Posts
Part 0: Energy Chokepoint | Part 1: Solar Panel Empire | Part 2: Battery Wars | Part 3: Grid Vulnerabilities | Part 4: Rare Earth Monopoly | Part 5: Nuclear Renaissance | PART 6: OIL'S LAST STAND | Part 7: Transmission Chokepoint | Part 8: Energy as Weapon
Part 6: Oil's Last Stand
They Declared Peak Demand by 2025—It Hit Record Highs Instead
The predictions started in the mid-2010s. Electric vehicles were coming. Renewables were cheaper than fossil fuels. Climate commitments would force the transition. Peak oil demand was imminent—the moment when global consumption would max out and begin its inevitable decline toward zero. The International Energy Agency published forecast after forecast showing the curve turning down. Investment banks issued reports on "stranded assets"—trillions in oil reserves that would never be extracted because demand would disappear. Activists declared "keep it in the ground." The narrative was simple and confident: oil's dominance was ending, and soon. Then came the data. 2019: 100.6 million barrels per day (new record). 2020: COVID crash to 91 million (temporary). 2021: 96.4 million (recovery). 2022: 99.4 million (climbing). 2023: 101.7 million (another record). 2024: 102.2 million barrels per day—the highest oil consumption in human history. Every year, the IEA pushes peak demand forecasts further into the future. 2015 forecast: Peak by 2020. 2018 forecast: Peak by 2025. 2023 forecast: Peak by 2030. The pattern is clear—peak demand keeps not happening. Why? Because oil isn't just gasoline for cars. It's jet fuel for aviation (can't electrify), bunker fuel for shipping (can't electrify), feedstock for petrochemicals (can't electrify plastics and fertilizers), asphalt for roads, lubricants for machinery. Even if every passenger car goes electric by 2050, oil demand only drops 25-30%—not to zero. The smartest oil producers know this. Saudi Arabia isn't panicking about peak demand. They're using oil profits to build the post-oil economy (NEOM, a $500 billion bet funded by petroleum). Russia uses oil exports as geopolitical leverage (sanctions don't work when China and India buy everything). The UAE hedges—investing in renewables while pumping more oil than ever. Oil's last stand isn't a desperate rear-guard action. It's a 50-year managed decline where the survivors will be the lowest-cost producers who can profit at $40 per barrel while high-cost operators go bankrupt. And when the last barrel is pumped in 2070, it'll come from Saudi Arabia—sold at a premium to make the plastics, jet fuel, and chemicals that renewables can't replace.
The Peak Demand Mirage: Predictions vs. Reality
For a decade, energy forecasters have been predicting imminent peak oil demand—the moment when global consumption reaches its maximum and begins permanent decline. Every prediction has been wrong.
The Forecast Timeline: A History of Moving Goalposts
2015 predictions:
- IEA "450 Scenario" (climate-aligned): Peak demand by 2020
- Bloomberg New Energy Finance: Peak by 2023
- Royal Dutch Shell: Plateau around 2025
2018 predictions:
- IEA "Sustainable Development Scenario": Peak by 2025
- BP Energy Outlook: Peak around 2030 in "rapid transition" scenario
- Carbon Tracker: "Peak oil demand is in sight"
2020-2021 predictions (COVID effect):
- IEA: "Oil demand may have already peaked in 2019"
- Multiple analysts: Pandemic accelerated transition, peak demand behind us
- Optimism that remote work would permanently reduce oil consumption
2023-2024 predictions (reality reasserts):
- IEA World Energy Outlook 2023: Peak demand "by end of this decade" (2030)
- OPEC: Peak demand "not in sight" until after 2045
- Industry consensus: Sometime in 2030s, maybe
What Actually Happened: Record After Record
Global oil consumption (million barrels per day):
- 2010: 88.4 mb/d
- 2015: 95.7 mb/d
- 2019: 100.6 mb/d (pre-COVID record)
- 2020: 91.0 mb/d (COVID crash, -9.5%)
- 2021: 96.4 mb/d (recovery begins)
- 2022: 99.4 mb/d
- 2023: 101.7 mb/d (new record, surpassing 2019)
- 2024: 102.2 mb/d (another record)
The trend: Upward, not down. Despite massive EV adoption (30 million EVs globally by 2024), despite renewable energy growth, despite climate commitments—oil demand keeps increasing.
Why the Forecasts Keep Failing
The peak demand predictions failed because they made three fundamental errors:
Error 1: Overestimated EV adoption speed
Forecasters assumed exponential EV growth would quickly displace oil demand from passenger vehicles. Reality: EVs are growing fast (14% of global car sales in 2023), but:
- Global vehicle fleet is 1.4 billion cars—99% still run on gasoline/diesel
- Fleet turnover is slow (cars last 15-20 years)
- EVs concentrated in China, Europe, California—most of the world still buying combustion engines
- Even at 50% EV sales by 2030, it takes until 2045+ to replace most of the fleet
Error 2: Ignored aviation and shipping growth
Jet fuel and marine fuel are not electrifiable with current technology. And demand is growing:
- Global air traffic: 4.5 billion passengers (2019) → projected 8.2 billion by 2037
- Shipping volume: Growing 3-4% annually (global trade expansion)
- No viable electric alternatives for long-haul flights or ocean freight
As passenger vehicle oil demand declines, aviation and shipping demand increases—partially offsetting the reduction.
Error 3: Forgot that 40% of oil isn't used for energy
This is the critical mistake. Oil isn't just fuel. It's feedstock for:
- Plastics and polymers
- Fertilizers and pesticides
- Asphalt for roads
- Lubricants for machinery
- Synthetic fibers for clothing
- Pharmaceuticals and cosmetics
You can't electrify plastics. The global economy runs on petrochemicals, and demand is growing as developing countries consume more packaged goods, build more roads, and expand agriculture.
2015 FORECASTS:
• IEA 450 Scenario: Peak demand by 2020
• BNEF: Peak by 2023
• Shell: Plateau by 2025
ACTUAL 2020-2025 DEMAND:
• 2020: 91.0 mb/d (COVID crash, not structural peak)
• 2021: 96.4 mb/d (rapid recovery)
• 2022: 99.4 mb/d
• 2023: 101.7 mb/d (NEW RECORD, exceeding 2019)
• 2024: 102.2 mb/d (ANOTHER RECORD)
• 2025 projected: 103+ mb/d (still growing)
2018 FORECASTS:
• IEA: Peak by 2025
• BP: Peak around 2030 (rapid transition scenario)
ACTUAL TRAJECTORY:
• Demand growing 1-1.5 mb/d annually
• No sign of peak yet
2020-2021 FORECASTS (COVID-era optimism):
• "Peak demand already occurred in 2019"
• "Pandemic accelerated transition permanently"
REALITY CHECK:
• 2023 exceeded 2019 levels
• 2024 set new record
• Growth continues
CURRENT FORECASTS (2023-2024):
• IEA: Peak by 2030 ("end of this decade")
• OPEC: Peak not until 2045+
• Industry consensus: 2030s, probably
THE PATTERN:
Every 3-5 years, peak demand forecasts get pushed back 5-10 years.
As demand keeps growing, analysts revise projections forward.
WHY PREDICTIONS FAIL:
1. Overestimate EV adoption speed (fleet turnover takes 30+ years)
2. Ignore aviation/shipping growth (not electrifiable, demand rising)
3. Forget petrochemicals (40% of oil = plastics/chemicals, growing)
4. Assume climate policy drives behavior (it doesn't, economics does)
CONCLUSION:
Peak demand will happen—eventually.
But "eventually" keeps moving further away.
Current realistic estimate: 2035-2040, followed by slow decline (not collapse).
What Oil Is Actually Used For: The 40% That Can't Be Electrified
The "electrify everything" narrative assumes oil is primarily an energy source that can be replaced by renewable electricity. This is only 60% true. The other 40% of oil is used for materials and chemicals that have no electric substitute.
Oil Consumption Breakdown by Sector
Transportation: 55% (declining, but slowly)
- Passenger vehicles: 26% of total oil (this is what EVs displace)
- Freight trucks: 11% (electric trucks emerging, but limited range for long-haul)
- Aviation (jet fuel): 8% (NOT electrifiable with current technology)
- Marine shipping (bunker fuel): 5% (NOT electrifiable, ammonia/hydrogen maybe by 2040s)
- Other transport: 5% (rail, agriculture, construction equipment)
Petrochemicals and plastics: 14% (growing, NOT replaceable)
- Plastics production (polyethylene, polypropylene, PVC, etc.)
- Synthetic rubber
- Synthetic fibers (polyester, nylon for clothing)
- Industrial chemicals (solvents, adhesives, coatings)
Industrial uses: 12% (partially replaceable)
- Lubricants for machinery (engines, turbines, hydraulics)
- Asphalt for roads and roofing
- Bitumen for waterproofing
- Waxes and greases
Residential/commercial heating: 6% (replaceable by heat pumps, declining)
Agriculture: 5% (partially replaceable)
- Fertilizers (nitrogen from natural gas, but petroleum-based pesticides)
- Diesel for tractors and equipment (electric tractors emerging slowly)
Power generation: 4% (declining rapidly)
- Oil-fired power plants (being retired, replaced by renewables/gas/nuclear)
Other: 4%
- Pharmaceuticals (petroleum-derived compounds)
- Cosmetics
- Detergents
The Critical Insight: Petrochemicals Are Not Fuel
Petrochemicals use oil as a material input, not an energy source. You can't replace petroleum with solar panels when making plastics—you need hydrocarbon molecules.
Global plastics production:
- 2010: 270 million metric tons
- 2020: 367 million metric tons
- 2024: ~400 million metric tons
- Projected 2050: 600+ million metric tons (demand still growing, especially in developing countries)
Every ton of plastic requires about 2 tons of crude oil (or natural gas) as feedstock. That's 1.2 billion tons of petroleum annually—roughly 8-9 million barrels per day—just for plastics. And demand is growing as global middle class expands (more packaged goods, more consumer products, more synthetic materials).
Why can't we replace petroleum-based plastics?
Alternatives exist (bio-plastics from corn, algae, etc.) but face challenges:
- Cost: 2-5x more expensive than petroleum plastics
- Scalability: Not enough agricultural land to grow feedstock for global plastics demand
- Performance: Many bio-plastics lack durability, heat resistance, or other properties of petroleum plastics
- Energy intensity: Growing, processing, and converting biomass to plastic uses significant energy—sometimes more than petroleum refining
For the foreseeable future (2025-2050+), the global economy will depend on petroleum for plastics, chemicals, and materials. Electrification doesn't eliminate this demand.
Aviation: The Unmovable Demand
Jet fuel accounts for 8% of global oil consumption—about 8 million barrels per day. And this demand is growing, not shrinking.
Why aviation can't be electrified:
Batteries are too heavy. A Boeing 787 crossing the Pacific carries 100+ tons of jet fuel. The energy density of jet fuel: 12,000 Wh/kg. The energy density of lithium-ion batteries: 250 Wh/kg (50x worse). To fly the same distance on batteries would require 5,000+ tons of batteries—the plane couldn't take off.
What about sustainable aviation fuel (SAF)?
SAF (made from biofuels, synthetic fuels, hydrogen) is possible but:
- Currently 2-4x more expensive than jet fuel
- Global SAF production (2024): Less than 1% of aviation fuel demand
- Scaling to 50% SAF by 2050 would require massive investment and feedstock that doesn't exist yet
Even optimistic scenarios show aviation using 5-6 million barrels per day of liquid hydrocarbons in 2050. Whether it's petroleum-derived or synthetic, aviation locks in hydrocarbon demand for decades.
Shipping: The Other Unmovable Demand
Marine shipping burns 5 million barrels per day of heavy fuel oil (bunker fuel). Electric cargo ships are impossible for trans-oceanic routes (battery weight problem, same as aviation).
Alternatives being explored:
- LNG (liquefied natural gas): Reduces emissions but still fossil fuel
- Ammonia fuel: Promising, but infrastructure doesn't exist, timeline 2040+
- Hydrogen fuel cells: Expensive, low energy density, far from commercial scale
Realistic scenario: Shipping transitions from heavy fuel oil to LNG and eventually ammonia/hydrogen by 2050-2060. But this is a 30-40 year process. Until then, shipping locks in 4-5 million barrels per day of petroleum demand.
TOTAL GLOBAL OIL CONSUMPTION: ~102 million barrels/day
REPLACEABLE BY ELECTRIFICATION (56 mb/d total):
Passenger vehicles: 26 mb/d
• Replaceable by EVs
• Timeline: 2025-2050 (fleet turnover)
• 2050 reduction: -20 mb/d (80% displaced)
Freight trucks: 11 mb/d
• Partially replaceable (electric trucks for short-haul, hydrogen for long-haul)
• Timeline: 2030-2050
• 2050 reduction: -6 mb/d (50% displaced)
Residential/commercial heating: 6 mb/d
• Replaceable by heat pumps, electric heating
• Timeline: 2025-2045
• 2050 reduction: -5 mb/d (80% displaced)
Power generation: 4 mb/d
• Replaceable by renewables, gas, nuclear
• Timeline: 2025-2035 (already happening)
• 2050 reduction: -3 mb/d (75% displaced)
Agricultural equipment: 3 mb/d
• Partially replaceable by electric tractors
• Timeline: 2030-2050
• 2050 reduction: -1 mb/d (30% displaced)
Other transport: 6 mb/d
• Mix of rail, construction, etc. (some electrifiable)
• 2050 reduction: -2 mb/d
TOTAL REPLACEABLE: -37 mb/d reduction by 2050
NOT REPLACEABLE / LOCKED IN (46 mb/d total):
Petrochemicals/plastics: 14 mb/d
• GROWING (global plastics demand rising)
• No viable substitute at scale
• 2050 projection: +18 mb/d (demand growth)
Aviation (jet fuel): 8 mb/d
• NOT electrifiable (battery weight problem)
• SAF possible but expensive, limited feedstock
• 2050 projection: +7 mb/d (air traffic growing, some SAF displacement)
Marine shipping: 5 mb/d
• NOT electrifiable for long-haul
• Transition to LNG, ammonia by 2050-2060
• 2050 projection: +4 mb/d (some LNG conversion)
Lubricants/asphalt/industrial: 12 mb/d
• Partially replaceable (synthetic alternatives expensive)
• 2050 projection: +10 mb/d (modest decline)
Agriculture (fertilizers/pesticides): 5 mb/d
• Petroleum-based chemicals for agriculture
• 2050 projection: +5 mb/d (demand stable or growing)
Pharma/cosmetics/other: 2 mb/d
• Niche uses, petroleum-derived
• 2050 projection: +2 mb/d
TOTAL LOCKED IN: 46 mb/d (2025) → 46 mb/d (2050)
2050 OIL DEMAND PROJECTION:
Current (2025): 102 mb/d
Electrification displacement: -37 mb/d
Locked-in demand: +46 mb/d
Petrochemical growth: +4 mb/d
TOTAL 2050 DEMAND: ~69-75 million barrels/day
CONCLUSION:
Even with aggressive electrification, oil demand only declines 30-35% by 2050.
It doesn't go to zero. It goes to 70 mb/d—and stays there for decades.
Petrochemicals, aviation, and shipping lock in 40+ mb/d permanently.
Saudi Arabia's NEOM: Building the Exit With Oil Money
Saudi Arabia knows oil won't last forever. Their strategy: use petroleum profits to build a post-oil economy before oil demand peaks. The centerpiece is NEOM—a $500 billion megacity powered entirely by renewables. It's audacious, ambitious, and increasingly looks like a spectacular failure. But the attempt reveals how the smartest petrostates are thinking about the transition.
Vision 2030: The Diversification Plan
Crown Prince Mohammed bin Salman (MBS) launched Vision 2030 in 2016 with clear goals:
- Reduce Saudi dependence on oil from 90% of government revenue to 50%
- Develop tourism, manufacturing, technology, renewable energy sectors
- Create jobs for young Saudi population (70% under 30)
- Position Saudi Arabia as regional hub for finance, logistics, tech
The flagship project: NEOM, a planned megacity on the Red Sea coast. Initial vision (2017):
- Size: 26,500 square kilometers (larger than Israel)
- Population capacity: 9 million people
- Investment: $500 billion (later revised to $1+ trillion)
- Powered by: 100% renewable energy (solar, wind)
- Features: Flying taxis, robot servants, artificial moon, cloud seeding for rain
The centerpiece of NEOM: The Line—a 170 km long, 200 meter wide, 500 meter tall mirrored-glass city designed to house 9 million people with zero carbon emissions. No cars, no streets, just high-speed rail and walkable neighborhoods stacked vertically.
On paper, it was revolutionary urban design meeting unlimited oil money.
The Reality: Scaling Back, Delays, Disasters
By 2024, NEOM is in trouble.
The Line: Massively scaled back
- Original plan: 170 km long, 9 million residents by 2030
- Revised 2024 plan: 2.4 km section by 2030, maybe 300,000 residents
- That's 1.4% of the original length, 3.3% of the original population target
- Completion of full 170 km: Pushed to 2045+ or abandoned entirely
Cost overruns:
- Original estimate: $500 billion total
- Current estimates: $1-1.5 trillion for full build-out (if it happens)
- Already spent: $100+ billion (unclear how much actually built)
Construction challenges:
- Desert heat (summer temperatures 45°C+), hostile terrain
- Forced evictions of local Bedouin tribes (human rights concerns)
- Workforce issues (foreign workers in harsh conditions, safety violations)
- Technical feasibility questions (can you actually build 500m tall mirror buildings in earthquake zone?)
Funding problems:
- NEOM funded by Saudi Public Investment Fund (PIF), which depends on oil revenue
- Oil prices 2020-2024: Volatile ($20/barrel during COVID, $120 after Ukraine invasion, now $70-80)
- Saudi budget deficits when oil below $80/barrel
- Competing priorities (defense spending, social programs, other Vision 2030 projects)
Investor skepticism:
- International investors reluctant to commit capital to unproven megaproject
- Foreign direct investment into Saudi Arabia: Below targets
- Corporate partners (initially enthusiastic) quietly backing away
What NEOM Reveals: The Petrostate Dilemma
NEOM's struggles illuminate the central problem facing oil-dependent nations: How do you build a new economy when your wealth comes from the old one?
The paradox:
- Diversification requires massive investment (hundreds of billions)
- That investment must be funded by oil revenue
- But oil revenue is finite and declining (eventually)
- The faster you spend oil money on diversification, the faster you burn through reserves
- If oil prices crash before diversification succeeds, you're stuck—no oil revenue to fund transition, and no alternative economy yet built
Saudi Arabia is racing against two clocks:
- Peak demand clock: When will global oil demand peak and decline, reducing long-term revenue?
- Reserve depletion clock: How long can Saudi Arabia maintain high production levels before reserves decline?
The strategy: Maximize oil production now (while demand is high), use profits to build alternative economy, complete transition before oil revenue collapses.
The risk: If NEOM and Vision 2030 fail, Saudi Arabia will have spent $trillions on unsuccessful diversification while oil demand declines—leaving them dependent on a shrinking industry with depleted financial reserves.
But Here's the Thing: Saudi Arabia Can Afford to Fail
Despite NEOM's problems, Saudi Arabia has structural advantages that ensure survival:
1. Lowest production costs in the world:
- Saudi break-even cost: $10-15/barrel (lifting cost, not fiscal break-even)
- US shale: $40-50/barrel
- Canadian tar sands: $60-70/barrel
- Deepwater offshore: $50-80/barrel
If oil prices crash to $30/barrel (demand decline scenario), Saudi Arabia still profits while high-cost producers go bankrupt.
2. Massive reserves (decades of production):
- Proven reserves: 260+ billion barrels
- Current production: 11 million barrels/day
- Reserve life: 60+ years at current production
Saudi Arabia can keep pumping long after other producers exhaust reserves.
3. Aramco: The cash machine:
- Saudi Aramco revenue (2023): $500+ billion
- Net income: $120+ billion (most profitable company in the world)
- Dividends to Saudi government: $80+ billion annually
Even if NEOM fails, Aramco generates enough cash to fund the government for years.
The real strategy: Aramco is the hedge.
Saudi Arabia can afford to waste $500 billion on NEOM because Aramco will generate $trillions over the next 30 years. If diversification succeeds, great. If not, Saudi Arabia will be the last major oil producer standing—profitable at prices that bankrupt everyone else.
ARAMCO CASH GENERATION (2023):
• Revenue: $500B+
• Net income: $121B (world's most profitable company)
• Dividends to Saudi government: $80B+/year
• Market cap: $2 trillion (largest company by value, 2022 IPO)
SAUDI OIL ECONOMICS:
• Production cost: $10-15/barrel (cheapest in world)
• Fiscal break-even (budget balance): ~$80/barrel
• Current price (2025): $70-80/barrel
• Reserves: 260B barrels (60+ years at current production)
• Production capacity: 12 million barrels/day (world's largest)
VISION 2030 / NEOM SPENDING:
• Total Vision 2030 investment: $1+ trillion (planned)
• NEOM budget: $500B (original), $1T+ (revised)
• Spent so far: $100-150B (unclear, opaque reporting)
• Results: Mixed (some progress, massive scaling back)
THE MATH:
If Aramco generates $80B/year in government revenue:
• 10 years = $800B (can fund Vision 2030 even with oil at $70-80)
• 20 years = $1.6 trillion (can afford NEOM failure and try again)
• 30 years = $2.4 trillion (outlasts peak demand decline)
COMPETITIVE POSITION:
At $40/barrel oil (low-demand scenario):
• Saudi production cost: $10-15 → Still profitable
• US shale break-even: $40-50 → Unprofitable, bankruptcies
• Canadian tar sands: $60-70 → Massive losses
• Deepwater: $50-80 → Shut down
RESULT:
Low oil prices kill high-cost producers → Market share consolidates to Saudi Arabia
→ Saudi can cut production to raise prices → Profits sustained
THE STRATEGY:
Saudi Arabia isn't betting everything on NEOM succeeding.
NEOM is the diversification hedge.
Aramco is the real plan—last producer standing, printing money at $40/barrel
while everyone else goes bankrupt.
If NEOM works: Saudi becomes diversified economy.
If NEOM fails: Saudi still has 60 years of oil revenue from lowest-cost reserves.
Either way, Saudi Arabia survives the transition.
UAE's Renewable Bet: Hedging, Not Exiting
While Saudi Arabia builds flashy megacities, the United Arab Emirates is quietly hedging—investing heavily in renewables while pumping more oil than ever. It's a more sophisticated strategy: control both sides of the energy transition.
The UAE Model: Oil Producer AND Renewable Investor
Oil production:
- Current production: 4 million barrels/day (2024)
- Target: 5 million barrels/day by 2027 (25% increase)
- ADNOC (Abu Dhabi National Oil Company) investing $150 billion in upstream oil/gas expansion
Renewable investments (simultaneous):
- Masdar (state-owned renewable energy company): $50+ billion portfolio
- Domestic solar capacity: 5 GW (2024), targeting 14 GW by 2030
- Nuclear power: 4 reactors operational (Barakah plant, 5.6 GW, 25% of UAE electricity)
- International renewable projects: 20+ countries (Egypt, Uzbekistan, UK, etc.)
The UAE isn't choosing between oil and renewables—they're doing both. Maximize oil profits while building renewable portfolio for diversification.
Masdar: The Renewable Empire
Masdar (launched 2006) is the UAE's renewable energy vehicle:
Portfolio (2024):
- Installed renewable capacity: 20+ GW globally
- Target: 100 GW by 2030
- Investments: Wind, solar, green hydrogen, battery storage
- Geographic reach: Middle East, Central Asia, Europe, Africa
Strategy:
Use oil profits to buy stakes in global renewable projects. As renewables grow, Masdar captures upside. If oil declines, UAE has alternative revenue stream from renewable energy investments.
Notable projects:
- London Array (UK): World's largest offshore wind farm (630 MW, 20% stake)
- Benban Solar Park (Egypt): 1.8 GW solar complex
- Dumat Al Jandal (Saudi Arabia): 400 MW wind farm (irony: UAE building Saudi renewables)
COP28 Irony: Oil State Hosting Climate Summit
In 2023, the UAE hosted COP28 (UN climate conference). The symbolism was rich:
- Conference president: Sultan Al Jaber (CEO of ADNOC, the state oil company)
- Venue: Dubai (built on oil wealth)
- Message: "We're committed to climate action" while expanding oil production 25%
Critics called it greenwashing. But it's more nuanced. The UAE's position: "We're transitioning, but the transition takes 30-50 years, and during that time the world still needs oil. We'll supply it while building the alternative."
This is more realistic than pretending oil will disappear overnight. The UAE is hedging:
- If oil demand peaks soon (2030s): Masdar's renewable portfolio captures growth
- If oil demand stays high longer (2040s): ADNOC keeps generating profits
- If transition is slow: UAE makes money from both oil and renewables for decades
The Difference: UAE Is Pragmatic, Saudi Is Utopian
Contrast the strategies:
Saudi Arabia (NEOM):
- Build $500 billion futuristic megacity from scratch
- All-or-nothing bet on post-oil economy
- High risk, high reward (or catastrophic failure)
UAE (Masdar + ADNOC):
- Invest $50 billion in proven renewable technologies globally
- Incremental diversification while maximizing oil revenue
- Low risk, steady returns, hedge both outcomes
The UAE strategy is working better. Masdar is profitable, growing, and positioning UAE as renewable energy player. Meanwhile, ADNOC's oil expansion ensures cash flow for decades.
If oil demand declines faster than expected, UAE has Masdar. If it declines slower, UAE has ADNOC. Either way, they're positioned.
Stranded Assets: Who Survives the Decline?
When oil demand eventually peaks and declines, not all oil producers will survive. The question isn't if there will be stranded assets—it's whose assets get stranded first.
The Stranded Asset Thesis
Carbon Tracker and climate advocates argue that if the world meets Paris Agreement targets (limiting warming to 2°C), much of the world's proven oil reserves will never be extracted. The math:
- Proven global oil reserves: ~1.7 trillion barrels
- Carbon budget to stay under 2°C: Equivalent to burning ~500 billion barrels more
- Implication: 70% of reserves must stay in the ground
This creates a "stranded asset" problem—reserves that are economically unviable to extract if demand declines or carbon policies penalize production.
Who Gets Stranded First? Cost Curve Determines Survival
In a declining demand scenario, high-cost producers shut down first. The survivors are those who can still profit at low prices.
Global oil production cost curve ($/barrel):
Tier 1 (Survive even at $20-30/barrel):
- Saudi Arabia: $10-15
- UAE: $12-18
- Kuwait: $15-20
- Iraq: $15-25
- Iran: $15-25
Tier 2 (Profitable at $30-40/barrel):
- Russia: $20-30 (varies by field)
- US conventional oil: $25-40
- Libya: $25-35
Tier 3 (Need $40-60/barrel to break even):
- US shale: $40-50 (varies by basin)
- Brazil offshore: $35-50
- Norway North Sea: $40-55
- Mexico: $35-50
Tier 4 (Need $60+ to break even—first to be stranded):
- Canadian tar sands: $60-75
- Deepwater offshore (Gulf of Mexico, West Africa): $50-80
- Arctic oil: $70-100+
- Enhanced oil recovery (EOR) projects: $60-80
The Stranding Sequence: What Shuts Down First
Scenario: Oil demand peaks 2030, declines 2% annually, price settles at $50/barrel by 2035
Phase 1 (2025-2030): High-cost marginal projects cancelled
- Arctic exploration: Shelved (too expensive, long timelines, uncertain demand)
- Deepwater frontier projects: Delayed or cancelled
- Ultra-heavy oil: New projects stopped
Phase 2 (2030-2035): Tar sands and deepwater shut down
- Canadian tar sands: Production declines as projects become unprofitable at $50/barrel
- Existing deepwater: Kept operating until wells deplete, but no new drilling
- US Gulf of Mexico: Gradual decline as platforms age out
Phase 3 (2035-2040): US shale faces reckoning
- Shale wells deplete rapidly (50-70% decline in Year 1)
- Requires continuous drilling to maintain production
- At $50/barrel, many shale plays unprofitable → drilling stops → production collapses
- Permian Basin (lowest-cost shale) survives, Bakken and Eagle Ford struggle
Phase 4 (2040-2050): OPEC dominance
- High-cost producers gone, OPEC+ (Saudi, UAE, Iraq, Kuwait, Russia) controls 70%+ of remaining production
- These producers can still profit at $40/barrel → Keep pumping
- Price stabilizes around $50-60 (enough to sustain low-cost production but not incentivize high-cost)
The Last Barrel Will Be Saudi
In the final phase of oil's decline (2050-2070), the market consolidates to the lowest-cost producers. Saudi Arabia, UAE, and Kuwait have:
- Lowest production costs ($10-20/barrel)
- Largest reserves (decades of production remaining)
- Highest quality crude (light, sweet, easy to refine)
They can profitably produce oil at prices that bankrupt everyone else. The irony: The countries most dependent on oil revenue are the ones best positioned to survive oil's decline.
Stranded assets: Canadian tar sands, Arctic oil, ultra-deepwater—$trillions invested, much of it will never be recovered.
Survivors: Middle East low-cost producers, pumping the last barrels in 2070 at premium prices for niche uses (aviation fuel, petrochemicals).
TOTAL GLOBAL OIL RESERVES: ~1.7 trillion barrels
Carbon budget (2°C target): ~500 billion barrels remaining
IMPLICATION: 70% of reserves stay in ground (stranded)
PRODUCTION COST CURVE (break-even $/barrel):
TIER 1 - SURVIVORS (Profit even at $20-30/barrel):
• Saudi Arabia: $10-15/barrel, 260B barrels reserves
• UAE: $12-18/barrel, 98B barrels
• Kuwait: $15-20/barrel, 102B barrels
• Iraq: $15-25/barrel, 145B barrels
• Iran: $15-25/barrel, 209B barrels
→ These survive until the last barrel is pumped (2060-2070+)
TIER 2 - MARGINAL SURVIVORS ($30-40/barrel):
• Russia: $20-30/barrel, 80B barrels (varies by field)
• US conventional: $25-40/barrel
→ Survive moderate price decline, struggle below $35
TIER 3 - VULNERABLE ($40-60/barrel):
• US shale: $40-50/barrel (Permian survives, others don't)
• Brazil pre-salt: $35-50/barrel
• Norway North Sea: $40-55/barrel
→ Shut down when prices drop below $45, production collapses
TIER 4 - FIRST STRANDED ($60+/barrel):
• Canadian tar sands: $60-75/barrel, 166B barrels reserves
• Deepwater Gulf of Mexico: $50-80/barrel
• Arctic oil: $70-100+/barrel
• Oil sands, heavy oil: $60-80/barrel
→ STRANDED FIRST. Already uneconomic below $65.
STRANDING TIMELINE (Scenario: demand peaks 2030, $50/barrel by 2035):
2025-2030: Marginal projects cancelled
• Arctic exploration shelved
• Ultra-deepwater frontier stopped
• New tar sands projects cancelled
2030-2035: Tier 4 shuts down
• Canadian tar sands production declining
• Deepwater platforms not replaced when depleted
• ~$500B in assets stranded
2035-2040: Tier 3 struggles
• US shale collapses (needs continuous drilling, unprofitable at $50)
• High-cost offshore shut down
• ~$1 trillion in assets stranded (cumulative)
2040-2050: OPEC consolidation
• Saudi, UAE, Kuwait, Iraq = 70%+ of global production
• Everyone else either bankrupt or marginal
• ~$2 trillion in stranded assets globally
2050-2070: The last barrels
• Only Tier 1 producers operating
• Oil for aviation, petrochemicals, niche uses
• Price: $60-80/barrel (premium for remaining demand)
• Volume: 40-50 mb/d (down from 102 mb/d in 2024)
THE SURVIVORS:
Saudi Arabia, UAE, Kuwait pump the last profitable barrels.
Everyone else's reserves: STRANDED.
US Shale: The Boom-Bust Machine
The US shale revolution (2010-2020) transformed global energy markets—making America energy independent, crashing oil prices, and reshaping geopolitics. But shale has a fatal flaw: it's a treadmill. Stop running, and production collapses.
The Shale Miracle: From Import Dependence to Energy Dominance
US oil production trajectory:
- 2008: 5 million barrels/day (declining since 1970 peak)
- 2010: Shale revolution begins (fracking + horizontal drilling unlocks tight oil)
- 2015: 9.2 mb/d (doubling in 5 years)
- 2019: 12.3 mb/d (RECORD, surpassing Saudi Arabia and Russia)
- 2020: COVID crash to 11.3 mb/d
- 2024: 13.2 mb/d (new record)
Shale made the US the world's largest oil producer. Energy independence became reality. OPEC lost pricing power. Russia's energy leverage weakened. It was a geopolitical earthquake.
The Shale Economics: High Decline, High Capital Intensity
But shale isn't conventional oil. The economics are fundamentally different:
Conventional oil wells:
- Decline rate: 5-10% per year
- Lifespan: 20-30 years
- Capital intensity: Drill once, produce for decades
Shale wells:
- Decline rate: 50-70% in Year 1, then 20-30% annually
- Lifespan: Economically productive for 3-5 years
- Capital intensity: Must continuously drill new wells to maintain production
A shale well might produce 1,000 barrels/day in Month 1. By Month 12, it's down to 300-400 barrels/day. By Year 3, it's 100-150 barrels/day. To keep total production flat, companies must drill hundreds of new wells every year.
The treadmill problem:
To maintain 13 million barrels/day of US shale production requires drilling ~10,000 new wells annually at $8-10 million per well. That's $80-100 billion in annual capital expenditure just to stay flat. If drilling stops, production collapses within 2-3 years.
2020: The Crash and Bankruptcy Wave
March-April 2020: COVID lockdowns crash oil demand. Prices collapse:
- April 20, 2020: WTI crude goes NEGATIVE (-$37/barrel) for the first time in history (futures contract expiry, no storage capacity)
- Average 2020 price: $39/barrel (vs $61 in 2019)
Shale companies, which need $40-50/barrel to break even, faced catastrophe:
Bankruptcies (2020):
- Chesapeake Energy: Filed Chapter 11 (was one of top shale producers)
- Whiting Petroleum: Bankruptcy
- California Resources Corporation: Bankruptcy
- Oasis Petroleum: Bankruptcy
- Total shale bankruptcies (2020): 50+ companies, $100+ billion in debt
Industry response:
- Drilling collapsed (rig count dropped 70%)
- Production fell from 13 mb/d (2019) to 11 mb/d (2020)
- Thousands of wells shut in (not economic to operate at $30/barrel)
The Consolidation: Big Oil Buys Shale on the Cheap
The crash created buying opportunities. Major oil companies (ExxonMobil, Chevron, ConocoPhillips) acquired distressed shale assets:
- Chevron buys Noble Energy (2020): $5 billion (acquired Permian Basin acreage cheap)
- ConocoPhillips buys Concho Resources (2020): $9.7 billion (largest Permian pure-play)
- Pioneer Natural Resources merges with Parsley Energy (2020): $4.5 billion
- ExxonMobil buys Pioneer (2023): $60 billion (massive Permian consolidation)
The pattern: Smaller shale companies went bankrupt or sold at distressed prices. Big Oil consolidated the industry, acquiring the best acreage at bargain valuations.
The Shale Outlook: Profitable for Now, Vulnerable to Decline
Current status (2024):
- US shale production: ~9 mb/d (of 13 mb/d total US production)
- Permian Basin (Texas/New Mexico): 6 mb/d (dominant, lowest-cost shale play)
- Bakken (North Dakota): 1.2 mb/d
- Eagle Ford (Texas): 1 mb/d
- Other plays: 0.8 mb/d
Challenges ahead:
1. Sweet spots running out: The best acreage (highest productivity, lowest cost) has been drilled. Remaining locations are lower quality—more expensive, less productive.
2. Decline never stops: Shale production is a treadmill. Stop drilling, production collapses. At current decline rates, US shale would fall from 9 mb/d to 3 mb/d within 5 years if drilling stopped.
3. Capital discipline: Post-2020, investors demand profitability over growth. Shale companies can't burn cash drilling marginal wells anymore. Growth slows.
4. Vulnerability to low prices: If oil falls to $50/barrel (peak demand scenario), 30-40% of US shale becomes unprofitable. Production would decline sharply.
Projection:
- 2025-2030: US shale production plateaus at 9-10 mb/d (limits of Permian sweet spots)
- 2030-2040: Slow decline begins (best acreage depleted, break-even costs rise)
- 2040+: Shale becomes marginal (only Permian core survives at $50-60/barrel)
US shale gave America energy dominance for 15 years. But it's not Saudi oil—it can't sustain production for 50 years. The boom will end, and when it does, America returns to import dependence.
Russia's Energy Weapon: Sanctions That Don't Work
February 24, 2022: Russia invades Ukraine. The West responds with unprecedented sanctions, including attempts to cripple Russia's oil and gas exports. The goal: Cut off revenue funding the war. The result: Russia found workarounds, and the sanctions largely failed.
The Sanctions Strategy
EU oil embargo (December 2022):
- Ban on Russian crude oil imports to EU by sea
- Ban on petroleum products (diesel, gasoline) from Russia
- Expected impact: Cut 90% of Russian oil exports to Europe
G7 price cap (December 2022):
- Cap Russian oil at $60/barrel (to reduce revenue while keeping supply flowing)
- Prohibit Western shipping/insurance for Russian oil above $60
- Expected impact: Force Russia to sell at discount, reducing war funding
The theory: Russia depends on oil/gas revenue (45% of federal budget). Cut exports, crash revenue, force end to war.
The Reality: Russia Redirects, Sanctions Fail
Where Russian oil went (pre-invasion vs. post-sanctions):
Before Ukraine invasion (2021):
- Europe: 60% of Russian oil exports
- China: 20%
- India: 2%
- Others: 18%
After sanctions (2023-2024):
- Europe: 10% (collapsed)
- China: 45% (more than doubled)
- India: 40% (20x increase!)
- Others: 5%
Russia simply redirected exports. China and India, not participating in sanctions, bought Russian oil at discounts ($5-15/barrel below market price).
Russian oil revenue (despite sanctions):
- 2021: $180 billion
- 2022: $220 billion (INCREASED due to high prices from Ukraine war)
- 2023: $170 billion (down slightly but still high)
- 2024: $160-180 billion (stabilized)
Sanctions reduced Russian oil revenue 10-20%, not the 50%+ collapse intended. Russia adapted.
How Russia Evades: Shadow Fleet and Intermediaries
1. Shadow tanker fleet:
Russia assembled a fleet of aging tankers (100+ vessels) to move oil without Western insurance or shipping services. These tankers:
- Often don't have proper insurance (safety risk)
- Turn off AIS transponders (tracking systems) to hide routes
- Transfer oil ship-to-ship at sea to obscure origin
2. Intermediaries and relabeling:
Russian oil is exported to India, refined, then re-exported to Europe as "Indian diesel." Technically compliant with sanctions (diesel isn't Russian origin), but effectively Europe is still buying Russian oil indirectly.
Example: India's diesel exports to Europe increased 500% after sanctions—made from Russian crude.
3. Price cap violations:
Russia often sells above the $60 cap to China/India. Without Western shipping/insurance, the cap is unenforceable. Estimates: 30-50% of Russian oil trades above $60.
Europe's Energy Dependency: Why Sanctions Had Limited Impact
The fundamental problem: Europe was massively dependent on Russian energy and had no short-term alternatives.
Pre-war Russian energy to Europe:
- Natural gas: 40% of EU gas from Russia (via pipelines)
- Oil: 25% of EU oil from Russia
- Germany alone: 55% of gas from Russia
You can't replace that overnight. Europe tried:
- LNG imports from US, Qatar (but not enough to replace pipeline gas)
- Reactivating coal plants (emissions increased)
- Emergency energy conservation
- Rationing plans (never implemented but prepared)
The result: Europe suffered energy crisis (prices spiked 10x), while Russia found alternative buyers and maintained revenue.
The Lesson: Energy Is Geopolitical Leverage
Russia weaponized energy dependency:
- Threatened to cut gas to Europe unless sanctions lifted (didn't work, but caused panic)
- Sabotaged Nord Stream pipelines (disputed, but likely Russian action to prevent Germany from backsliding)
- Proved that energy exporters have leverage over importers
Europe learned the hard way: Dependence on a single supplier is strategic vulnerability. The response:
- Accelerate renewables (reduce fossil fuel imports)
- Diversify suppliers (LNG from US, Norway, Qatar)
- Build LNG terminals (7 new terminals in 2 years)
But the damage is done. Russia demonstrated that energy sanctions don't work when alternative buyers exist. As long as China and India buy Russian oil, sanctions can't collapse Russian revenue.
SETUP:
It's 2035. EVs are 60% of global car sales. US, Europe, China all mandate EV transitions. Oil demand peaks at 105 mb/d (2030), now declining 2% annually. Price: $45/barrel and falling.
WHO SURVIVES, WHO FAILS:
CANADIAN TAR SANDS (FIRST TO FAIL):
• Break-even: $60-75/barrel
• Current price: $45/barrel
• Result: MASSIVE LOSSES. Projects shut down. Production drops from 3 mb/d to 1 mb/d.
• Stranded assets: $200B+ in sunk costs, never recovered
• Alberta economy crashes (unemployment spikes, provincial budget crisis)
US SHALE (COLLAPSES):
• Break-even: $40-50/barrel (varies by basin)
• Current price: $45/barrel
• Marginal economics + rapid depletion = drilling stops
• Production crashes from 9 mb/d to 3 mb/d within 3 years
• Permian survives (barely), Bakken/Eagle Ford shut down
• US returns to oil imports
DEEPWATER OFFSHORE (SHUT DOWN):
• Gulf of Mexico, West Africa, Brazil pre-salt
• Break-even: $50-80/barrel
• New projects cancelled, existing platforms run until depletion
• No replacement drilling = production declines 5-10% annually
NORWAY (STRUGGLES):
• North Sea mature fields, high costs ($40-55/barrel)
• Government subsidizes production (jobs, tax revenue)
• Slow decline, eventually uneconomic
RUSSIA (SURVIVES):
• Production cost: $20-30/barrel
• Still profitable at $45/barrel
• Maintains production, sells to China/India
• Market share increases as high-cost producers exit
SAUDI ARABIA / UAE / KUWAIT (THRIVE):
• Production cost: $10-20/barrel
• Highly profitable at $45/barrel
• OTHER PRODUCERS SHUT DOWN → OPEC cuts production → Price rises to $55-60
• OPEC market share: 70%+ (from 40% in 2024)
• Revenue sustained despite lower volumes
THE ENDGAME:
By 2040:
• Global production: 80 mb/d (down from 105 mb/d in 2030)
• OPEC: 60 mb/d (75% of total)
• Russia: 8 mb/d
• US: 3 mb/d (imports 5 mb/d)
• Everyone else: 9 mb/d
Oil industry consolidates to lowest-cost producers.
High-cost reserves: STRANDED ($2-3 trillion in lost investments).
Price stabilizes at $50-60/barrel (enough for OPEC, too low for shale/tar sands).
THE IRONY:
The countries most dependent on oil (Saudi, UAE) are the ones that survive.
Diversified economies (US, Canada, Norway) lose their oil industries first.
The 2040 Oil Market: Slow Decline, Not Collapse
Peak oil demand will happen—probably in the 2030s. But "peak" doesn't mean "collapse." It means a slow, managed decline over 30-50 years. The 2040 oil market will look very different from 2025, but oil will still be everywhere.
Demand Projections: The Range of Outcomes
Three scenarios from major forecasters:
1. IEA "Net Zero by 2050" (aggressive climate action):
- Peak demand: 2025 (102 mb/d)
- 2030: 95 mb/d
- 2040: 72 mb/d
- 2050: 55 mb/d
- Assumptions: Rapid EV adoption, coal/gas phaseout, strong climate policies
2. OPEC Reference Case (slow transition):
- Peak demand: 2045 (110 mb/d)
- 2030: 106 mb/d
- 2040: 109 mb/d
- 2050: 106 mb/d (slight decline)
- Assumptions: Moderate EV growth, continued fossil fuel use, weak climate policies
3. Realistic middle scenario:
- Peak demand: 2030-2035 (105-108 mb/d)
- 2040: 85-90 mb/d
- 2050: 70-75 mb/d
- Assumptions: Steady EV adoption, aviation/shipping growth, petrochemical demand increases
Even the aggressive IEA scenario shows 55 mb/d in 2050—half of today's demand, but still massive. Oil doesn't disappear; it shrinks.
What Survives: The 2040 Demand Mix
Uses that decline sharply by 2040:
- Passenger vehicles: 26 mb/d (2025) → 8 mb/d (2040) [70% reduction from EVs]
- Power generation: 4 mb/d → 1 mb/d [replaced by renewables/nuclear]
- Heating: 6 mb/d → 2 mb/d [heat pumps, electric heating]
Uses that stay flat or grow:
- Petrochemicals: 14 mb/d (2025) → 18 mb/d (2040) [plastics demand growing]
- Aviation: 8 mb/d → 10 mb/d [air travel growth, minimal SAF penetration]
- Shipping: 5 mb/d → 5 mb/d [slow transition to LNG/ammonia]
- Freight trucks: 11 mb/d → 8 mb/d [partial electrification, hydrogen]
- Lubricants/asphalt: 12 mb/d → 11 mb/d [modest decline]
2040 total demand: ~85 mb/d
The decline comes from transport electrification. But petrochemicals, aviation, shipping, and industrial uses remain—locking in 50+ mb/d of demand permanently.
Who Controls the 2040 Market: OPEC Dominance
As high-cost producers shut down, OPEC+ consolidates control:
2025 market share:
- OPEC+: 50% of global production (51 mb/d of 102 mb/d)
- US: 13% (13 mb/d)
- Others: 37%
2040 projected market share:
- OPEC+: 70%+ (60 mb/d of 85 mb/d)
- US: 4% (3-4 mb/d, shale depleted)
- Others: 26% (Russia, Brazil, Canada remnants)
OPEC regains pricing power. As swing producer, Saudi Arabia can cut production to support prices. With 70% market share, OPEC sets the price floor—likely $50-60/barrel (enough to sustain their production, too low for competitors to restart).
The Long Goodbye: Oil Doesn't Die, It Fades
Oil's decline won't be a sudden collapse. It'll be a 50-year fadeout:
- 2025-2035: Transition begins (EVs grow, renewables expand, oil demand plateaus then declines)
- 2035-2050: Managed decline (oil drops from 102 mb/d to 70 mb/d, high-cost producers exit)
- 2050-2070: Endgame (oil stabilizes at 50-60 mb/d, used only for aviation, petrochemicals, shipping, niche applications)
- 2070+: Final phase (Saudi/UAE pump last barrels at premium prices for irreplaceable uses)
This isn't "keep it in the ground." This is "extract it slowly over 50 years while building the alternative economy."
And the countries doing this best—Saudi Arabia, UAE—will be the ones pumping the last profitable barrels in 2070.
Conclusion: Oil's Last Stand Is a 50-Year Retreat
The narrative that oil is dying in 2030 is wrong. Oil demand hit record highs in 2024. Peak demand will come—probably mid-2030s—but the decline will be slow, not catastrophic.
Why? Because oil isn't just fuel:
- 40% goes to petrochemicals, plastics, materials (can't electrify)
- Aviation needs liquid hydrocarbons (batteries too heavy)
- Shipping will transition slowly (LNG, ammonia by 2050+)
- Industrial uses (lubricants, asphalt) have no substitutes
Even aggressive electrification only eliminates 30-40% of oil demand by 2050. The rest stays.
The smartest oil producers know this:
- Saudi Arabia: Using oil profits to build NEOM (hedging on post-oil economy), but knows Aramco will print money for 30+ years
- UAE: Investing in renewables (Masdar) while expanding oil production 25%—controlling both sides of the transition
- Russia: Weaponized energy exports, proved sanctions don't work when China/India buy everything
The losers will be high-cost producers:
- Canadian tar sands: Stranded at $60+ break-even
- US shale: Treadmill collapses when prices drop below $45
- Deepwater offshore: Can't justify new projects in declining market
By 2040, OPEC will control 70%+ of global production. Low-cost producers (Saudi, UAE, Kuwait, Iraq) will dominate. They can profit at $40/barrel while everyone else goes bankrupt.
The last barrels of oil—pumped in 2070 for aviation fuel, plastics, and petrochemicals that can't be replaced—will come from Saudi Arabia. Sold at a premium. Still profitable.
Oil's last stand isn't a desperate defense. It's a managed, profitable retreat spanning five decades. The survivors will be those who accepted this reality and positioned accordingly.
They declared peak demand by 2025. It hit record highs instead. When peak finally comes, the decline will be slow enough that low-cost producers make money for another 50 years.
That's not a crisis. That's an endgame strategy.
Next: Part 7 - Transmission Chokepoint (You can't use renewable energy if you can't move it)
