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Peak Oil Is Coming, Courtesy of Political Incompetence
Before
starting today’s essay, I have to thank Rick Rule of Global Resource
Investments for his insights on the following issues.
Rick has
been involved in natural resources investing since 1974. He founded Global in
1994 and has been behind many of the largest deals (Silver Standard being one)
and the largest profits (between 1998 and 2006 he grew $15 into $460 million)
the industry has ever seen.
I spent the
better part of a recent morning discussing oil and the energy sector with him
over the phone last week.
“Most people believe that most oil in the
world is produced by the big oil companies, the Exxons, the Shells, the BPs,
the Totals of the world,” Rick began, “That
is not true. Most oil in the world is produced by national oil companies…
companies owned by the state or government.”
I asked Rick
what percentage of world oil production is controlled directly by governments.
His answer: “at least 70%.” Rick went
on to explain that this creates a situation similar to the Peak Oil theory
based not on lack of resources, but lack of competence on the part of political
leaders.
“Much of the cash flow generated by these
state owned companies is spent on government spending programs. Now, oil and gas
are capitally intensive businesses. If you do not continually reinvest, you
impair your ability to produce.”
“It is my opinion that this lack of
reinvested capital will create a situation in which it is inevitable that in
five years the world supply of export crude from several key exporting
countries will be greatly constrained of not stopped altogether. Those
countries include Mexico, Venezuela, Peru, Ecuador, Indonesia and perhaps
Iran.”
According to
the International Energy Administration worldwide
demand for crude oil imports is growing at a rate of 1.5-1.6% a year. When you
combine this growth in demand with a major cut in 20-25% of world exports you
have makings of what Rick calls, “a MAJOR
price dislocation.”
This is
something I’ve yet to hear anywhere else, especially in the mainstream media.
All talk of higher oil prices that I’ve seen focuses on speculation on Wall
Street (true), the view that the world is running out of oil (false), or the
view that war in the Middle East will disrupt supplies (probably will be true).
Nowhere is anyone talking about a cut in exports due to government
misallocation of resources.
I asked Rick
if his “price shock” forecast was a certain thing. He responded, “There is one potential solution which may
or may not work. The Gulf States, most notably Saudi Arabia, Kuwait, and Abu
Dhabi, are aggressively reinvesting in building production capacity. The issue
is whether or not they can expand capacity enough to shelter the shock of the
decrease in exports coming from the other countries I listed before.”
So the one
group that could stop a spike in oil prices is the Middle East?
“Yes, paradoxically, the people who talk
about supply issues in the US are concerned about the very nations that are our
most reliable suppliers: the Persian Gulf countries. The Saudis are spectacularly reliable suppliers. They have
invested tens of billions of dollars maintaining a surplus capacity of two
million barrels per day specifically to level out price shocks. This suggests
to me that American consumers have been massive beneficiaries of a region that
they are being taught to dislike, namely the Middle East.”
Combine
these insights with recent comments from a former Shell Oil executive that gas
will be at $5 per gallon by 2012 and you’ve got a serious argument that energy
prices will be soaring in the future.
Good Investing!
Graham
Summers
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That sounds reasonable to me, why reduce your profit when scarcity only makes the price go higher
Oil producers do not have to bother about scarcity as it is coming naturally. No manipulation needed.
The main issue for them is to stay as long as possible in the game. That is their main concern.
Peak Oil is a scam. This is not to say that we should not find new sources of energy, but peal oil is an out and out scam. The most terrifyingly neferious scam ever.
There is no evidence of biotic origin of mass quantities of crude oil. It came from a 150 year old untested hypothesis and has been the basis for an imposition of artificial scarcity ever since. Oil has already been produced abiotically in laboratory conditions. The Royal Institute of Technology has in 2004, all but confirmed oil's abiotic origins. The entire Russian oil industry has been based on abiotic origin theory. Vladimir Kutcherov has pointed out that there is no way fossil oil could penetrate at the levels we are now getting oil.
Peak Oil is a scam, just like global warming was a scam. We will now see the Peak Oil Cult get into full swing with help from the media. Mike Ruppert's "Collapse" is the prelude to the "Inconveniet Truth" of Peak Oil.
Abiotic oil is at least as laughable as creationism, what other articles of faith do you hold sir? Many I would suspect.
This is a moot argument because the issue being raised is that of production capacity. You're missing what is being said in the article.
Allow me to create an analogy:
You run a logging company, and your head foreman comes to you and says, "we don't have enough chainsaws to meet our tree quotas, we're going to run out of wood to deliver to the lumberyards".
You then respond by saying, "No, you're wrong. Trees grow in the ground, naturally and continually, we'll never run out of trees".
Then your foreman looks at you sideways, promptly quits, and then finds a boss who will listen to relevant information.
I don't mean to sound harsh and I am sorry if I did in any way, but it would seem from your comment that you totally ignored what the article was about.
You just keep telling yourself that. And don't forget to click your heels.
follow the yellow cake road
You are a dangerous moron...The realities of P.O. are here and we are ill equipped to deal with them...The pain has only just begun.
Morning Hulk. Hope your holidays are well. They're out in droves this morning. Paid for or amateur ignorance?
Morning Davey and Happy holidays to you too. Its an education problem. Too many folks have learned physics from the Roadrunner and Wiley Coyote...
LOL!
My two favorite cartoon characters, but still do not think the world operates in that fashion.
Meep-Meep! ;-)
+1000
But we will be bored with more drivel from the cornucopean crowd for some time to come.
ABIOTIC OIL IS A SCAM.
The theory is laughable, on every level.
Oh really? Why? Tell me. Why is it laughable? Why is it any more laughable than diamonds coming from carbon? Oil is inorganic hydro-carbon substance that the abiotic proponents (which include the Russian Oil community, people always "forget" claim comes from inorganic hydro-carbon substances put under high temp-low oxygen conditions that avoid combustion. If you say this is laughable, be prepared to give a full account of the chemistry behind your opinion. Either that or shut up.
Well, go to your local geology faculty and explain your science. Oh, I know, those academics are part of the elitist cabal and only your non academic knowledge from those sources you only know are better than the cientific community. Forget what I said. Yeah, scam.
Notice. I requested that the Peak Oil Cultists show me the actual science that demonstrates that abiotic oil theory is invalid. They do three things.
1-Assert peak oil without arguing.
2. Claim without evidence that anyone who denies Peak Oil or contends that oil is abiotic is crazy.
3. "Go to your local geology faculty". In other words, "I made my point, you prove it for me". And then with Achtung, back to the usual ad-hominems.
You can tell a cult, whether it's Peakers or Warmists, by the ratio of claims of authoratative science with actual scientific arguments. The peakers here are even worse than the warmists in their attempts to cite bogus consensus and received wisdom while hardly ever elaborating on where that wisdom rests. This is why, in spite of their claims of how overwhelming the evidence for peak oil is, they can never actually produce any argument that can make a dent in someone who is NOT ALREADY IN THEIR CULT. Fact is, no satisfactory theory of biotic oil has ever been proposed that has ever fit with the facts of how much oil there is, where it has been found, etc. Fact is, the Peakers are simply the next generation of Warmists. Scientific illiterates who get their self-righteous fix in by claiming that only they have seen the end of the world and everyone else is a zombie.
Bullshit. Before you call me a zombie, make something resembling a serious argument.
You mean the planet isn't like a cadbury cream egg? We can't just stick a straw in and suck out the hidden creamy core?
We just don't have a big enough straw. When technology advances, and it will any day now, we will get to the creamy core!
Tell that to Pemex. I'm sure, the decline in Cantarell is a scam too. Now go back to infowars and most importantly, stay there.
Every scam gets marketed to a certain segment of the populace. Everywhere you look with peak oil, you find the same memes. Population reduction, struggle for resources ad infinitum.
While I'm positive that some of the people junking me here are disinfo ops, the majority are probably dupes. Peak Oil is the next Global Warming. Pray to God that there is some whistleblower who will expose it.
Peak Oil fanatics never present arguments to back up their assertions. They just present their hysteric projections. People have been making hysterical projections about Oil from the very beginning, yet there is always more Oil, and the price can't go up before it goes down again. The fluctuations of Oil prices have always been revealed in the end to be manipulated price spikes, OPEC in the 70s and Goldman in 2008 and now.
Spokesmen for Saudi Arabian Oil keep revising their projections stating that they have trillions of Oil reserves and reserves once thought exhausted keep resupplying themselves. The peakers keep ignoring the facts and relying on innuendo and ad hominems. None of these junkers have anything to say about the facts.
You know what, the guys who rejected Global Warming hysteria were junked once as well. They are still junked, but only by shitheads. Some of the people who are pushing Peak Oil here are no doubt shitheads as well, but they're probably still pimping Global Warming and pretending that buildings can collapse at freefall speeds when no planes hit them. When absinpendejo can tell me how that happened, I'll take him seriously.
I have often wondered if Lindsey WIlliams and Jim Tucker are not doing everyone a disservice by 'leaking info' from the oilgarchs. They wrap up all the current rumors, and usually accurately, only to say, 'And by the by, the oilgarchs have enough oil to live on Mars with.'
It's easy to believe what you want to hear. This is especially true when what you're hearing confirms your entire worldview all in one shot, which is what we all want: confirmation/affirmation [of worth].
oil and political incompetence are both peaking
a few of the many Kutcherov critics:
"Skeptics say that while traces of abiotic hydrocarbons may exist, little data support the idea of economically meaningful deposits. "Companies have been looking for oil for 100 years. If all this abiogenic stuff is there, why haven't they found it?" asks geochemist Geoffrey Glasby, who spent nine months investigating the matter for a 2006 review paper in Resource Geology. He concluded the totality of the evidence did not support the concept.
"There is a difference between a few parts per million and tens of millions of barrels," says Chevron geologist Barry Jay Katz, another skeptic. He notes that the theory fails to explain the wide variety of biological compounds found in oil from different parts of world. Oil from younger rocks contains compounds linked to flowering plants, but oil from older rocks formed before flowering plants existed contains only more primitive organic compounds.
"If you buy the theory, it says you will never run out of oil; there is an infinite supply, and don't worry about anything," says Katz. "That is not the way it seems to be working."
http://www.forbes.com/2008/11/13/abiotic-oil-supply-energenius08-biz-cz_rl_1113abiotic.html
Yeah right Davy. It's finite, ergo we are in crisis. Just like our finite supply of dirt (is it infinite?) is going to become peak dirt. Heaven help us for peak dirt.
Peak Oil is a scam. The need for sustainable energy use is not, but the idea of a peak oil crisis in our lifetimes is bullshit.
Yeah, peak oil is a scam. Same as those ex marxist joining forces with Margaret Tatcher to do the bidding of the elites to support Global Warming, even when the elites (radicated in the US) are completely against it... But well, must be a scam to avoid the 3rd world from becoming 2nd or 1st and a half world...
Did you talk to your local geologist lately? He might tell you that none in the know takes abiotic oil theory very seriously. In fact, well, considering that depleted wells have... NEVER been put online back again without inserting extra pressure or because of new techonolgy that allows to extract what was once impossible, the logical thing would be to believe that those oil wells replenish automatically, right? And even if they did, at our current pace of consumption, would they be enough? And how much oil can we pump into the atmosphere before having consequences? Probably none, as that's Al Gore's line, you know... if it's Al Gore it has to be false...
The question is not if we are running out of oil but how much does demand outpace supply, we have plenty of coal and natural gas too, but it takes decades to convert all the factories and engines