Gary’s Note:
Daily oil production refuses to go much higher than 85 million
barrels per day. The recession has given us a little breathing
room, but when daily consumption starts to push up against daily
supply again, the price of oil is going to start climbing back
up. Byron King brings us the details.
|
The Energy Crisis Just a Bit Delayed |
By Byron King
October 23, 2009
Pittsburgh, Pennsylvania, U.S.A.
Eighty-five million barrels a day.
That’s the most that can be produced. So when recession causes a
temporary decrease in world consumption, it can seem like those
85 million barrels are enough. But consumption is bound to
resume its upward climb, while those 85 million barrels a day
are all we get. The day of reckoning has just been delayed for a
little bit.
“Can’t we get more than 85 million barrels?” some folks are
bound to wonder. Let’s look into that.
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Those Stubborn “Peak” Curves
This
week I was in Denver, attending the 2009 conference of the
Association for the Study of Peak Oil & Gas (ASPO). Despite all
the happy talk in the Big Media about how the oil situation is
under control, I assure you that the oil situation is NOT under
control.
The
market meltdown and world recession of the past year has bought
some time, or stolen some time may be a better way of saying it.
All the “peak” curves are still out there, but are merely
adjusted a bit to the right on the timelines.
As
Marine Corps Gunnery Sergeant R. Lee Ermey likes to say on the
television show Mail Call, “Wipe that smile off your
face.” We’re staring at an energy problem that’s coming down the
tracks like a runaway freight train. It’s just astonishing that
more people don’t appreciate the looming impact of Peak Oil.
Meanwhile, the politicians are fooling around with the health
care issue. Hmmm... I have some news for them. If you screw up
energy, health care isn’t going to matter very much.
Oil Output Not Increasing
It
might be a comforting thought to believe that world oil output
can increase. Indeed, many policymakers in the U.S. and Europe
apparently dream themselves to sleep at night pondering how the
current oil volume of about 85 million barrels per day could
move upward to, say, 95 million barrels per day — “if only the
world oil industry were more efficient.”
Yeah, right. Except the global oil industry is not that model of
dreamland efficiency. Sure, there are some bright spots. The big
internationals like Exxon Mobil, Chevron, BP, Shell, etc. are
good. There are some really good state oil firms like Brazil’s
Petrobras and Norway’s StatoilHydro. Saudi Aramco is
outstanding. These guys are all doing great work to keep the
world’s pipelines and tankers filled.
But
much of the rest of the world’s oil industry lacks the knack for
capital discipline and crisp project execution. Venezuela’s oil
industry is a basket case, what with the Chavez-led
nationalizations and mass firings of recent years. Output is
falling in Venezuela, and this from a nation with among the
largest hydrocarbon reserves anywhere in the world.
Mexico’s national firm, Pemex, is nothing but a piggy bank for
the politicians, who suck most of the investment capital away
from the oil patch and into their own boondoggles. Thus is Pemex
walking off a cliff of underinvestment, depletion and decline.
According to Matt Simmons, Pemex may not be exporting
any oil at all to the U.S. within 18-24 months.
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Iran’s oil industry is in a slow death spiral, despite the
occasional report of Chinese assistance with field development.
Apparently, there’s a “Twitter Revolution” going on in Iran that
includes people at the grass roots impeding the oil industry.
Well, it worked to depose the Shah back in 1979. Perhaps the
Iranians can rid themselves of their mullahs in a similar way.
Next
door in Iraq, chaos reigns. According to Matt Simmons, the
Iraqis “are in the dark about how to run their oil industry.”
The Iraqi oil legislation is so burdensome that almost all
players within the international energy industry are spurning
Iraq, including the Chinese. Wow. When the Chinese won’t invest
in your oil fields, there MUST be something wrong.
And
so it goes. The bottom line is that we should expect a
global oil shock by 2012, or earlier if global economic
activity kicks into high gear. It should go without saying that
despite any calamities that may come from such a thing, you
would be very happy if you’d taken advantage of lower oil prices
to stock up.
Until we meet again,
Byron King
P.S.:
There are many ways to profit from more expensive oil.
Deep-water mining technology, for example, is going to become
absolutely crucial to oil production in the coming months.
That’s why I have some very good deep-water mining technology
companies in the ESI portfolio.
Click here to get them too.
|
 |
“No
way in hell am I going to bowl.”
Your
editor was fairly adamant about that.
Yesterday was the Agora Financial group outing. At lunchtime a
few dozen Agora associates descended on Mustang Alley’s on the
edge of Baltimore’s Little Italy for food, drink…and bowling! I
was in the company of so many good-looking, smart and charming
people that I wondered if they’d catch on and have me escorted
out.
When
in doubt, good bar patrons, just act like you belong. Odds are
you’ll get away with it.
Normally I’m opposed to bowling. It just doesn’t seem dignified.
So I’d resolved to avoid the bowling and enjoy the food and open
bar.
But
open bars have a way of dissolving resolutions along with
dignity. By my third beer I’d exchanged my Chuck Tailors for a
pair of bright red bowling shoes that had been worn by hundreds
of strangers.
I
also put to the test my conviction that strength generally
trumps skill. Initially I tried to finesse the ball down the
lane, but the ball ended up in the gutter…twice.
I am
a clumsy bowler, Shooters, but I am a decent powerlifter. So I
went with my strengths and started hurling the bowling ball
underhand as hard as I could at the center pin. The ball
wouldn’t hit the lane till it was about halfway down, but this
brutish method resulted in several strikes…in a row!
Between strikes, I discussed sedition with Roving Whiskey
Reporter Samantha Buker, just as I promised I would. We’re
looking to make Whiskey bigger, faster, stronger and
snarkier…to bring you more useful information and ideas along
with some booze-tinged cheer.
After the party ended, Samantha and I hung around the bar but
eventually wandered outside into the bright, cool afternoon.
“What an incredible day to be playing hooky from work,” she
remarked. And I had to agree.
The
Buke and I made our way a little farther south and east till we
were in the heart of the Fells Point neighborhood.
Fells Point is a charming anachronism of tiny brick rowhouses
and cobblestone streets, the sort of pleasing coastal industrial
urbanism that will likely never be built again on this
continent.
We
settled in at the Waterfront Hotel, a well-known hangout of
Agora associates. Samantha had mussels while your editor stuck
with beer. At some point in the evening we were offered very
good samples of gin and tonic by young men in Depression Era
clothing.
Some
hours later, the walk back home to our Mount Vernon neighborhood
turned out to be surprisingly nice. After we left Fells, we
stayed close to the edge of the Inner Harbor. The view was as
lovely as the company. Who knew Baltimore could be so serene,
Shooters? I am grudgingly coming to love this little burg more
and more.
And
a couple more thoughts from you Shooters on the origins of oil
and production peak…
Gary
– while I happen to be one of those people that believe oil is
made through a process deep in the earth I think the
discussion of how oil is made is irrelevant to the real issue.
Peak Oil should be relabeled as Peak Cheap Oil.
The
finds that are occurring today all appear to be very deep
underground/deep undersea/deep under anywhere that will be
difficult (read expensive) to reach. It will be of little
consolation to the masses if the next great discovery produces
oil at $500 per barrel. $25 a gallon gas will shut down the
economy as quickly as any shortage and that is the direction
we are heading. If the focus of the debate is on the
disappearance of Cheap Oil I find few that will argue against
me.
*****
I am
an investor in oil and gas, as well as wind power, and I
believe it is a fallacy to state that we are past peak oil.
It would be more accurate to say we’re past peak CHEAP oil.
We have plenty of oil for the next 3 to 4 hundred years, but
it will be increasingly expensive to extract it.
We
are moving from sweet light crude, to heavy crude, then to oil
that is entrapped within sands and shale. With each step, it
will become increasingly costly to extract and refine, but it
is by no means scarce.
The
other factor which will affect all this is that alternatives
such as algae which can be used to produce oil at about $50 -
$60 a barrel are being developed. This is to say nothing of
the wind, wave and solar technologies that are being put
online every day.
My
prediction is that as sweet light crude is becoming more
scarce, we will see a gradual shift over the next 50 - 100
years to the alternatives I mention above, and perhaps some
others that are not even on anyone’s radar yet (could we pull
energy out of dark matter?)
And
now for something a little different…
There’s something I keep looking for in Whisky but nobody ever
seems to write about: with every Brad and Brittney who still
has a job pumping every quarter they can find into their
401(k)s, why is there any mystery about the stock market
“recovering”?
I know a lot of smart people, doctors, academics,
pharmaceutical employees, researchers, really smart people
with good incomes, supremely competent in their specialties.
When I ask them about the stock market they assure me with a
confident smile that “it will come back”. What everyone knows
is that over the long run the market will return 10%, you just
have to keep contributing as much money as you can manage to
your 401(k). It will be making money for you and by not
paying taxes now that will be more equity making more money
for you, and then, beautiful!, when you retire your tax rate
will be lower and you will have never a care about money
again.
Everyone knows this, right? So where are those billions
pumped automatically every month into mutual funds going if
not into stocks? Am I missing something?
Thanks
Good
point. Let’s ponder this over the weekend. If you’d like to
offer your opinion on 401(k)s or the stock market bounce, I’d be
delighted to read them. You know where to reach me:
gary@whiskeyandgunpowder.com.
I
truly hope you enjoy your weekend.
Regards,
Gary Gibson
Managing Editor,
Whiskey & Gunpowder
