TS Lombard with sounds analysis:
Until not that long ago, the idea was still taken seriously that peak oil would be supply-side driven and triggered by sky-high prices: but as it is now clear that the oil case will resemble all previous energy transitions, useful lessons may be had from the most recent such precedent–peak coal.
The first such lesson is the lack of a linear relationship between falling demand (the underlying driver) and falling prices. The main reason for this is decreasing investment in new supply getting out of sync with decreasing demand.
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The resulting gains in the coal price after coal demand had peaked look set to be periodically replicated in the oil market, with US shale best placed to benefit as the most nimble supply source with its relatively short capex cycle.
In general, however, this price paradox may not feature as strongly in the case of oil–with petro-states set to continue pumping as much oil as they can regardless of any economic rationale.
The second lesson of coal should, by contrast, apply even more strongly to the oil case–namely, havoc in markets for by-products. This points to increasing state subsidies for refineries to ensure supply of still essential oil products–and perverse effects from various possible approaches to the problem of what to do with large amounts of unwanted products.
Third and finally, energy transitions are highly politicized. In contrast to the organised labour that lost out from peak coal, the ‘oil losers’ will be rentier-landowners–starting with the petro-state oligarchies that face upheavals in their countries’ political economy and including, in DM, core political players such as the US Republican Party.