Oil storage tanks stand in this aerial file photograph taken above Cushing, Okla.Daniel Acker/Bloomberg
It's time to worry about the end of oil, not the peaking of oil, which will probably never happen, at least not in our lifetimes. The ticklish issue that is becoming a nagging worry is the one about demand for liquid hydrocarbons. We know that the Peak Oil Jeremiahs were embarrassingly wrong in calling the last barrels for America's onshore oil reserves. But what if Big Oil is wrong in its confident assumption that annual incremental increases in global demand for crude oil will continue for the next few decades?
Sometimes, it is not the big picture that is unsettling. There is plenty of global turmoil to make you anxious: war, crashing markets and sinking currencies. However, it is the small, hard-to-explain contradictions that make you question the big confident assumptions upon which corporate and national economic strategies are erected. My little conundrum is the continuing wide-open arbitrage between the BG Group share price and the value of Royal Dutch Shell's offer for the rival oil and gas explorer.
Shell's investors will on Wednesday vote to approve the £33-billion ($67-billion) takeover and, apart from one or two noisy malcontents, there has been no sign of rebellion. Ben van Beurden, Shell's chief executive officer, insists that the deal still makes sense, arguing that Shell will make hay with BG's reserves when the oil price heads back above $60 a barrel.
Yet, the BG share price tells a very different story. Even as I write, you can make risk-free money buying BG and forward selling Shell. Only days away from crystallization of the deal, BG's share price is 5.9 per cent below the value of the Shell cash-and-shares bid, an open invitation to hedge funds, arbitragers and any professional investor to make money for nothing, buying the cheap route into Shell shares. Only a few weeks ago, the discount was in the mid-teens and it is still absurdly large, unless you believe the Shell CEO is an appalling liar and will cancel the deal at two minutes to midnight.
Such a discount is astonishing and unheard of in the merger of two enormous companies with heavily traded shares. There has to be a deeper, more profound reason for the reluctance of investors to play the price differential and pocket the profit. If hedge funds are not playing this game, it is because they are frightened, not scared of Shell but scared of oil.
Over the past year and a half of oil market bloodletting, the focus has been on the game of chicken being played by major suppliers, notably Saudi Arabia pumping more crude as the price falls. The Saudis recently declared victory, pointing to the sharp fall in capital spending by America's onshore shale explorers but the oil market is unimpressed. The unhappy story of oil is not about the race toward the cliff by suppliers but the passive behaviour of the consumers as they watch the game of chicken.
Cheap gasoline is not yet moving economies and that may be because we don't really need it. Over the past decade, Chinese oil demand (and the absurd squandering of fuel by oil producers in the Middle East) has been the motor that has kept oil consumption on an upward trajectory. The recent stock market and currency turmoil is a reminder that China is changing gears. If China is finally abandoning its grotesque and damaging overinvestment in heavy industry, the world should be grateful for the rebalancing that will ensue. However, a large part of that rebalancing will be weaker growth in energy consumption as the Chinese develop their internal consumer economy. Few commentators noticed that total electricity generation fell in China last year; a statistic that makes a mockery of China's official gross domestic product growth figure but also gives warning about future Chinese demand for fuel.
Chinese energy intensity is falling: fewer smokestacks, more hairdressers. It is also changing: China is now the world leader in solar energy capacity, leapfrogging Germany. China's shift away from industry may also mean less intercontinental trade. The Baltic Dry Index that tracks the cost of shipping bulk commodities is at a record low and rates for the containers that bring TVs and laptops across the ocean are also under severe downward pressure.
For an oil giant, such as Shell or Exxon Mobil, a world turning away from hydrocarbons need not spell disaster. They can make money in a world where demand for oil is static or falling, where investment in renewable energy soars even as the cost of fossil fuels plummets. For Shell, it means being the last man standing, the biggest tobacco company in a world that loves to hate smokers.
It also means being the most efficient, a streamlined utility with zero tolerance for speculative and wasteful exploration. It would be a new world for Big Oil but it may be the one option left.
Carl Mortished is a Canadian financial journalist based in London.