation, transportation fuels, building heating, and industrial heating.”

What. 000000000000.2 percent of world use overall?

At best, half of all new car sales in the US might be electric by 2030…but that leaves a billion IC engines in use. Farming equipment can use 500 gallons of fuel a day. Transportation large trucks can use 500-1000 gallons of fuel a day. There are hundreds of thousands of them.

Personal car age now is up to over 12 years - and likely will keep going to 20+ years. That means in the US 100 million ICE cars will be around for a long time and in use.

You also fail to note that the ‘oil companies’ are the natural gas business in a big way. Some fields are 99% gas. Some are 99% oil but a lot are a mix. You get both. And oil companies are big players in NG.

We might be approaching ‘peak economic demand’…as prices rise and folks cut back…yet the EIA and other groups forecast continued increases in oil production for another decade. That’s assuming the oil companies wish to make the investments to produce more.

Existing oil fields decline at about 3% a year. Without bringing new fields on line, world wide production will decline.

t.

t.

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22

"My opinion is that we will reach peak oil demand in 3-5 years is based on the following:

1. Climate change is accelerating and destroying infrastructure, agriculture, water resources, forests and land faster than previously estimated and which is more valuable than previously estimated. There will be mass migrations due to climate change in ever increasing numbers.

2. To mitigate these climate change effects there will be worldwide regulations adopted to reduce CO2 emissions from transportation, industry, buildings and power generation.

3. These regulations will force energy companies to develop alternative energy sources.

4. The efforts have already been made within the energy industry in finding alternative to the fossil fuel. One such alternative generating is hydrogen. The most abundant chemical element in the universe has become of particular interest due to its potential as an energy carrier. Similar to oil it may serve as a feedstock or main ingredient for transportation fuels, energy generation and storage, and also chemicals production.

5. Already hydrogen is being used in power generation, transportation fuels, building heating, and industrial heating.

6. Battery technology will continue to improve and be used more than it is today.

7. Fuel cell technology will continue to improve and be used more than it is today.

8. Heavy trucks, buses, ships and airplanes will begin to use hydrogen based fuels, batteries, and fuel cells instead of fossil fuels.

9. Efficiency improvements in the transport sector"

LOL!

Regardless of any truth in your statements, the time frame is impossible.

Especially in the US where a 3 - 5 years timeline (so 2025 - 2027?) includes a likely regime change that will incentivize different goals.

You are just wishing on a star…

Given the age of most METARS, none of that will happen within our remaining lifetime.

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23

The same is true of all of the other technical measures you mention. Sure, it’s possible that over the long- or intermediate-term we might start seeing significant adoption of hydrogen as an energy store outside of vehicles, or massive changes in efficiency in the transport sector. But those changes literally can’t happen in 3-5 years in sufficient magnitude to materially reduce oil demand, no matter the regulatory climate.

Albaby

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There has been tremendous progress in gas turbines and combined cycle gas turbines. They are now in operation using hydrogen.

https://www.turbomachinerymag.com/view/gas-turbine-innovatio…

Ansaldo Energia’s most popular gas turbines are the GT36 H-class and AE94.3A F-Class. The GT36 H-class outputs up to 538 MW and can use hydrogen up to 50% volume without derating. It is a good fit for combined cycle plants. The AE94.3A F-Class outputs 495 MW in combined cycle mode and 992 MW in a 2+1 configuration. It can burn up to 25% hydrogen by volume.

GE’s 384 MW 7HA.02 combustion turbine, which can burn between 15-20% hydrogen by volume, is known for its ability to use various gas blends at high power and efficiency. The turbine is being used at the Long Ridge Energy Terminal, a 485 MW combined cycle power plant in Ohio, that will transition to run on hydrogen as soon as next year. The plant is the first purpose-built hydrogen plant in the U.S.

The company has also been developing a multi-tube combustion system known as the DLN 2.6e. Optimized for operation on natural gas, it can operate on blended hydrogen and natural gas, with up to 50% (by volume) hydrogen.

https://www.ge.com/gas-power/future-of-energy/hydrogen-fuele…

OPRA, a Dutch turbine OEM, has developed combustor technology to utilize up to 100% hydrogen in its gas turbines. Earlier this year, it ran its turbine successfully in a test using 100% hydrogen.

Its most popular model, the OP16, is an all-radial gas turbine, which provides robustness, reliability, efficiency, and low emissions. Its main markets are industrial, oil & gas and waste-to-energy applications.

Kawasaki Heavy Industries came up with a hydrogen supply chain concept almost ten years ago and has been making company-wide efforts to build a hydrogen chain for producing, transporting, storing, and using hydrogen. The company is developing technologies that can handle a wide range of applications, from hydrogen mix with natural gas to 100% hydrogen combustion. These technologies are being developed for 1 MW gas turbines and will be gradually introduced to the market.

Mitubishi Power’s most popular model is the J-Series Advanced Class JAC gas turbine – the industry’s largest. It operates at 64% efficiency and 99.6% reliability. The company has been focusing on improved output and fuel efficiency, along with hydrogen combustion and artificial intelligence. It is currently developing dry low NOx (DLN) combustion technology (multi-cluster combustor) for 100% hydrogen fueling. The technology is borrowed from MHI’s heavy-haul rocket launch division. These rockets run on 100% hydrogen.

All of Siemens Energy’s large gas turbines, from the SGT5-2000E to SGT5/6-9000HL, are capable of running on up to 30% hydrogen by volume. Roadmaps are in place to develop the mid-term and long-term capability to higher hydrogen contents reaching 100%.

Similarly, the company has been enabling hydrogen operation in its medium and smaller gas turbines. The 24 MW SGT-600 runs on 60% hydrogen with near future targets of 75%, and the 50-62 MW SGT-800 runs on 50% hydrogen with an immediate target of 75% hydrogen.

Jaak

P.S. -

The high cost of fuel cells and the limited availability of hydrogen vehicle fueling stations have limited the number of hydrogen-fueled vehicles in use today. Production of hydrogen-fueled vehicles is limited because people won’t buy those vehicles if hydrogen refueling stations are not easily accessible, and companies won’t build refueling stations if they don’t have customers with hydrogen-fueled vehicles. In the United States, there are about 48 hydrogen vehicle fueling stations and nearly all are in California. The State of California’s Clean Transportation Program includes assistance for establishing publicly accessible hydrogen vehicle fueling stations throughout California to promote a consumer market for zero-emission fuel cell vehicles.

https://www.eia.gov/energyexplained/hydrogen/use-of-hydrogen…

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My opinion is that we will reach peak oil demand in 3-5 years

Can you please clarify, when you say “we” are you referring to the entire world, or just the U.S.

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For sure in the U.S. and maybe for the world.

Jaak

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Well Jaak, you are a true believer. I think three to five years is super optimistic to say the least. I would love if that were true,but I think not. Massive transformation of our energy systems will take at least thirty years from 3 to 5% adoption to 80% adoption country wide. The demands on production of capital goods are enormous for the transition. I think oil will still be in use twenty years from today in transportation,albeit at a much lower level.My WAG would be 20% of today’s total use,mostly in airplanes.

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I think you misunderstand my statements. I am not saying all oil consumption will end in 3-5 years. I am saying that the consumption (demand) of oil will peak in 3-5 years and then go on a slow path down for years.

Jaak

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Jaak:“2. To mitigate these climate change effects there will be worldwide regulations adopted to reduce CO2 emissions from transportation, industry, buildings and power generation.”

t: Maybe but I don’t think most of Africa, Asia or China will do anything else other than say ‘that’s good’ and totally ignore them.

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China is not ignoring climate change effects. They are the world leader in building mass transit, hydro, solar, EVs, nuclear, and other climate change policies.

Jaak

27

The culprit is more refinery capacity than oil and gas production.

This is exactly correct, as I’ve tried to explain to people in recent weeks.

As you point out, oil companies are responding to the likelihood of big future shifts in the market for their products (and the likelihood of future regulation, though that’s a taboo subject here). Unlike marginal increases to wellfield capacity - which can be small and can amortize quickly - investments in refineries are in the billions and take decades of operation to recoup. So they’re not opening new refineries in the U.S. Perhaps ever again.

There are a lot of reasons no new refineries will be build, and old refineries can’t be reopened:

  1. As you mentioned, a new refinery costs a lot, and doesn’t return profits for quite a while.
  2. A new refinery has LOTS and LOTS of regulation, and can be indefinitely delayed by various interest groups. This delays profitability even longer, if it ever happens.
  3. Existing refineries need all sorts of spare parts. Many of those spare parts were cannibalized from refineries that were shut down (due to inefficiency or lack of demand).
  4. Refineries, and oil and gas exploration, require people with specialized knowledge. But people are not going into those fields anymore, in fact, some universities are shutting down their programs due to lack of enrollment.
  5. To make matters worse, with oil and gas company stock prices near highs, many experienced people are deciding that it’s a good time to retire.
  6. Anything related to oil and gas has been vilified for a decade or more. Nobody wants to be involved in that - not as an employee, not as an investor, not in finance, nothing. After all, who wants to be a “planet killer”?
  7. Banks and the rest of Wall Street have been going ESG very strongly. Oil and gas is generally not considered ESG-worthy, so even if someone was crazy/stupid enough to want to build a refinery, they wouldn’t get financing.

And sure enough, all this adds up to very little new refinery capacity in the USA - https://www.forbes.com/sites/davidblackmon/2020/07/25/first-…

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8. Heavy trucks, buses, ships and airplanes will begin to use hydrogen based fuels, batteries, and fuel cells instead of fossil fuels.

Model cycle for cars is 4-6 years.
Model cycle for heavy trucks and buses is 10+ years.
Model cycle for ships is 15+ years.
Model cycle for airplanes is 25 years.

Even if the very next model cycle completely switches over, we aren’t even close to “3-5 years”. And we already know that the next model cycle won’t completely switch over in ALL these cases.

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And it could even be cooler.

And if there’s a large volcanic eruption it could be even cooler. Last time, the “shade” from the ash cooled a large swath of the earth for nearly 2 years!

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And it could even be cooler.
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And if there’s a large volcanic eruption it could be even cooler. Last time, the “shade” from the ash cooled a large swath of the earth for nearly 2 years!

True, although it should be mentioned that Pinatubo was the largest eruption since Krakatoa. The cooling from Pinatubo would have been greater except that the oceans were still recovering from the Krakatoa eruption 98 years earlier.
https://www.image.ucar.edu/idag/Papers/Gleckler_Krakatoa.pdf….

DB2

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There has been tremendous progress in gas turbines and combined cycle gas turbines. They are now in operation using hydrogen.

Indeed. But that doesn’t address the main point. If you’re going to materially affect the demand for oil (specifically), or fossil fuel energy more generally, it’s not enough that these alternative means exist, or that they’re being implemented in a few places. Or even implemented in a fair number of places.

They have to be manufactured and deployed at a massive enough scale to materially affect oil consumption by enough to actually reduce oil demand. And that’s not going to happen in 3-5 years.

Look at EV’s - perhaps the one technology that we can confidently say has a good chance to materially affect oil demand in its segment over the next decade or two. Right now, EV’s make up about 7% of new car sales. Which is really good. But we can also be pretty confident that in 3-5 years, the number of ICE cars on the road globally will be higher than exist today.

That’s because even though 7% is pretty good, it’s almost certainly not enough to actually reduce the number of ICE cars in the fleet. The pandemic has thrown a monkey wrench in the auto market, but prior to the pandemic there were about 80 million (plus or minus) cars sold in a given year - and growing. Assuming some modest growth, our 2025 model year will probably see 85 million cars being sold.

If 7% of them were EV’s, that would still leave 93% of them having an ICE (we’ll simplify by ignoring the point or two of PHEV’s for the moment). About 80 million ICE cars. Which is still significantly more than the number of cars that will be reaching the end of their useful life and leaving the fleet (say, the roughly 60-65 million that was the new car market about 10-15 years ago). That’s because while the share of EV’s in the new car market has been growing (up from nearly nothing 10-15 years ago), the total size of the new car market has grown as well - which means that the ICE’s smaller share of a bigger market is still large enough to replace all the ICE’s going offline.

Before we get to peak ICE, we need EV’s to grow to about 25% of the new car market. At that point, the number of new ICE’s will be smaller than the ones going offline, and the oil demand from passenger cars will finally start falling materially due to EV’s.

But that’s not happening in 3-5 years. And that’s literally the best sector for oil demand.

Albaby

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Jaak:" 4. The efforts have already been made within the energy industry in finding alternative to the fossil fuel. One such alternative generating is hydrogen. The most abundant chemical element in the universe has become of particular interest due to its potential as an energy carrier. Similar to oil it may serve as a feedstock or main ingredient for transportation fuels, energy generation and storage, and also chemicals production."

t: Most hydrogen today is made from NG. A net energy loser. Until gigantic mass hydro and solar farms can generate gigawatts of excess power not needed by the grid, it’s a no go.

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I guess you do not know that Green hydrogen is in the works by the government and companies:

6/22/2022

Governments, firms make new bet on green hydrogen as climate fix

The number of green hydrogen projects worldwide has increased more than three-fold in less than a year.

After years of being talked up as a potential game-changer, green hydrogen is at last receiving serious financial and labour force commitments from governments and big business.

In the Asia Pacific, Australia, with its vast areas where either sunshine or wind is in near-constant supply, is emerging as the region’s hub for green hydrogen production, which relies on renewable energy sources such as wind and solar to produce the fuel.

Australian mining magnate Andrew Forrest is building a 2-gigawatt electrolyser and ammonia producing plant in the state of Queensland, with plans to use the project to kick-start green steelmaking.

There are four other green hydrogen projects in the works in Australia, including a plant in Western Australia covering an area half the size of Belgium that is expected to have a generating capacity of up to 26 gigawatts (GW) – enough to produce 90 terawatt-hours per year (TWh), or about one-third of Australia’s total electricity production in 2020.

https://www.aljazeera.com/economy/2022/6/22/governments-firm….

But that is not all. Read the article to see that Europe, China, Texas, Oman and Kazakstan have even bigger plans.

Jaak

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33

“There has been tremendous progress in gas turbines and combined cycle gas turbines. They are now in operation using hydrogen.”

And how many sites are creating hydrogen for all those turbines to use? In the US?

In Germany maybe 1? or 2?

Unless you use excess wind and solar (or maybe hydro in EU and northern Canada)… you are merely stealing from Peter to pay Paul.

Right now, there is no ‘excess’ wind or solar. In Texas- a leader in non-fossil fuel energy - at best the solar and wind supply 50% of power load…and that is a few times a year. The rest comes from nukes (10%) and natural gas plants.

So where magically are all the hydrogen generators going to appear? And produce BILLIONS of cu feet of hydrogen from wind/solar to use at some point later?

Now?

“Most of the hydrogen produced in the United States comes from a process called steam methane reforming. Nearly 70% of this hydrogen is used in the petroleum refining industry and 20% goes into fertilizer production.1 There are currently 1,600 miles of hydrogen pipeline in the United States and there are large hydrogen production facilities in almost every state as shown in the map.”

we generate 10 million metric tons of hydrogen…and I’d bet 0.000000001% from solar or wind…

https://www.energy.gov/eere/fuelcells/fact-month-may-2018-10…

Worldwide

"he global demand for hydrogen was about 70 million metric tons (Mt)[3] per year in 2019. Half was used to make ammonia and fertilizers; half in petrochemical refineries or production. There are 169 hydrogen projects currently operational across 162 countries.

Today, 98 percent of hydrogen is made from fossil fuels with no CO2 emissions control and is responsible for 830 Mt of CO2 each year. In the United States, 95 percent of hydrogen is produced by a reaction between a methane source, such as natural gas, and high-temperature steam (700°C–1,100°C), referred to as steam methane reforming (SMR).[4] About 4 percent is produced through coal gasification, a process that involves reacting coal with oxygen and steam under high pressures and temperatures, and 1 percent is produced from electrolysis. Globally, 76 percent of hydrogen is produced from natural gas by SMR, with 22 percent produced through coal gasification and 2 percent from electrolysis. Hydrogen produced from uncontrolled fossil fuels is referred to as “grey” hydrogen."

https://www.energypolicy.columbia.edu/research/article/hydro…

Wow…2% from electrolysis and likely that is from coal or NG powered facilities…

Long way to go!

t.

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34

Before we get to peak ICE, we need EV’s to grow to about 25% of the new car market. At that point, the number of new ICE’s will be smaller than the ones going offline, and the oil demand from passenger cars will finally start falling materially due to EV’s.

But that’s not happening in 3-5 years. And that’s literally the best sector for oil demand.

Albaby

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EV adoption will vary by country!

The EV share of sales in some markets will be higher, with EVs reaching 39% of sales in 2025 in China and Europe. Germany, the UK, and France are predicted to reach between 40-50% in 2025.

China and Europe are anticipated to account for a whopping 80% of EV sales in 2025, with adoption lagging elsewhere.

The US market is forecast to be a bit of a laggard. It’s expected to pick up from 2023 but will likely still only represent 15% of the global electric vehicle market in 2025. The EY study noted that consumers in Australia (38%) and the US (29%) are the least committed to switching to EVs.

https://electrek.co/2022/05/31/this-is-where-electric-vehicl…

All of this will lessen the demand for global oil which what I have been saying. And the other innovations to lessen our dependence on oil will add to the decline of oil consumption in 3-5 years.

Jaak

35

There are a lot of reasons no new refineries will be build, and old refineries can’t be reopened:

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Thanks for posting this list of reasons. Very well summarized and thank you for the link.

Jaak

36

“There has been tremendous progress in gas turbines and combined cycle gas turbines. They are now in operation using hydrogen.”

And how many sites are creating hydrogen for all those turbines to use?

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Read my post about green hydrogen projects around the world up thread.

Jaak

37

The same is true of all of the other technical measures you mention. Sure, it’s possible that over the long- or intermediate-term we might start seeing significant adoption of hydrogen as an energy store outside of vehicles, or massive changes in efficiency in the transport sector. But those changes literally can’t happen in 3-5 years in sufficient magnitude to materially reduce oil demand, no matter the regulatory climate.

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You are ignoring:

  1. Mileage standards are being raised for ICE vehicles.
  2. Alternative fuels such as biodiesel are available to fight climate change and oil demand.
  3. Consumer demand is shifting from ICE to EV.
  4. Hydrogen can be burned in reciprocating internal combustion engines (RICE).
    https://www1.eere.energy.gov/hydrogenandfuelcells/tech_valid…

These changes will and are happening in the next 3-5 years to reduce oil demand. As I said before, oil demand will peak in the next 3-5 years after which oil demand will begin a long slow decline.

Jaak

38

Right now, there is no ‘excess’ wind or solar. In Texas- a leader in non-fossil fuel energy - at best the solar and wind supply 50% of power load…and that is a few times a year. The rest comes from nukes (10%) and natural gas plants.

That’s the thing, there is excess wind and solar power. In Texas–a leader in non-fossil fuel energy–the wholesale price for electricity is often negative:

the Permian Basin in western Texas, and in Kansas and western Oklahoma in the Southwest Power Pool (SPP), negative prices accounted for more than 25% of all hours.

So if you could store the excess power–which you are being paid to take–in the form of hydrogen and then burn it later when the wind stops blowing, you potentially could make a real killing. Other people have come to that same conclusion.

https://www.prnewswire.com/news-releases/green-hydrogen-inte…

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"A bigger cause of negative pricing in the Texas electric market involves subsidies to certain types of electric generation. Under the federal Production Tax Credit (PTC), wind generators can receive a tax credit of as much as 2.5 cents for each kilowatt hour of electricity generated. As such, these generators could make a profit from generating even if the market price for electricity is less than zero.

Even with these factors at play, negative prices are not common in the Texas electric market. Systemwide electricity prices in ERCOT were at or below zero for 40 hours in 2019 and 53 hours in 2020—less than 1 percent of the time"

"For some types of generators, it can be more expensive to not produce electricity than to produce it. A nuclear power plant, for example, has to run at more or less a constant level at all times. Shutting down and restarting a plant takes days and is expensive, so nuclear plants must find buyers regardless of price in the short term. "

https://www.rstreet.org/2021/08/31/understanding-negative-pr….

with a total of 40 hours a year in 2019, and 53 hours in 2020…there wasn’t a whole lot of excess energy to justify BILLIONS in hydrolyzer plants to make a bit of hydrogen during those 40-50 hours a year!

And as far as any excess goes…mega facilities for bit-coin mining are popping up in TX taking GIGAWATTS of power each year.

https://www.kvue.com/article/money/economy/boomtown-2040/bit…

t.

40

Jaak: “5. Already hydrogen is being used in power generation, transportation fuels, building heating, and industrial heating.”

What. 000000000000.2 percent of world use overall?

I think you misplaced the decimal point - try 0.000000000002%.

It would be absolutely stupid to use hydrogen in power generation, because we have no source of hydrogen that does not consume more energy than is available from the hydrogen produced. (Even if we feed it to the currently-available fusion reactors.) If we’re just using the hydrogen for storage, batteries are a better choice: they lose less energy.

(No comment on the other uses.)

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