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The Resurrection of Peak Oil
It has been a long wait for “peak oilers,” whose passionate belief is that the world will run out of oil in coming years, sending prices through the roof.
This splinter religion came into being in 1956 when M. King Hubbert produced some simply supply/demand charts showing that US reserves of Texas tea would dry up by 1965-70, forcing a heavy reliance on imports with which we have become all too familiar. This was later expanded globally, implying that Western civilization would come to a grinding halt.
It all seemed very prescient, when in 1973 OPEC raised prices from $3/barrel to $12 in the wake of the Yom Kippur war, and the resulting boycott caused enormous lines at American gas stations. It happened again in 1979 with the fall of the Shah of Iran, taking crude from $12 to $40. Then Saudi overproduction kicked in big time, bring 20 years of falling prices, all the way down to $8. At the 1998 low, oil was selling for less than the barrel that contained it.
Then came China and the commodities boom, which suddenly sent the value of all things “hard” skyward. Virtually overnight, the Middle Kingdom became the world’s largest marginal consumer of not only oil, but all energy sources. By 2008, peak oilers had the second coming in sight, with prices soaring to $150/barrel.
Enter the Great Recession. The real damage this caused was not the temporary collapse of prices down to $28/barrel and the wiping out of many industry participants. It was the two year freeze on the financing of new exploration and development, a byproduct of the Wall Street crash. BP’s Gulf oil spill didn’t help matters either. These events have combined to create a bubble in the energy pipeline, the implications of which we may only just now be seeing.
Now the Middle East is blowing up. With populations exploding, per capita incomes plunging, and a religion that mires them in the 14th century, this sort of viral, grass roots revolution could have, and should have happened any time over the last 40 years. It took cell phones, social media, and the Internet to provide the spark. At first, the world didn’t care, as Egypt and Tunisia produce little oil, and are non-factors in the global economy.
Now it’s Libya’s turn, and it’s a different kettle of fish. Having dealt with the Libyan government myself since 1968—Muammar Khadafi overthrew the government just before I was about to cross the border —I can only say this couldn’t happen to a nicer guy. I missed the Pan Am flight he blew up over Lockerbie, Scotland by a week and lost a few friends. The sooner he is found hanging by his heels from a lamp post, the better.
The revolution there raises broader, far more concerning questions. If it can happen in Libya, why not in Saudi Arabia, where the government is still essentially tribal in nature and will not be winning any prizes for their human rights record anytime soon. Women are still not allowed to drive. Take their 12 million barrels/day off the market, even for a few days, and the geopolitical implications are large.
Which brings me back to peak oil. After a quiet, long term downsizing, the US now only imports 2 million barrels a day from the Middle East. Canada is now our largest foreign supplier, followed by Mexico and Venezuela. But oil is a globally traded commodity, and if you prick the supply line in one place we all have to pay. Remove Saudi Arabia from the picture, and the results could be catastrophic, for China first, but for ourselves as well.
Now it’s Libya’s turn, and it’s a different kettle of fish World oil production today is 82-83 million barrels/day. There is probably another 5 million barrels/day in reserve. By 2015, an additional 3 million barrels/ day in will come on stream that was financed prior to the Wall Street melt down. After that, new supplies become very problematic.
Even if the US can keep its own demand relatively flat through modest economic growth, conservation, new efficiencies, alternatives, and switching to natural gas, China promises to eat up all of this increase. That’s when the sushi hits the fan. I think oil could hit $300/barrel by 2020, or $225 in today’s prices. If you are wondering why I have become so cautious about investing lately, this is a major reason why.
Which leads us all to the bigger question of how do we make a buck out of all of this? Brent crude, which trades in Europe, is already at $104.40/barrel, a $12/barrel premium to our own West Texas intermediate. Prices here have stayed low because of a shortage of storage facilities. My buddies in the field also tell me there is some elaborate conspiracy to keep West Texas artificially low, because the prices for Middle Eastern imports are priced off of that highly manipulated benchmark. It is far more likely that West Texas trades up to Brent than the other way around.
I missed the window to get in last week at $85/barrel. But if you believe it’s going substantially higher, it is not too late to get involved. For a start, do not buy the oil ETF (USO). The tracking error caused by the contango will kill you, assuring that you will take all of the risk but get few of the benefits.
Individual oil major stocks that I have been recommending, like ExxonMobil (XOM), BP (BP), and ConocoPhillips (COP) are great vehicles. A simple alternative is to pick up the double long oil majors ETF (DIG). These guys have massive supplies in the pipeline that are about to be revalued by higher prices. So are independents like Occidental Petroleum (OXY). You can throw oil service companies into the mix as well through the ETF (OIH). Higher oil prices almost make alternative energy producers like First Solar (FSLR) much more profitable.
As (OXY) founder, Dr. Armand Hammer, told me when I was a kid, “Keep your eye on oil, because everything stems from that.” Some 40 years later, and I think the old man is still right.
To see the data, charts, and graphs that support this research piece, as well as more iconoclastic and out-of-consensus analysis, please visit me at www.madhedgefundtrader.com . There, you will find the conventional wisdom mercilessly flailed and tortured daily, and my last two years of research reports available for free. You can also listen to me on Hedge Fund Radio by clicking on “This Week on Hedge Fund Radio” in the upper right corner of my home page.
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"peak oilers" do not believe the world is running out of oil... Only that the world is running out of CHEAP EASILY ACCESSIBLE OIL . Please gets your facts straight before you open your mouth
Agreed. As energy gets more and more expensive, less and less can be recovered profitably; i.e. net energy gain. This is the acceleration factor in oil depletion. We're gonna leave a lot of oil in the ground because we can afford to go get it.
No, the peak oil law says only that production will at some point hit a maximum rate and then decline. It has nothing to do whatsoever with the cheapness or easiness of the oil. ALL wells, fields, and geographic collections thereof will achieve peak.
Trav777
the "peak oil Law" has been wrong for over 40 years, don't let reality you hysterical cartoon finger
Law, what law? Who has ever said it was a law? You sound like a creationist you know... your arguments are low brow and about as sharp as a boiled wiener.
Kinetik - please refer to Trav777 post just above your dizzy (or is it senile?) head at 12:14 .....this is the quality of true hysterical believers in Peak Oil BS, they can't even hold a conversation for 2mins!!
Let's have that conversation. You can start by rebutting the itemed list I posted here. Put up or shut up...
I've done my research, I'm entirely happy with it. And i don't need to rebut your figures or research because all studies can show the figures however they want. Like reserves are a constant Govty statistical lie, the only thing that's consistent is the lying, the only truth is that all Govts under-report reserves.
That's because there's so much fuking oil it's coming out of our ears and that just wouldn't do for an industries pricing strategy now would it?
You swallow the Peak Oil BS if you like, you seem good at it in fact, but count me out of your fabricated data sets
Post your data. All evidence points to governments over estimating their energy reserves.
yes prouduction slows down as it becomes harder to extract. making it less cost effective , or for lack of a better term more expensive and less accessible. think of a tube of toothpaste, 5 % of the paste is left in the tube . nobody cuts open the tube to get at that last bit. to much trouble.
J. Livermore ..production slows down as it becomes harder to extract.."
I'd just like to point out we're drilling a mile and a half down through sea and seabed at the moment dipshit. It's not called "deep water drilling" for nothing! And we've been doing it for 20 years so at what point do you think hard to extract is reached for mans technology?
Peak or not, agw or not, oil wars or not it's not the only game in town and even if we just buy local goods when we can -it helps.
Ele: http://www.youtube.com/watch?v=BrHXdM9f13k
http://www.youtube.com/watch?v=LYL6NyU1g3k
Algae (bitchez!): http://www.algae-biofuel.info/algae-biofuel
Biogas: http://www.youtube.com/watch?v=CHK_qfjkYg8 which is fed to the national grid
( http://www.cngprices.com/ ) Compressed air cars: http://www.youtube.com/watch?v=t3KFihl8u6U or the high performance version (I know, they're late): http://magneticaircars.com/index.htmlBike mania: http://www.youtube.com/watch?v=csFXnIpDTrE New good news. The Italians from last month's cold fusion announcement have undergone multiple verifications since. The most rigorous - 15kw for 18 hrs using just a tiny amount of water for fuel - this week: http://www.nyteknik.se/nyheter/energi_miljo/energi/article3108242.ece
While we're poking eyeballs, it's always risky to quote Armand Hammer....a d-bag who happily did illegal business with the Soviets during the Cold War and salivates wildly whenever Rockafeller drops a deuce
Jesus has been coming for about 2,000 tears. Peak oil only for about 150.
But oil peaking? For so long? They should have had drugs so good in the 60s.
Wow. So many points wrong with those opening paragraphs it's impossible to fix them all. Enough to say he got more wrong than right.
and the ever rising demand.
If you adjusted the price of oil for dollar devaluation over 60 years I wonder how much the price of oil has actually increased.
I couldn't agree more, Bicycle Repairman. It's my opinion there's no such thing as peak oil though I think it's an honest mistake rather than a lie foisted on the public by the powerful.
The world is awash in oil, though perhaps not instantly available oil all the time. Meanwhile scaling the heights of peak oil prices, always goes hand-in-hand with walking through the valley of the shadow of death....of the dollar.
As gold/silver prices rise with the devaluing dollar, so do oil prices. That's not to say that problems in the Middle East aren't exacerbating the price rise at the moment. But again, I don't think we're anywhere near running out of oil anytime soon. When prices get high enough, demand will go down....and if our dollar's buying power doesn't rebound before the next election, Obama, like Carter who also presided over a weaking dollar, will be a one termer.
Peak oil is not running out of oil. It is the point of maximum production: it does not imply sharp peak. We have been on a plateau for 5 years, the plateau has conicided with increased oil prices and price volatility.
While I admire your hope, I do suggest that you search out credible references about the world oil reserves. I have provided a few. This is not religion or any faith-based creed, it is simple mathematics, thermodynamics and geology. The only conspiracy lies with the side denying the implications of peak oil. It implies the end of the Ponzi scheme. Educate yourself, you will be better off to prepare for the changes that lie in store.
Thanks, am always open to new info and supervision! Believe me I don't like the idea of $3-5 gas at the pump. Still the main point I wished to make is the very real effect the devalued dollar has on our buying power. Are oil prices up as much as we think if our currency had been stable over the past half-century?
Don't think so.
From a price perspective, the dollar dying a slow lingering death is part of it, it does not explain all of it. Compare the price of oil in 1998 and the US dollar since then. 1998 was a turning point, OECD oil production was at its peak, Chindia were essentially non-entities in the oil market.
Would you explain this to me a little further....like you're talking to a 6th grader... are you saying in 1998 oil production was very high--what were prices then? and where was the dollar? and that was even before demand in China/India was skyrocketing....can you connect a few more dots for me here? And thank you.
In 1998 the world was well supplied, crude bottomed at around $10 a barrel (coupled with the Asian financial crises). Since that time increase in demand has outstripped supply with the real crunch starting in 2005. My point is that the decline in the US dollar does not explain the price increase in oil. A chart of DXY, the dollar index shows that the dollar was ~25-30% stronger then.
If you are really interested check out the following:
http://www.theoildrum.com/node/7191
Gail Tverberg writes very lucid articles addressed to the layperson. Good luck.
Thanks for going beyond the call of duty here...I get it and will check out Gail's site.
You are welcome. My pleasure.
You and your false laws of economics, production and geology need to take a rain-check. All scares of man running out of anything have been proven BS and you're just one in a long line of hysterics.
Dream On, because you're going down in the history books in the exact same way because you don't understand the history of economics, man or all Peaks in BS
More empty rhetoric...what if any professional credentials do you possess? Or do you only know how to spew hate and anger?
+1 Hubbert Linearization graph
I was going to say something similar.
The prediction is simply that production rates will level off and decline. At this point it's looking more and more like a fact, and that it happened somewhere between 2005 and 2008.We no longer have the luxury of an exponentially increasing ramp.
The other prediction is that prices will go through some wild swings. We have already seen one peak and seem to be ramping up on another. These price spikes do not last forever, though, so plan accordingly.
The truth about the peak oil scam, the green energy bubble and the global warming fraud.
Governments, investors and even the World Bank are rushing for the exits in the Great Escape from the green energy bubble.
Solar energy appears to be the worst affected sector so far. Dow Jones reports on a startling U-turn by Britain’s ultra-green government has caught investors off guard and shock waves across the markets will likely precipitate the further rush from green energy projects to shale gas.
The UK’s Department of Energy and Climate Change made the shock announcement as it revealed a comprehensive review of its Feed-in Tariff (FIT) program. Indications from data provider, Prequin are that over $1bn in earmarked funds may be lost as Britain now promises it will only hold tariffs until April 2012.
Green Investors Feeling Betrayed by European Governments
Britain’s decision is another nail in the coffin for Europe’s tottering green energy market. Last year the first of several crushing body blows was dealt to environmentalist dreams when the Spanish government retrospectively cut the value of its tariffs in its own U-turning energy review.
The devastated Spanish Solar Photovoltaic Industry Association, with mass bankruptcies on the cards, is accusing their government of utter betrayal is yet to carry out a threat to sue over the ruling.
As the green house of cards collapses Netherlands-based investment manager DIF and BNP Paribas and venture capitalists such as Future Capital Partners are rumored to be extremely fearful of further repercussions coming at a time when European public opinion is bored and fatigued after two decades of endless global warming hype.
UK Energy Minister Charles Hendry made the starkly ominous admission, “one third of Britons think the science on climate change has been exaggerated.”
Not helping the green cause has been a succession of brutally cold Northern hemispheric winters which an increasing number of scientists fear may be the harbinger of the onset of a mini-ice age.
Abundance of Shale Gas Deflates Green Energy Bubble
Causing green lobbyists and environmentally focused investors to cry bitter into their carrot juice comes the news that China is making its move to become pre-eminent in shale gas investment.
Peter Foster in the Financial Post (February 11, 2011) reports that energy company Encana is to get a proposed $5.4-billion investment by PetroChina in its shale gas operations. The move he says “confirms the soaring importance of a resource that 10 years ago was hardly on the commercial map.”
The market obviously liked the news of the Chinese investment as Encana shares jumped 4.5% to close at $32.02.
Savvy shale gas investors are also looking most eagerly at Canada where the discovery that Quebec has considerable shale gas potential has dealt another blow to the idea that the world’s energy resources are anywhere near a so-called “peak.”
A strident Quebec Oil and Gas Association has hired former Parti Quebecois premier Lucien Bouchard to help lobby for provincial development to exploit the unexpected huge find.
With so many known large deposits of shale gas in countries such as Poland, Germany, France and the U.K. economic strategists are finally waking up to the fact that this monumental new resources could help free Europe from the threat of disruptions from its main natural gas supplier, Russia.
Andrew Orlowski reporting for ‘The Register’ (February 10, 2011) reveals Holland has also joined the rush away from green by becoming the first country to abandon the EU-wide target of producing 20 per cent of its domestic power from renewables. The Dutch are now putting their long-term faith in nuclear. Netherland’s only nuclear reactor, the Borssele plant, scheduled for closure by 2003 is now planned to operate at least until 2034.
World Bank Joins Rush Away from the Green White Elephant
Top line international bankers also appear to be abandoning ‘big green’ according to a report by climate scientist Roger Pielke Jr. who highlights two recent research papers published by influential thinkers inside the World Bank.
Economics papers by Robert Mendelsohn and Gokay Saher (here in PDF) and Medelsohn, Kerry Emanuel and Shun Chonabayashi (here in PDF) chop the legs from under the pro-green Stern Review (2007) and affirm that no human impact may be inferred on global climate.
With economists plainly joining an increasing number of scientists in global warming skepticism its little wonder there’s now a mass flight away from ‘renewables;’ such that both investors and governments are compelled to follow suit in the clearest indication yet that green energy won’t live up to its promises.
The key to long-term economic success now appears to be safely premised once again on solid market innovation, not ideologically driven government subsidies; such subsidized ventures have a long and notorious history as lame duck enterprises. It seems ‘green renewables has become the latest of these white elephants.
repairman....+1,000 for posting something other than hedgefund bullshit
It is an incoherent rant with no hard core facts, just insinuations and innuedo.
Oh fuck the loonatic Hedgie fuzzy the Fakemeister is back out of his 40 year long hibernation again!!
This virus peaks with peak oil as the oil price peaks. It's alot to keep going which is why the dipweed is so shrill ...life's hard at the top, or a peak of hysteria to be precise. Keep it going Fakemeister, you're about a week from the oil price peak and then back under your wet rock for another 39 years (you won't be missed with your Peak Shite)
You have no idea how lame you come across.... You remind me of a rabid dog.
you're the one with all the froth ...do you want a latte with it?
For all your blatherings, you have never confronted the facts that I presented. The proof is in the pudding.
I take the rabid dog reference back, naw, you are like the sheep in Animal Farm, incessant mindless bleeting.
Actually, I feel sorry for you. I have seen enough of you posts to see that you are a very angry and frustrated person. A lot of unresolved issues. I think you should look into that, you are a high risk for cancer...
Fakemeister
No worries about me son your Peak Oil problems are only just beginning. As is your belief in short supply of cheap oil and the high prices you predict based on such BS. You and your hysterically based investment strategy are going to be toast before end of March and by June you'll be joining the long list of already closed down Hedgies trading in Oil.
Watch the clock, the oil price and your ego deflate in the months ahead. I DO hope you stick around ZH while you eat humble pie but i've a strong feeling you'll be hiding yet again under your rock
Well, I have been here for about 48 weeks, you popped by 2 months ago. I think I you will be long gone when I am still posting about precious metal, rare earth and mineral and energy plays.
Despite your rhetoric you have not offered one shred of evidence to dispute my postings. Bad form on your part.
And, where have I been saying the oil price will rocket to the moon? It could very well drop in price when (if/when the economy collapses). But the supply will not increase by any significant measure. You don't read very closely, do you?
It's all BR/S ever does
Hey you are getting better, re: paragraphs. Now go and read the following
http://www.theoildrum.com/node/7460
You may also want to look at
http://www.theoildrum.com/node/6785
and just about any other article on shale gas by Art Berman. You never commented on my post about CHK selling their Fayetteville shale properties to BHP. Was it too inconvienient for your notions about shale gas?
+120bbl
that will make the massachuset company with the patents on the amoeba that can produce oil at $30.00 bbl. very happy. peak bullshit, the earth is producing oil everyday by micro organisms...it is where this company got it's ideas to produce oil this way.....lol
Yes...the theory is that they dump the amoeba's into a pool around the size of south america to produce the "gasoline" required to keep current energy needs alive. So far it's pinheads in a lab fucking around on venture capital during the 4 year honeymoon any R&D start up gets to build a product.
So other than pushing an investment opportunity of a lifetime, you have anything else that is producing oil? When you do, let us know because right now there is nothing that replaces the good old barrel of oil.
I am actually developing a patent myself, on a bacteria that produces crude as a byproduct after consuming only the extremely ignorant and misguided pipe dreams of cornucopian believers in infinite growth.
+1
If you could create a bacteria that feeds off the rainbow skittles the unicorns shit out you will be a billionaire in no time - on second thought we might all be billionaires soon anyway so make that quadrillionaire
With the way world government and central banks are printing money we will all be billionaires soon enough.
Odd that they didn't let the amoeba loose $70 ago, then.
It's a secret and they really don't want to make money
I find it hard to believe it'll still be priced in clownbux circa 2020 AD.