Monday, February 18, 2008

Peak Oil?

Peak Oil, Right Around The Corner?
Click here for a link to many more articles available through the Energy Bulletin homepage:

By Staff | 8 February 2008

Peak-Oilers Put Money Where Mouths Are

by Jeffrey Ball, WSJ (Enviromental Capital blog) | 7 February 2008

The peak-oil debate no longer is a matter just of the planet’s future. Now it’s the subject of a one-sided $100,000 bet. Reveling in the role of the gad fly tweaking the elephant, a group of peak-oil proponents has 'challenged' prominent oil-industry consultancy Cambridge Energy Research Associates (CERA) to a not-so-friendly wager.

If CERA proves correct in its prediction that global oil production will rise by 20 million barrels per day by 2017, then the challengers, the Association for the Study of Peak Oil & Gas, will hand CERA a check for $100,000 nine years hence. If oil production falls short of CERA’s projection, as the group known as ASPO projects, ASPO will get the bragging rights and the check— and donate the money to charity.

CERA, the Boston-based company headed by prominent consultant Daniel Yergin, forecasts that global oil-production capacity could rise to 112 million barrels per day in 2017. Today, according to CERA, capacity is about 91 million barrels.

"That’s a vision in search of reality," Steve Andrews, co-founder of ASPO’s U.S. branch, said in a statement it sent out yesterday. Who knows whether ASPO’s finances will peak before then. But along with its press release, ASPO sent a copy of what it said is a bank letter of credit guaranteeing its $100,000 bet.

ASPO believes the peak in global oil production is, in its words, "near." If true, that wouldn’t mean oil production is about to stop. It would mean that the era of cheap oil is over for good, with production entering a long-term decline. The oil industry dismisses the peak-oil argument as, fundamentally, Luddite. It concedes oil is getting harder to find, and that the world will need other sources of energy to meet growing demand. But it argues that peak-oil predictions have been made many times before, only to be proven wrong when technology rooted out new troves of black gold.

ASPO pumped out its press release just as CERA is gearing up for its big annual conference next week in Houston. The event typically draws some of the oil industry’s biggest luminaries. A CERA spokeswoman declined to comment. Randy Udall, also a co-founder of ASPO’s U.S. chapter, said he wasn’t planning on attending the CERA confab. "I don’t know that we have the entry fee," he said. "It’s a high-dollar deal."

Links and images at original (see headline link). The Wall Street Journal is now officially peak-oil aware, moving far ahead of the New York Times, Washington Post and Los Angeles Times which continue to be oblivious.

The WSJ's energy blog has now mutated:

"No, your computer isn't misfiring. Welcome to a new Wall Street Journal blog, Environmental Capital. It replaces the Journal's Energy Roundup blog. Environmental Capital will continue Energy Roundup's tradition of tracking daily energy news. And it will go further, analyzing how the energy world, and all of business, is adapting to mounting concern about the planet."

BP To ‘Put Lights Out’ On North Sea

by David Strahan, Last Oil Shock | 6 February 2008

BP chief executive Tony Hayward stressed the company’s commitment to the North Sea during its results press conference yesterday, saying it would continue to produce there "until we put the lights out".

Asked by lastoilshock when that would be, Mr Hayward said production could continue for at least 15-20 years, but that this would depend on the tax regime. The province faces declining production and rising costs, he said, so "the fiscal structure needs to continue to develop to ensure that all of the marginal barrels are developed".

Asked whether he agreed with Shell chief executive Jeroen van der Veer’s judgment that "easy oil" would peak by 2015, Mr Hayward said "The question I always have in my mind is what’s conventional and what’s non-conventional. My personal view is that peak oil will occur more likely driven by demand than supply, and I don’t expect that to occur in 2015".

Why The Price Of 'Peak Oil' Is Famine

by Ambrose Evans-Pritchard, Telegraph (UK) | 9 Februay 2009|

Vulnerable regions of the world face the risk of famine over the next three years as rising energy costs spill over into a food crunch, according to US investment bank Goldman Sachs [[this is IAW the latest CIA estimates: normxxx]]. "We've never been at a point in commodities where we are today," said Jeff Currie, the bank's commodity chief and closely watched oil guru. Global oil output has been stagnant for four years, failing to keep up with rampant demand from Asia and the Mid-East. China's imports rose 14% last year. Biofuels from grain, oil seed and sugar are plugging the gap, but drawing away food supplies at a time when the world is adding more than 70m [[mostly Chinese and Indian: normxxx]] mouths to feed a year.

"Markets are as tight as a drum and now the US has hit the stimulus button," said Mr Currie in his 2008 outlook. "We have never seen this before when commodity prices were already at record highs. Over the next 18 to 36 months we are probably going into crisis mode across the commodity complex." The key is going to be agriculture. China is terrified of the current situation. It has real physical shortages," he said, noting that China still has memories of starvation in the 1960s seared into its collective memory.

Peak Oil Rapidly Approaching Warns Oil Analyst

by Jeff Florian, AME Info Fn ("Middle East Finance and Economy") | 7 February 2008

One of the hottest topics in the energy industry is the debate about peak oil, which refers to the point in time when global oil production goes into terminal decline. Estimates vary widely as to when peak oil will occur. The US and UK say 'officially' that peak oil will not happen before 2030. Others, like oil expert author David Strahan, believe it will happen much sooner.

Speaking at the recent World Energy Summit in Abu Dhabi, Strahan said the world is rapidly approaching peak oil, which he estimates will occur around 2017, but no later than 2020. The consequences of peak oil will be a severe drop in the availability of conventional oil, a spike in oil prices, and a subsequent financial and social crisis that would far exceed the current shockwaves that are being felt by the sub-prime credit crunch, he argued. Strahan offered a dizzying array of facts and figures to support his estimates about peak oil. He strongly believes that the world is 'well-explored' for oil.

Interview With ‘Dean of Oil Analysts’ Maxwell: Oil Shortages Start in 2010; Peak Oil Hits 2012 - 2015

by | February 4 - 7, 2008

Nearly 40 years on Wall Street, plus 12 years before that working for a major oil company, equals a lifetime of experience for Charles T. Maxwell, senior energy analyst at Weeden & Co., known as the "dean of energy analysts." Now, in an interview that sounded like a preliminary draft of a valedictory address, Princeton and Oxford-educated Maxwell has laid out in stark, uncomplicated terms what might be called the "Nightmare on Main Street" that he sees barreling toward America and the world.

Every investor needs to pay attention to Maxwell’s nightmare scenario,
because if the dean’s forecast is correct, it’s going to influence every investment decision made for at least the next 10 to 20 years. As we’ll see in this interview, although Maxwell sees much pain being inflicted on consumers and investors, he also sees opportunities to make a lot of money.

It all boils down to this, Maxwell told We live in a world where there is only about 1.2% more oil available each year, not enough to keep up with 1.5% annual demand growth. Between now and 2010, this supply shortfall will be made up through a drawdown in inventories, helped out by a slowdown in demand in 2008 and 2009 due to a recession or near-recession in the U.S.

But in 2010, Maxwell said, the shortfall will become greater than can be made up by what’s still in inventory, and thus will begin a long period of global oil scarcity that will get worse starting in 2012 or 2013, which is when Maxwell foresees a "peak" in conventional oil production. It gets even worse in 2015, which is when he expects a peak in the production of all liquids, a category that includes condensates, tar sands oil and biodiesel.

Maxwell described the period 2010 through 2015 as the "letting down" of production. In 2015, he said, the all-liquids peak arrives, after which production "starts down," even as demand continues up. He added that production will start down even though new oilfields will go into production, and even if there is only a 4.5% average annual depletion rate from existing fields, which is what Cambridge Energy Research Associates has optimistically concluded. (Others believe the depletion rate is significantly higher.)

As the nightmare worsens, Maxwell sees cities in many countries where people depend on kerosene having to do without this life-sustaining fuel. If this prediction of Maxwell’s turns out to be correct, one can easily imagine a sharp rise in the number of environmental immigrants flooding into the more developed countries in Europe and Asia. This could lead to excruciating social unrest that produces outbreaks of violence, as some experts have already predicted.

When will the nightmare end? Maxwell said that by 2025, "We can create some answers." He explained that both plug-in electric vehicles and cellulosic biofuel made from garbage are "wonderful ideas"; however, given that it takes 10 to 15 years or longer to turn over the world’s vehicular fleet, such technological breakthroughs won’t happen quickly enough to prevent the nightmare from happening.

Which leaves unanswered the question of greatest importance in most people’s minds: how high is the price of gasoline going to go?

Part 2 of 4: U.S. Pump Prices to Hit $12 to $15 a Gallon

Posted: February 5, 2008

As America enters a world of ever-increasing oil scarcity, there is going to be a "horrific" rise in the price Americans pay for gasoline, Charles T. Maxwell, senior energy analyst at Weeden & Co., told

Think $3 a gallon is high? Get ready for $12 to $15 a gallon within a few years, the "dean" of energy analysts predicted during a discussion about the future of energy that sounded like a preliminary draft of a valedictory address.

Maxwell said it will take $12 to $15 a gallon to get Americans to let go of what he called the "precious freedom of mobility." As much as Maxwell laments the loss, he sees no other way for the U.S. to impose enough conservation to deal with the growing imbalance between oil demand and supply that he sees developing around 2010 and getting worse in 2012 or 2013, as the world hits a "peak" in conventional oil production.

Because he expects Americans to hang on for dear life to their freedom of mobility, Maxwell says there will have to be a "stomping exercise" to "get them to let go." Basically, Maxwell said, Americans’ freedom of mobility will have to be stomped on by allowing the supply-constrained price of oil to steadily rise starting in 2010, reaching $180 a barrel in 2015 and $300 a barrel in 2020.

Maxwell doesn’t see how this stomping exercise can be avoided. While he sees great promise in oil demand-reducing technologies such as cellulosic biofuel and plug-in electric vehicles, he says there just isn’t enough time left to displace the upwards of 1 billion oil-consuming cars and trucks that are expected to be on global highways when oil production peaks and starts down early in the next decade. Even if the world were suddenly to find a number of huge new oilfields— an unlikely possibility— it would still take too long to develop them to head off this crisis, he noted.

One can only imagine the anger Americans will feel if and when they are staring at $15 a gallon pump prices. (In Europe, presumably, prices might be even higher, unless European nations decide to remove some of their gasoline taxes, which they financially can ill afford to do.) While Maxwell’s "Nightmare on Main Street" scenario may sound far off, the fact is whoever wins the White House this November will likely face the voters’ wrath, especially if he or she wins reelection.

As much as Maxwell discussed the scary future he envisions, he also discussed how this future should produce some companies that pay off nicely for investors.

Part 3 of 4: ‘Deep Oil’ Drillers Like Pride Should Do Well

Posted: February 6, 2008

Want to make some money during the period of global oil scarcity that Charles T. Maxwell, "dean" of energy analysts, says is right around the corner? According to Maxwell, there is money to be made in oil drilling companies, especially those with the equipment to tackle the new frontiers of the business, namely deep oil drilling in the bottom of the ocean.

During a lengthy discussion with, Maxwell, senior energy analyst at Weeden & Co., said a lot of oil and natural gas is going to be recovered from new fields that lie beneath 4,000 to 8,000 feet of water, plus another 15,000 to 20,000 feet of land below that. While he said that all this new energy won’t be enough to prevent a "peak" in liquids production in 2015, it should do wonders for the bottom lines of several oil drilling companies.

Maxwell said that seismic studies are showing that there should be a lot of oil and/or natural gas fields in deep water off India, China, Australia, Russia, Indonesia, the U.S. Gulf Coast, the North Sea, Brazil and Angola. While these new fields will be extremely expensive to exploit, he said that they should be affordable when, as he predicts, oil is selling at roughly $150 to $160 a barrel (in today’s dollars) in seven or eight years time.

Deep oil drillers may make investors a lot of money in two ways, Maxwell said, reiterating what he first said on the PBS program Consuelo Mack’s Wealthtrack. On that program Maxwell said, "Offshore drilling will continue to be very profitable. The oil companies can finance it quite easily with their cash flows." He added, "There will be acquisitions as the industry consolidates. There are eight of them now. I think there will be four of them in three or four years."

As he first indicated on Wealthtrack, Maxwell’s top drilling pick is Pride International Inc. He told that while Pride is known for its rigs that work in shallower water, 70% of the company’s assets (in terms of value) are tied up in deepwater rigs (three drillships and 11 semi-submersibles), with another couple of rigs on order. Maxwell further expects Pride to be one of the companies that ultimately gets acquired.

For similar reasons, other drilling companies that Maxwell said should do well include: Transocean Inc., Noble Corp. and Diamond Offshore Drilling Inc. They are among a group of 10 or so drilling firms that Maxwell said already are "making a terrible lot of money." As evidence of that, Maxwell said that two years ago this group collectively had about $32 billion debt, while today it’s only about $2 billion.

Part 4 of 4: Oil Crisis Will Lead to 10-Year Financial & Political Crisis

Posted: February 7, 2008

A growing chorus of voices is screaming for the United States to undertake a Manhattan Project-type program to wean America off its oil dependency. But as Charles T. Maxwell, the "dean" of Wall Street’s energy analysts, looks into the future, he deeply fears that Washington won’t do anything to head off the oil crisis he sees rapidly developing starting in 2010. He says this will make the financial crisis he fears even worse. Also, because Washington will be seen by angry voters (who will be paying $12 to $15 for a gallon a gas) as the cause of their "Nightmare on Main Street," Maxwell sees the American political system being shaken to its roots.

Princeton and Oxford-educated Maxwell believes that if the Democrats are in power, their core constituencies— farmers, workers and intellectuals— will be ranged against one another, resulting in an impasse. If the Republicans are in power, he expects whatever "solution" they come up with to be politically untenable because it will be premised on people with money continuing to consume as before, with the have-nots expected to do without.

Seeing no chance of a timely political response to America’s looming oil calamity, Maxwell, senior energy analyst at Weeden & Co., expects an oil-induced financial crisis to start somewhere in the 2010 to 2015 timeframe. He said that, unlike the recession the U.S. appears to be in today, "This will not be six months of hell and then we come out of it." Rather, Maxwell expects this financial crisis to last at least 10 or 12 years, as the world goes through a prolonged period of price-induced rationing (eg, oil up to $300 a barrel and U.S. pump prices up to $15 a gallon), while waiting for new technologies that can wean nations off their oil dependency to take hold in the marketplace. (It will take time to change over the world’s one billion or so oil-consuming cars and trucks.)

As this combined oil and financial crisis worsens, Maxwell would not be surprised if the U.S. government started functioning the way it did in World War II, when the democratic dialogue was often 'put on hold' so that unilateral decisions could be made by people given special powers.

Desperately seeking energy

by Toby Frost, Lincoln Journal, MA | 6 February 2008

"How many of you have seen the Al Gore movie, ‘An Inconvenient Truth?’" That question was asked last week, in the Tarbell Room of the ASPO-USA library, by Richard Lawrence, director and co-founder, the U.S. branch of the Association for the Study of Peak Oil and Gas.

Almost every hand shot up. Probably 30 Lincolnites had gathered that night to hear Lawrence speak about peak oil. As the show of hands revealed, most of us already knew— peak oil is the point at which the earth's reserve supply of oil and gas reaches (or perhaps has already reached) its peak. It’s all downhill from there. Another way of putting it is that if we haven't already reached the tipping point, we're just about to.

[ Normxxx Here:  So, the 'global warming' issue becomes moot: we can't continue to burn fossil fuels if there are none left! Maybe that balance was ALWAYS in the cards.  ]

  M O R E. . .


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The content of any message or post by normxxx anywhere on this site is not to be construed as constituting market or investment advice. Such is intended for educational purposes only. Individuals should always consult with their own advisors for specific investment advice.

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