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Why the Next Spike in Oil Prices Will Dwarf the Last One
Ambassador Richard Jones, the Deputy Executive Director of the International Energy Agency, has some eye popping things to say about the energy space. The Paris based IEA was first set up as a counterweight to OPEC during the oil crisis in 1974, and has since evolved into a top drawer energy research organization with one of the best 30,000 foot views of the energy universe.
World GDP will grow an average 3.1%/year through 2030, driving oil demand from the current 84 million barrels/day to 103 million b/d. That means we will have to find the equivalent of six Saudi Arabia’s to fill the gap or prices are going up a lot. His ultra conservative target has crude at $190/barrel in twenty years, and his high priced scenario would send you rushing for a change of fresh underwear.
Some 39% of that increase in demand will come from China and 15% from India. A collapse in investment caused by the financial crisis last year means that supply can’t recover in time to avoid another price spike. More than 1.5 billion people today don’t have electricity at all, but would love to have it. The best the Copenhagen climate negotiations can hope for is for CO2 to rise until 2020, and then plateau after that, because once this greenhouse gas enters the atmosphere it is very hard to get out. It would take 100 years of natural decay to get CO2 levels back to where they were just 20 years ago.
This will require a massive decarbonization effort reliant on nuclear, hydro, alternatives, and carbon capture and storage. Up to half of the needed carbon reduction can be achieved through simple efficiency measures, like ditching the incandescent light bulb, driving more hybrids, and closing dirty, old coal fired power plants. Natural gas will be a vital bridge, as it is cheap, in abundant supply, and emits only half the carbon of traditional fossil fuels.
The total 20 year bill for the rebuilding of our new energy infrastructure will exceed $10 trillion. Each year we kick the can down the road, this price tag rises by $500 billion. Now you know why I spend so much time on energy research.
Richard, who comes from a diplomatic career in Kuwait, Kazakhstan, and Israel, certainly didn’t pull any punches during my extended interview with him. I have been a huge fan of the IEA’s data base and forecasts since their inception. Better use the current weakness in oil prices to accumulate long term positions in crude through the futures (LOH10), the ETF (USO), the offshore drilling companies like Transocean (RIG), and leveraged oil and gas plays like Chesapeake Energy (CHK) and Devon Energy (DVN). When oil comes back, it will do so with a vengeance.
For more iconoclastic and out of consensus analysis, please visit me at www.madhedgefundtrader.com .
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Is that a fact? Something tells me there will be a lot of ups and downs.
Most of the oil on the planet is locked up in tar sands and other 'unconventional' resources in North and South America.
Surely, a scrappy technology company will figure out how to get it out efficiently, and without environmental degradation.
The tin hat crowd says we've already got this technology, and the establishment (oil companies, DOE, nuclear, etc) is sitting on it because they WANT energy scarcity because it it is good for shareholders and argues for draconian federal control and regulation.
I choose not to believe that.
Tar sands EROEI paints a current price point of $75-$80 a barrel before break-even is achieved, which means that you have to hit that price point just to pull any profit from selling tar sand oil. This means that for it to be worth the return on investment, you're probably looking at a baseline of around $90 a barrel (this is in 2010 dollars, assuming that we don't see massive inflation any time soon). While it's possible that enzymatic processes could be used to pre-liquify the shale, nothing in the technology pipeline today points to new extractive technologies that will change this equation.
Keep in mind additionally that with the current credit liquidity crisis, getting the money even to expand beyond where we are right now is much harder, meaning that the effective price of that oil shale is already probably priced in close to $100 a barrel, at a time when demand has dropped. Should the economy actually start to recover at some point, this means that $100 a barrel for shale will likely represent a floor.
Also keep in mind that oil's supply/demand curve is far from linear. The oil companies make far more money selling oil at a moderate price than they do selling it at a high price, because demand drops as prices rise. This is why they are downplaying peak oil - perceived scarcity of oil drives prices up and causes a drop in demand, which in turn causes a move to alternative fuels - clean ones, preferably, but dirty ones if the clean ones aren't adequate to current needs.
IEA estimates have tended to be conservative, compared both to USGS figures and those from oil producing countries such as Mexico, KSA and, yes, even Canada. While their estimates for supply may actually still be a little on the high side, the IEA numbers also seem to be coming into line with real figures, whereas USGS numbers have been suspect for years (and there's some intriguing evidence that the Canadians almost certainly have overestimated the amount of recoverably shale oil). That the KSA and Mexican numbers are purely fabricated is now pretty much taken as an article of faith.
So no, I don't hold out much hope for a magical technology to solve the coming oil crunch.
the break even point should be $40-$50
Pollution will be huge to extract oil from tar sand
The grade of tar sand oil is very low, it is not even real oil , maybe acceptable for heating purpose, but I am not talking about the gas for your car.
I bet if we wish more strenuously, the bitumen will mobilize itself!
It won't require actual heat in an actually well-understood, analyzed, and researched thermal process to detach from the sand.
THIS IS THE POWER OF DREAMS!!!!!!!
Speaking of dreams how is that dream of yours that oil comes from organic matter jiving with Titan? Ya think that the methane produced there comes from plant life?
Totally agree which is why I am loading up on solars at these levels.
The 2nd Law of Thermodynamics shows us that energy will always precipitate to a less dense, more diverse, and hence less useless state.
Hence, any delusion that we can sustain exponential growth in world GDP will eventually meet the wall of profitable energy extraction. Many posters here believe we are at that point, altho I think we are only brushing the edges of that realization currently. Demand will have a diminishing further effect on price, as the ability to supply current demand is waning.
Long energy 2010
Short debt
Life is good
Wilderman
While this is NOT in reference to actually legitimate solar companies, my tongue in cheek nature simply can't resist poking fun at the CSIQ / DRYS-hits contingent of small cap chi-agra solar spec / ex-IBD 100 momo names, which are little more than fallen angels of yesteryear that rather predictably become nuclear trading footballs into significant market inflection points as the animal spirits of retail continue to run on overdrive like Kalifawnia's Sim City-esque power plants.
As per CSIQ: w/o doing an actual workup and refusing to do so bc it is such a relatively insignificant spec play of non-import at this juncture, it has retraced exactly 61.8% (back up to 30.35 with the exact tgt at 30.50) of its previous spill measured from the peak to trough of its weekly real bodies. and while the weekly has yet to flash any sell signals and the monthly remains parabolic the daily is flashing heavy sell signals and extreme warnings as per the Intermediate term ~ 14 to 144 arbitrary cash session hours. chart is a clear sell of longs if not a lick your lips on common shorts with tight easily defined buy stops overhead and a prime place for those looking for high risk alpha grab via front month / one-off OTM puts or those playing various straddles / strangles via the IV side of things. don't have many flowery adjectives to say about charts, just cold hard reads about what the hard right edge might look like in the immediate future.
back to jokes on a pathetically lame day of inaction for equities while some fun trading continues in the DX, GC, SI, CL contingent where average true range has been especially pleasant for scalpers / traders such as I.
FINRA Warns Investing Public Of Green Energy Investment Scams" The Alert warns investors to ignore unsolicited investment recommendations and to question the source of investment information. Investors should also be wary of investments that claim to be the next big thing and promise exponential returns. For example, in one recent pump and dump scheme, a solar stock was touted as "set for a 200 percent gain," and in another instance, a fraudster suggested that stock in a company involved in green patents could rise 1,000 percent or more. "
Specific trades you like, Leo?
Careful with the current crop of publicly listed solar companies...many won't exist ten years from now. The field and technology changes so fast, irrelevance can arrive very quickly.
Nanotechnology will dominate this field IMO, Nano Solar is one of the first,
http://www.youtube.com/watch?v=SMnx5tFrDDc&feature=related
http://www.youtube.com/watch?v=Rlb-WA9sEBQ&feature=related