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    The Coming Oil Crisis

    Posted by Gail the Actuary on August 18, 2009 - 10:15am

    This is a guest post aimed at the person who is unaware of peak oil. Be sure to send links to your friends! It was written by Lionel Badal, Postgraduate Student, Department of Geography, King’s College London. He can be reached at blionel3 at yahoo dot fr
    Oil is unique in that it is so strategic in nature… Energy is truly fundamental to the world’s economy. It is the basic, fundamental building block of the world’s economy. It is unlike any other commodity. -- Dick Cheney, 46th US Vice-President (speaking as the CEO of Halliburton in 1999)(1)
    We almost certainly are at or near Peak Oil -- Al Gore, 45th US Vice-President, Nobel Peace Prize Laureate (June, 2004)(2)
    Over the past decade a fierce debate has emerged amongst energy experts about whether global oil production was about to reach a peak, followed by an irreversible decline. This event, commonly known as “Peak Oil” far outreaches the sole discipline of geology. From transportation to modern agriculture, petrochemicals and even the pharmaceutical industry all of them rely on one commodity: cheap and abundant oil. In order to sustain the needs of an ever globalized world, oil demand should double by 2050.(3) Nonetheless, geological limitations will disrupt this improbable scenario. In fact, a growing proportion of energy experts argue that Peak Oil is impending and warn about the extraordinary scale of the crisis.

    42 years of oil left?

    According to the 2009 BP Statistical Review, the world has precisely 42 years of oil left.(4) Those numbers come from a very simple formula, the R/P ratio, which consists of dividing the official number of global oil reserves by the level of today’s production. Nevertheless, this methodology is dangerously defective on several key points as it ignores geological realities. Oil production does not consist of a plan level of production that brutally ends one day; it follows a bell-shaped curve.

    Indeed, the important day occurs when production starts to decline, not when it ends. As it is a non-flexible commodity, even a small deficit in oil production can lead to a major price surge. Finally, the R/P ratio does not acknowledge that production costs increase over the time; the first oil fields to be developed were logically the easy ones and so the most profitable. It is well recognized that remaining oil fields consist of either poor quality oil or remotely located fields which need high technologies and expensive investments. Therefore, relying on the R/P ratio gives a false impression of security while the actual situation is critical.

    Global oil reserves: lies and manipulations


    Oil is a strategic resource; therefore having oil is a key political and economic advantage for a state. This is why politics interfere in the evaluation of oil reserves, especially in countries with poor accountability records; that is, the majority of OPEC countries. In fact, OPEC oil reserves dramatically increased during the 1980s and 1990s. However, they have not discovered major oil fields after the 1970s. At this juncture, the question of what lays behind these fluctuations needs to be asked.

    The geologist Dr. Colin Campbell, founder of ASPO(5), explains the hidden reasons that led to these changes: “In 1985, Kuwait, added 50% to its reserve. At that time, the OPEC quota was based on the reported reserves; the more you reported, the more you could produce”(6). Fellow OPEC members who were unwilling to see the influence of Kuwait growing, simply raised their reserves soon after. Moreover, OPEC countries continue to present their reserves as flat despite having extracted huge amounts of oil during the past twenty years. At this point, we should not forget that oil reserves reported by these countries are not audited by independent experts.

    In 2006, Petroleum Intelligence Weekly said it had access to confidential Kuwaiti reports which stated that reserves were half the official numbers (7). In reaction, the Kuwaiti Oil Minister stated, “The Kuwait people are not concerned with numbers. This is related to national security”(8). In 2006, Dr. Samsam Bakhtiari, a senior energy expert from the National Iranian Oil Company, declared that oil reserves in the Middle-East were “about half, or even less than what the respective national governments claim” and added “as for Iran, the usually accepted official 132 billion barrels is almost 100 billion barrels over any realistic assay”(9).

    In fact, importing countries are simply asked to trust OPEC nations. Strangely, but surely, this is done by importing countries who assume these numbers are true and use them in their projections. On a report to the US Congress on Peak Oil, the US Government Accountability Office justly noted these problematic estimations(10).

    The question of oil reserves is most relevant. As oil exporting countries have less oil in their ground, Peak Oil will arrive faster. Oil optimists who argue Peak Oil is still decades away rely on these same erroneous data. In addition, if importing countries assume oil reserves are abundant as they do, the crisis will be unexpected, unprepared and misunderstood; in one word: overwhelming. Similarly, once oil shortages occur, oil importing countries may assume that exporting countries are deliberately reducing their oil exports to harm their national interests. Such a flawed assumption from oil importing countries is likely to have serious repercussions, and eventually lead to new oil wars.

    The imminent decline of global oil production


    In 2008 the International Energy Agency (IEA) conducted for the first time(11) a detailed field-by-field analysis of global oil production and its findings are bleak. Asked by a journalist on what the previous analysis relied on, the Chief-Economist of the IEA admitted, “It was mainly an assumption”(12). In the 2008 World Energy Outlook (WEO), they have analysed about 800 fields, which account for ¾ of global reserves and more than 2/3 of global oil production(13). They come to the conclusion that decline rates are far higher than previously thought, between 6.7 and 8.6% a year(14). As result, they now estimate that to maintain the current levels of oil production by 2030 the world would need to develop and produce 45 MBD; as said by Dr. Birol, approximately four new Saudi-Arabias(15).

    Simultaneously, they have analysed all the projects that are financially sanctioned in all the countries in the world (about 230) up to 2015. As it takes five to ten years to produce oil from a new field, they have a clear image of the coming situation. When they add all the projects together (if all of them see the light of the day-–unlikely with the current credit crunch(16)--) they will bring about 25 millions barrels per day(17). However, because of the important decline rates, the world will still be short of “at least” 12.5 MBD before 2015(18). Asked by a journalist if this means Peak Oil, Dr. Birol answered, “We are facing a serious threat”(19).

    In 2009, Merrill Lynch conducted a similar analysis and concluded that, “the world now needed to replace an amount of oil output equivalent to Saudi Arabia’s production every two years”(20). Yet, oil production is already in an irreversible decline in at least 54 of the 65 most important producing countries and we nowadays consume three barrels of oil for a single one discovered(21); an unsustainable situation. The latest annual report on geopolitical prospective from the US Joint Forces Command reached the stunning conclusion that:
    “By 2012, surplus oil production capacity could entirely disappear, and as early as 2015, the shortfall in output could reach nearly 10 MBD… The implications for future conflict are ominous...”(22)
    At this pace, global oil production could decline by 50% from its current level, as soon as 2030 (23).

    A contested reality: by whom and why?

    For many years, Peak Oil was ignored by officials from oil companies and governmental agencies such as the IEA(24). They negligently repeated that production was not at risk. However, over the recent years and in light of indisputable facts, we have seen a radical change in the discourse of the IEA(25) and leading oil companies such as Chevron(26) and Total(27). In a recent video interview, Chevron’s Vice-Chairman, Peter Robertson, clearly expressed his fears:
    “You know, it’s often times people will ask, ‘Why in the world would Chevron be encouraging its customers to use less energy?’ After all, we sell energy – that’s our product… In many ways, a lot of us are concerned about the ability of the world’s supply system to provide the energy that people need…”(28)
    To the desolation of many, the debate has not been closed. Indeed, a few voices continue to sponsor, actively and loudly, the vision that oil production does not face any danger. Amongst them, we find three notorious voices, namely the CERA oil consultant, the OPEC cartel and not surprisingly in regard to its notorious poor record of scientific objectivity, the oil company, Exxon Mobil. At this juncture, we can picture the hidden motives for Exxon Mobil to do so. By telling the public that oil production will no longer be plentiful, the consequences for the company are numerous. They include the danger of diversification from oil and creating a context of mistrust regarding oil companies; all of them bad for short-term business.
    Regarding the OPEC, we saw earlier how prone they were to manipulate their reserves. We should know by now not to expect much from official OPEC statements.

    The following comment from Dr. Chalabi, the former OPEC Secretary-General, gives additional information about how the cartel really works:
    “OPEC countries do not care about what might happen 20 years from now. They care about what they get today. Because these are politicians, they want more money, to spend rationally or not.”(29)
    Furthermore, Dr. Sadad al-Huseini, former Head of Exploration and Production at the Saudi-Aramco, publicly contradicted his former bosses, by declaring that, “oil is likely to peak at a 95 MBD plateau by 2015”(30). Besides, Dr. Shokri Ghanem, former Head of the Research Division at OPEC's Secretariat, head of the Libyan National Oil Company and a relative of OPEC’s current Secretary General, admitted in a 2006 report published by the OPEC Secretariat:
    “All in all, most would appear to agree that peak oil output is not very far away for all of us. It could take place sometime within the next decade or so, which in fact means that there is not much time left for a world economy to be driven largely by oil.”(31)
    The Cambridge Energy Research Associates is a well-known energy consultant group and a leading opponent to Peak Oil(32). Yet, CERA has been accused of providing a biased vision of the situation as it is “close to the oil industry”(33). The following declaration from Chris Holtom, former head of British military intelligence, currently a strategic consultant to the oil and gas industry, gives valuable information:
    “There is a pack of deceit and economy with the truth here - some wilful, some born of ignorance, or fear of "group-think" related to stock price or employment. It needs careful and persuasive exposure of agendas, motives and possible consequences... Peak Oil is a potential Black Swan event, where the consequences are so great that after it we spend most of our time justifying why we didn’t anticipate it… It is a global issue and global bodies need the clout and courage to address them.”(34)
    Any viable alternative energy?

    There is no easy, present, solution to the crisis. Alternatives to oil are still far from being a feasible replacement; hydrogen for example would require 30 to 50 years to replace oil economies(35). Meanwhile, the automobile industry is now planning to develop electric cars in the near future. While the first electric cars are expected to come on line in 2010-12, in order to replace 50% of the car fleet, the world would need between 10 to 20 years(36). Besides, as manufacturing a single car requires at least 20 barrels of oil(37). Once oil production starts to decline in 2011-2013 (38), it will increasingly become difficult to develop the electric car on a massive scale.

    In fact, the closer we get to Peak Oil, the more difficult a massive and costly emergency plan to develop alternative energies will become. To quote a report on Peak Oil, commissioned by the US Department of Energy, “Previous energy transitions (wood to coal, coal to oil, etc.) were gradual and evolutionary; oil peaking will be abrupt and revolutionary”(39).

    David Fridley, a scientist at the Lawrence Berkeley National Laboratory and a former colleague of the US Secretary of Energy, Steven Chu, told me the following:
    “My own efforts have focused on the science of alternative energy. The deeper you go into this area, the less sanguine you become that there is any effective mitigation possible… The bottom line is that there is no thermodynamic match for petroleum.”(40)
    Industrial Civilisation at a turning point

    In the following declaration, Dr. Jeremy Leggett, former member of the UK Government Renewables advisory board and one of "the key players in putting climate change on the world agenda" according to Time Magazine(41), described in 2006 how the crisis could unfold:
    "The price of houses will collapse. Stock markets will crash. Within a short period, human wealth -- little more than a pile of paper at the best of times, even with the confidence about the future high among traders -- will shrivel. There will be emergency summits, diplomatic initiatives, urgent exploration efforts, but the turmoil will not subside. Thousands of companies will go bankrupt, and millions will be unemployed… The earth has always been a dangerous place, but now it will become a tinderbox."(42)
    World leaders are debating on how we should manage the current economic crisis that none of them saw coming, but they shouldn’t be surprised by it. In a 2006 interview, Dr. Colin Campbell effectively forecasted the 2008 oil spike, which was to be followed by a recession and a subsequent fall in oil prices--a scenario that unfolded exactly as he said:
    “I think we are facing an oil price shock, 100 or 200 dollars a barrel, an economic recession that cuts demand, and I will not be at all surprised if a fall in demand would make the price collapse again. So we might be back to 20 or 30 dollars a barrel next year perhaps. And so you have a price shock, a recession, a recovery, hits again the falling capacity limit, another price shock. And so I think that in the next few years, we have a sequence of vicious circles and gradually the reality of the situation will filtered through. We are on for a very volatile few years with enormous economic consequences”(43)
    In fact, a former director at the IEA, who used to be the superior of Dr. Fatih Birol, told me during a discussion that, “The current (economic) crisis was caused by the insufficiency of (oil) supply from 2007 onwards, an avatar of Peak Oil”(44). Similarly, a recent study on the 2008 oil shock(45), from the economist Dr. James Hamilton –Brookings Institution- concludes that:
    “The evidence to me is persuasive that, had there been no oil shock, we would have described the U.S. economy in 2007:Q4-2008:Q3 as growing slowly, but not in a recession.”46
    This extract from the Energy Watch Group study on oil production provides useful additional information:
    The world is at the beginning of a structural change of its economic system. This change will be triggered by declining fossil fuel supplies and will influence almost all aspects of our daily life... The now beginning transition period probably has its own rules which are valid only during this phase. Things might happen which we never experienced before and which we may never experience again once this transition period has ended.”(47)
    We are entering a new world with completely different characteristics from the one we have been growing with, the one where boundaries were crossable. It will be an unattractive world of “less far, less fast, less often, and more expensive”(48); a radical and unexpected evolution. The transitory period we are entering now will be, to be sure, chaotic and fierce. While we don’t know cannot foretell its form completely, it might best be described as a regression.
    “The end-of-the-fossil-hydrocarbons scenario is not a doom-and-gloom picture painted by pessimistic end-of-the-world prophets, but a view of scarcity in the coming years and decades that must be taken seriously.” Deutsche Bank (December, 2004)(49)

    The Oil Drum | The Coming Oil Crisis

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    Elite Member MohandasKGanja's Avatar
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    Nothing about oil speculation driving up the price of crude oil....

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    no oil = no plastics, either.
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    Quote Originally Posted by MohandasKGanja View Post
    Nothing about oil speculation driving up the price of crude oil....
    Because it's a red herring.

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    Quote Originally Posted by Fluffy View Post
    Because it's a red herring.
    I don't think it's a red herring. Supposedly, the DoE or the FTC is about to release a report on the manipulation of crude oil prices by speculators, which helped precipitate the global recession. With regard to world oil supply, there isn't a shortage of supply, there is inadequate distribution, along with unstable or hostile countries that have the bulk of it.

    Peak oilers are our generation's Malthusian economists.

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    Peak oil has been a concern since 40 years ago, hardly "our generation"
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    Quote Originally Posted by MohandasKGanja View Post
    I don't think it's a red herring. Supposedly, the DoE or the FTC is about to release a report on the manipulation of crude oil prices by speculators, which helped precipitate the global recession. With regard to world oil supply, there isn't a shortage of supply, there is inadequate distribution, along with unstable or hostile countries that have the bulk of it.
    But while the question of the possible contribution of speculators and the Fed is a very interesting one, it should not distract us from the broader fact: some degree of significant oil price appreciation during 2007-08 was an inevitable consequence of booming demand and stagnant production. It is worth emphasizing that this is fundamentally a long-run problem, which has been resolved rather spectacularly for the time being by a collapse in the world economy. However, the economic collapse will hopefully prove to be a short-run cure for the problem of excess energy demand. If growth in the newly industrialized countries resumes at its former pace, it would not be too many more years before we find ourselves back in the kind of calculus that was the driving factor behind the problem in the first place. Policy-makers would be wise to focus on real options for addressing those long-run challenges, rather than blame what happened last year entirely on a market aberration.
    Econbrowser: Causes of the Oil Shock of 2007-08

    Quote Originally Posted by MohandasKGanja View Post
    Peak oilers are our generation's Malthusian economists.
    What very few people realize is that Malthus was right about most of human history — indeed, he was right about roughly 58 out of 60 centuries of civilization: living standards basically did not improve from the era of the first Pharaohs to the age of Louis XIV, because any technological gains were swallowed up by population pressure. We only think Malthus got it wrong because the two centuries he was wrong about were the two centuries that followed the publication of his work.
    The Malthusian insult - Paul Krugman Blog - NYTimes.com

    And if you look at the developing world where about a billion people suffer from a lack of food, war and other crises, Malthus was right. It's only due to fossil fuels that the developed world has been able to escape Malthus for the time being.

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    Quote Originally Posted by Grimmlok View Post
    Peak oil has been a concern since 40 years ago, hardly "our generation"
    I don't think peak oilers have been getting nearly the press 40 years ago that they are getting now. Although 40 years ago was close to the time of the oil shock perpetrated by OPEC.

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    Quote Originally Posted by Fluffy View Post
    Econbrowser: Causes of the Oil Shock of 2007-08


    The Malthusian insult - Paul Krugman Blog - NYTimes.com

    And if you look at the developing world where about a billion people suffer from a lack of food, war and other crises, Malthus was right. It's only due to fossil fuels that the developed world has been able to escape Malthus for the time being.
    For the time being? There always seems to be an excuse why Malthus' predictions about population crashes haven't come to fruition in the 200 years or so since he first made them.

    The developing world has always suffered from a lack of food, surplus of war and other crises. I think it is arguable whether it has gotten worse as population has increased, especially since India and China's last famines were at least 60 or so years ago when they had half the population that they have now. Moreover, Malthus calculated that there would be an increase in population as societies became more affluent, which would put a strain on their ability to remain affluent. However, populations rates in first-world, industrialized societies tend to decrease not increase.

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    Quote Originally Posted by MohandasKGanja View Post
    I don't think peak oilers have been getting nearly the press 40 years ago that they are getting now. Although 40 years ago was close to the time of the oil shock perpetrated by OPEC.
    The one that happened in '74 in the US came after the US oil supply peaked a few years earlier. US demand kept growing and imported more of its oil from Saudi Arabia to make up for the decline in US production. In fact, Saudi Arabia had ramped up production on their oil fields so quickly, even on the king of kings oil field Ghawar, that most geologists who examined the fields determined that Saudia Arabia would have had to slow down their production at the time to avert damaging the oil fields anyway.

    Quote Originally Posted by MohandasKGanja View Post
    For the time being? There always seems to be an excuse why Malthus' predictions about population crashes haven't come to fruition in the 200 years or so since he first made them.

    The developing world has always suffered from a lack of food, surplus of war and other crises. I think it is arguable whether it has gotten worse as population has increased, especially since India and China's last famines were at least 60 or so years ago when they had half the population that they have now. Moreover, Malthus calculated that there would be an increase in population as societies became more affluent, which would put a strain on their ability to remain affluent. However, populations rates in first-world, industrialized societies tend to decrease not increase.
    The reason first-world countries/societies populations have had a decrease in their population growth is due to the education levels of women and the use of birth control. Factors entirely unrelated to Malthus' predictions as he could not have imagined the pill or a world where women were given equality on the level of men.

    And as "for the time being?" I can only assume you've never read extensively on the coming food shortage problem that will affect populations everywhere, particularly China.

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    Elite Member Grimmlok's Avatar
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    china could do with with about 500 million less people anyway, same with india.
    Last edited by Grimmlok; August 21st, 2009 at 11:21 AM.
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    You guys have good points. With regard to oil fields, though, it seems to me that it will always be a matter of distribution and refining, more than supply, because new fields seem to be continually found. Where they are found, and the stability of the area that is producing the oil is a huge issue, though. Especially when you take a look at a place like Nigeria, whose supply is constantly under threat due to rebel attacks.

    I realize that heavy industry will for the long-term rely on petroleum. However, it seems like cars and a lot of other equipment will rely less on it (because of concerns about energy stability and global warming), which would help ameliorate the possibility of reaching a crisis based on oil availability.

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    Elite Member Grimmlok's Avatar
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    The problem is, most of the easily tapped oilfields have already been found.. it si becoming increasingly hard to locate new fields. There's probably a ton under the ocean, but we can only access a tiny fraction of it.
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    Elite Member Fluffy's Avatar
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    Even big oil fields in the ocean aren't being found. Yeah, Brazil has some oil offshore, but it's not like there's going to be another North Sea and another and another.

    “Peak Oil” Has Gone
    21 Aug 2009

    After the epic crash last year, the price of oil is stabilising and it should rise over the following years. Over the past year, global consumption has stayed weak, however once the economy recovers, crude oil should resume its bull-market.

    It is interesting to note that during this severe global recession, worldwide oil usage has dropped by a minuscule 2.7%. So, what will happen when the world comes out of this recession? Who will rise up to the challenge and meet our insatiable thirst for energy? These are critical questions not many are willing to ask.

    According to the US Department of Energy, liquid fuel demand in the developed nations peaked in August 2005 at 41.89 million barrels per day. Since then, it has plunged by 3.6 million barrels per day to 38.27 million barrels per day. However, you may want to note that despite these tough economic conditions, consumption has been extremely resilient in the emerging world. For instance, demand in the developing countries peaked in October 2008 at 46.33 million barrels per day and it is down by only 0.36 million barrels per day! I don’t know about you but I am amazed that the worst global recession in decades has barely managed to shrink energy demand in the developing world. Whilst this is wonderful news for the energy investor, it is a terrible sign for society.

    At present, our world is using up roughly 84 million barrels of liquid fuels per day and for the moment at least, there is sufficient supply to meet demand (Figure 1). However, when economic activity picks up, it won’t take much for demand to zip right past supply. Remember, it is much easier to increase usage, but it takes a long time to ramp up production. So, unless this is a permanent global recession (which I doubt), it is inevitable that the price of oil will go up significantly over the medium to long-term.

    Figure 1: Supply and demand – balanced for now


    For the record, let me be clear. If I was asked to pick the biggest threats to a sustainable economic recovery, ‘Peak Oil’ would top that list. Now, many skeptics will argue that if ‘Peak Oil’ was real, the price of oil wouldn’t have dropped to roughly US$30 per barrel in last autumn’s stunning crash. Valid point; but let us not forget that the spectacular plunge occurred at a time when global economic activity virtually came to a standstill. Let us also keep in mind that last autumn’s crash in asset prices was caused by a total freeze in credit and the associated asset liquidation. Whilst I agree that the final action in crude oil’s parabolic blow-off last July smacked of speculation, I can assure you that speculation alone couldn’t have created a multi-year boom whereby the price of crude oil went up by almost 1500%! As you can see from Figure 1, supply clearly fell short of demand between 2005 and 2008 and this is why we had a magnificent bull-market in crude oil.

    Make no mistake, global demand for liquid fuels will rise again and if my homework is correct, supply won’t be able to keep up. If you ignore the noise and review hard data, you will observe that the vast majority of the world’s most prolific oil provinces are now past peak production and in a state of permanent depletion. According to the BP Statistical Review of World Energy, out of the 54 oil producing nations and regions in the world, only 14 are still increasing production. Alarmingly, 30 oil producing nations and regions are definitely past their peak output and the remaining 10 appear to have modestly declining production rates. Put another way, when weighted by production, ‘Peak Oil’ is already a grim reality in 61% of the oil producing world!

    Still not convinced about ‘Peak Oil’? Then review Figure 2 which charts the expected combined flow rates for crude oil, lease condensates and Canadian Oil Sands. As you can see from the grey shaded area, production is about to decline by roughly 5 million barrels per day by 2012.

    Figure 2: Has crude oil production peaked?



    Ironically, Figure 2 also plots the optimistic (almost laughable) forecast made by the International Energy Agency (IEA) in its “World Energy Outlook 2008”. Interestingly, in last year’s “World Energy Outlook”, the IEA stated that in order to fulfill its optimistic projections, the world had to install 64 million barrels per day of new supply by 2030 or the equivalent of six times the Saudi Arabian output! Furthermore, the IEA declared that the energy industry had to invest hundreds of billions of dollars every year to achieve this favourable outcome.

    Now, I can understand that the IEA is a government funded agency so it has to paint a rosy picture, but it is ominous that the energy watchdog failed to mention where this surplus oil would come from!

    Well, I guess you get the idea. Global crude oil production has probably peaked, new discoveries have dried up and there is a shortage of capital for investment purposes. Apart from these factors, all is well in the energy industry and the price of oil is about to drop to zero!

    After years of extensive research, I have no doubt in my mind that unless global demand stays weak forever, we will see supply shortages in the not too distant future. And before that occurs, the price of crude oil will stage an explosive rally. Accordingly, I suggest that all my readers allocate a meaningful proportion of their investment portfolio to upstream energy companies and to businesses in the energy services sector.

    Finally, in the energy complex, the price of natural gas is still scraping along its recent crash low and this is a fantastic long-term investment opportunity. As we approach winter in the Northern Hemisphere and heating demand picks up, we are likely to see a big rally in the price of natural gas. So, investors may want to allocate capital to this unbelievably inexpensive commodity.
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    Quote Originally Posted by MohandasKGanja View Post
    Nothing about oil speculation driving up the price of crude oil....
    Quote Originally Posted by MohandasKGanja View Post
    I don't think it's a red herring. Supposedly, the DoE or the FTC is about to release a report on the manipulation of crude oil prices by speculators, which helped precipitate the global recession. With regard to world oil supply, there isn't a shortage of supply, there is inadequate distribution, along with unstable or hostile countries that have the bulk of it.
    I heard one interpretation out of the '07-08 price trend is that oil is priced at the margin. In other words, small changes in the expected production have a huge effect on price or expected price (futures). Energy demand is relatively inelastic, so that's not really surprising.

    Also count in how the industry works: refineries need to keep oil going through their factories --> therefore, they're willing to keep paying more to keep a constant supply of crude so that they don't have to shut down. If the supply is suddenly not keeping up with the demand, prices rise quickly as refineries compete to keep their crude supplies stable.

    Peak oilers are our generation's Malthusian economists.[/quote]
    Peak oil may not bring about the end of the world, but it could result in some drastic economic conditions. M.K. Hubbard correctly predicted that US oil production would peak in the early 70s. World oil production has either peaked or is predicted to peak in the next few years, I believe.
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    By witchcurlgirl in forum U.S. Politics and Issues
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    Last Post: September 19th, 2008, 01:54 PM

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