Lately, I've noticed that a few of my readers may have a couple of misconceptions about some of the topics I've covered. So before jumping into today's article, let's quickly clear them up.

The first one is regarding peak oil. A few of you (I won't mention any names, we're all friends here) were under the impression that because the world has used up half of its estimated oil reserves, then peak oil theory means that global production will decline. In other words, production is going to fall since we've reached the halfway mark.

Unfortunately, that's completely wrong. Don't think of peak oil as how many reserves are left. Instead, focus on how much we can produce annually.

I know I've touched on this before, but here it is, once again, for the sake of our newer readers. Peak oil suggests that the world's annual oil production will hit a peak, followed by a plateau and then finally an irreversible decline. But it isn't whether or not peak oil will happen. I haven't met a single person who doesn't believe oil production will peak one day. Rather, the debate is centered around when it will happen.

Predicting the exact date of peak oil is a tricky thing. Naturally, there are numerous reasons why I believe the world is on the verge of peak oil (or may have already passed it), but we can save that for next week. Don't worry, I won't forget, and I do hope this answered a few of your questions.

Another set of readers were confused from last weeks article on Oil Shales. Many of you were mixing up the Colorado oil shales with the oil sands in Alberta. The two are quite different. Although both have a massive amount of resource potential, Canadian oil sands are receiving much more attention than the oil shales at the Green River formation in Colorado.

Oil Sands Boom

I know what you're thinking, "So why are we looking toward Canada when there might be over two trillion barrels of oil underneath Colorado, Utah and Wyoming?"

For starters, the world's oil shale production is less than 30,000 barrels per day. Canadian oil sands, on the other hand, make up over 40% of Canada's total crude production. With the spotlight pointed Alberta, the potential for oil has attracted a huge amount of investment dollars.

Canada is one of the few areas in the world where oil production is expected to increase. How many times have you read about OPEC refusing to raise output because the organization is "comfortable" with current oil prices? The cartel may feel the oil markets are well supplied, but the fact remains that oil is still hovering around $90 a barrel during a period when prices should be at their lowest.

Perhaps we shouldn't be asking OPEC when they will increase output but rather if raising production is even possible.

Do I think oil shales have a chance?

Absolutely. But we're decades away from that point.

Right now, the Canadian oil sands are booming.

Thanks to the oil sands, Canada's oil reserves are second only to Saudi Arabia (we'll assume the Saudis are telling the truth on how many reserves they have, no matter how shady their numbers are)...

Oil Sands Investments

Remember, it isn't only about how many reserves you have, but how much of those reserves you can produce.

I've read varying estimates concerning Canadian oil sands production over the next few years. Canada's National Energy Board slightly lowered their initial production estimates to just under 3 million barrels per day in 2015 and approximately 5 million barrels per day by 2020. Current production is a little more than one million barrels per day.

Estimated Proved Oil Reserves, 2005

So why am I so bullish on the Canadian oil sands?

Unlike the oil shales in Colorado, I've personally seen some remarkable advances in oil sands extraction.

Whenever I ask someone how they feel about Canadian oil sands, they immediately picture the massive surface mining operations. After looking at the huge mining pits north of Fort McMurray, I don't blame them. Watching the whole process can certainly leave a lasting impression.

Surface mining, however, is only the tip of the iceberg. Remember that roughly 80% of the oil sands are too far below ground to be mined. This means the bitumen must be extracted using in-situ methods. In other words, companies first need to heat up the bitumen (which has a high viscosity) before pumping it out of the ground.

The problem is that most of the extraction methods are very energy intensive, requiring large amounts water and natural gas during the process. The good news, however, is that a few companies have already solved some of these problems. The only question in my mind is whether or not they can successfully bring production to a commercial scale.

For investors, the door is still wide open. In fact, most of my Energy and Capital readers are already capitalizing on these breakthroughs. If you're interested in joining us, please feel free to find out more at the $20 Trillion Report.

Until next time,

Keith Kohl

www.energyandcapital.com