Is there another way out for oil producers that I may be overlooking?
Certainly not in the long run. I've been trying to figure out the short-term moves, which are pretty complicated.
Basically, every major market for oil other than transportation has been dying since the 1970s. Yes, there's plastics and chemicals, but it's miniscule. Oil for heating, electricity, and so forth has been in a slow decline for a very long time.
Transportation has been remarkably resistant to substitution. As a result, the demand for oil is essentially the transportation-fuel demand. We know this is dropping due to plug-in cars. However, there's a question of whether the demand drop is *faster* or *slower* than the drop in oil production due to natural depletion of oil fields. If the depletion moves faster than the demand drop, then the oil price will *temporarily* go up. Eventually, the electric car production rate will be so high that the demand drop will be higher than the depletion rate, at which point the oil price will crash for the last time.
(Well, I say the last time, but actually then you have to look at the residual uses of oil for chemicals and plastics and so on, and compare it with the decline rate on the last few surviving "cheap to produce" oil fields. By then I think few people will care because oil will be an irrelevance. Well, I guess until airplanes are converted oil will still be relevant.)
I currently believe that we're in for one more cycle of oil prices rising due to depletion exceeding drops in demand, but I could be wrong. We could already have gone through the last cycle. Or there could be two or more cycles, but I think that is unlikely.
Obviously, any significant rise in oil prices will accelerate the adoption of electric cars, which is why I doubt there will be two cycles. (There could be a second cycle of oil price rises after all land transportation is converted and before airplanes are converted.)
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The natural gas situation is fascinating and you've pointed out some dynamics I hadn't fully analyzed. If natgas prices rise above a certain level, then natgas gets replaced with wind and solar for electricity generation. I think we can figure out what that price actually *is*. Based on Lazard's LCOE 9.0, I can figure out the *variable cost* of running a combined-cycle natgas plant (using the low-end estimate) at different natgas prices. At $4.50, the variable costs are 3.4 cents / kwh, which is more expensive than new wind. At $5.50, the variable costs are 4.1 cents / kwh, and I think we can presume that utility solar will be in that price range in a year or two, since it's averaging 5 cents / kwh already. At $6.75 natgas, the variable costs are 4.9 cents / kwh and that's it. Those are based on low-end natgas plant prices, so they're optimistic for natgas.
This means that $6.75 really acts as a permanent cap on the price of natgas, at least until it stops being used for rioutine electricity generation; but the cap may be as low as $4.50. (And dropping.)
Even $6.75 is well below the price which is needed to make fracking for gas break even. Which isn't surprising; fracking for gas is not profitable and has always been a scam. Profitable fracking companies have been looking for oil, period.
Natgas production is mostly a side effect of oil production. That's why we have so much extra natgas and why the oil price / natgas price ratio is getting so high: it's due to oil demand. They're drilling wells which produce a lot of gas and a little oil, but they're only profitable because of the oil.
Now, the depletion of the fracked wells happens *really* fast; they run out completely in about 5 years. So we're going to see a massive drop in the natgas supply. I don't know whether this will happen faster or slower than the solar and wind deployment.
If it happens faster, we'll see a temporary rise in natgas prices which will cause wind and solar to be deployed as fast as they can practically be deployed, but may also cause a temporary resurgence in investment in oil and gas.
If it happens slower, wind and solar will be deployed more slowly, but the oil & gas companies will not invest at all in gas.
