Editor’s Note: With the
conventions finally over and the oil proponents and opponents finally
done talking, it’s time to take a serious look at the global oil
situation. Our energy expert, Byron King, is here to give you the real
facts. Enjoy…
By Byron King
September 5, 2008
Western nations — the U.S., in particular — are now experiencing the
bow wave of a profound change in the current and future availability
of oil. According to recently published data, oil output from all
major Western oil companies is on an ominous decline trend. Exxon
Mobil, for example, announced that its average oil output has fallen
by 614,000 barrels per day in 2008.
Western oil majors like Exxon are finding it
harder than ever to identify new prospects and successfully complete
new oil projects. This comes despite the fact that the oil industry is
flush with profits from upstream operations, and is eager to expand.
BP’s Thunder Horse project in the Gulf of
Mexico, for example, is finally coming online in 2008, with an
anticipated output of nearly 250,000 barrels per day. But this one
project has taken almost 20 years to complete, at a cost in excess of
$6 billion.
And Chevron’s recent success with its Jack 2
project in the Gulf came at a cost of over $240 million for just one
test well. And this prospect is still years away from being a
successful oil-producing prospect.
These sorts of developments have
implications far beyond the Peak Oil argument, as valid as that thesis
may be.
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How This Beats the Best Royalty Play
of All Time
Wouldn’t it be nice to know that without
lifting a finger, you’re accumulating the kind of money that could
free you from work...fund your retirement...and pay for your future?
That easily could have been the case if
you’d have known to move early on Franco-Nevada.
But let me just walk you through how that
unfolded. Because, you see, Franco-Nevada going from zero to $40
million per year in royalty income took about 12 years. And that was
ultimately enough to take its shares from $4 to over $180 per share.
Not bad, right? Well, we got another one —
which could cash out even bigger payments —
right here…
************************************
One of the key reasons for the decline in
oil output from major Western companies is world politics. In the
1990s, the key strategic development in the wake of the fall of the
Berlin Wall and the decline of communism was the trend toward
globalization. Much of the world opened up to the West figuratively,
as well as literally. And the oil industry was one beneficiary, making
significant investments in unexplored or under-explored regions from
South America to the Caspian Sea.
But the key strategic development in the
first decade of the 2000s has been, arguably, the concept of “resource
nationalism.” That is, in the many nations that were formerly friendly
toward Western companies, the attitudes toward foreign investment have
fundamentally changed. Western oil companies have found themselves
squeezed in resource-rich areas.
Western companies have experienced outright
nationalizations, such as what occurred with Exxon Mobil and
ConocoPhillips in Venezuela. Or Western companies have been shown the
door through intimidation and bullying legal tactics under the guise
of “tax laws” or “environmental enforcement,” such as what happened
with Shell Oil Co. at its Sakhalin project in Russia.
Even Brazil has shown its nationalistic
teeth to foreign investment. Recently, Brazil withdrew numerous areas
from prospective lease sales after it became apparent that the odds of
finding oil were quite good. Why not just save it for Petrobras?
Whatever the case might be, Western
companies have been shunted aside or, in the best cases, forced to
renegotiate contracts on less favorable terms. The traditional model
of resource development, in which Western companies obtain legal title
and control over oil and gas deposits in the ground, is fighting a
losing battle. Assertive host governments are gaming the rules to
favor their state-owned national oil companies (NOCs).
As recently as the late 1970s, Western oil
companies controlled well over half of the world’s oil production. But
now the NOCs — such as Saudi Aramco, National Iranian Oil Co., Kuwait
Oil Co., Petroleos de Venezuela, Petroleos Mexicanos (Pemex), etc. —
control over 85% of the world’s oil resources. Western majors control
about 7% of the world’s oil resource base.
************************************
If It’s Made of Oil, It Can Be
Turned Back into Oil
Here are just a few of the things clogging
our landfills that the “Oil Vacuum” can transform into oil…
|
Tires |
Boats |
Upholstery
|
Water bottles
|
|
Plastic ware
|
Ice cube trays
|
Combs |
Toilet seats
|
|
Candles |
Shower curtains
|
Plastic cups
|
Golf balls
|
|
Sunglasses
|
Trash bags
|
Tents |
Hair curlers
|
|
Guitar strings
|
Beach umbrellas
|
Model cars
|
Skis |
Read on to learn how just this one use of the “Oil Vacuum” can
deliver a profit potential of 679%.
************************************
All the while, oil output from mature
regions is in decline. From the North Sea to the Alaska North Slope,
the Western oil companies are faced with lower volumes from existing
oil holdings. And there is a much thinner book of potential business
elsewhere in the world. According to Amy Myers Jaffe, who studies the
oil business from her chair at Rice University, “This is an industry
in crisis.”
This sense of crisis also helps explain why
Western oil companies are fighting to expand their options for
offshore drilling in the U.S., as well as to expand access to areas
like northern Alaska. The U.S. offshore, and other frontier areas such
as the Arctic National Wildlife Refuge (ANWR) are among the few
options remaining for Western oil companies.
So one key point that the Western oil
industry makes is that its resource base and reserves are in decline.
And over the medium to long term, this means that the economic
importance of the Western companies will erode. Despite any plans or
efforts at conservation and efficiency, as well as a large-scale shift
to alternative energy sources, the Western world will become
increasingly dependent on NOCs for oil.
From the standpoint of energy and strategy,
this will not be a good thing for the West.
Until we meet again,
Byron King
P.S.: It amazes me how the
government holds this information so close to its vest. But what I’m
about to share with you now is even more amazing. The Bush
administration has been keeping a secret about oil, and I want to
share it with you.
Read on here…
