There's one thing I've been trying to relate to my readers over the last few years: Once people truly understand how much oil the world consumes (approximately 85 million barrels per day), the global peak in oil production will become the single greatest event of our generation.

But the concept of peak oil isn't anything new to you.

In the past, some of the biggest opponents to peak oil have been the major oil companies. According to them, the world still has plenty of oil. Furthermore, getting that oil won't be much of a problem since new technology will keep the oil pumping for decades.

Regrettably, we can't share that kind of optimism.

Accepting Peak Oil

Believe me, I was just as surprised as you last week after reading the Shell email. Chief executive, Jeroen van der Veer, expressed his concern over the world's future energy supply. The Shell head honcho was even kind enough to give us a date of when he expects things to hit the fan: 2015.

For us, however, that wasn't the interesting part. We know the world's energy supplies are getting tighter with each passing day. Tightening oil markets are nothing new to us.

But aside from the general doom and gloom feelings expressed in the email, there's a few parts I can't help notice. One example is when he states, "As a result (of no longer being able to keep up with demand), society has no choice but to add other sources of energy - renewables, yes, but also more nuclear power and unconventional fossil fuels such as oil sands."

Sound familiar?

I've been telling you this for years. One of these days I'll check and see if Mr. Van der Veer is one of my esteemed readers.

Let's not read too far into the Shell email yet. After all, this email may have been written to soften the blow of some possible bad news concerning Shell's oil reserves. You see, Shell has delayed the release of their oil reserves, which the company usually publishes along with its financial figures. Don't forget that Shell's oil reserves have been a delicate issue ever since 2004, when the company announced that 3.9 billion barrels of oil and gas (roughly 20% of their reserves) were no longer 'proved'. This meant the reserves weren't as easy to get as previously thought.

Even though some producers like Shell may have come to terms with peak oil, others just aren't getting the hint.

Naturally, the surge in oil prices have given producers record profits. If you're making money off of crude oil, "$100 per barrel" has a nice ring to it. So far, oil hasn't been able to stay above that psychological benchmark of $100 a barrel very long. As you can see in the latest weekly petroleum report from the Energy Information Agency, oil prices abruptly fell the last two times oil reached near the $100 mark:

WTI Prices, Energy Information Agency

Iraq's Future Oil Crisis

If the world has any hope of increasing its oil production, then improving infrastructure and investing in new projects is paramount.

Seasoned Energy and Capital readers are well aware that nearly all of the OPEC nations will be unable to increase future oil production. In my opinion, Saudi Arabia is one of the few that has a chance of raising production capacity.

In Iraq, oil production has reached prewar levels around 2.5 million barrels per day. In 2008, the Iraqi oil minister announced that production is expected to increase to roughly 2.7 million barrels per day. The problem, however, is that Iraq isn't reinvesting enough money in its oil sector. The U.S. Government Accountability Office (GAO) has questioned how much Iraq put back into its oil industry. Iraq's oil ministry was budgeted approximately $2.4 billion for capital projects in 2007, yet may have only spent between $270,000 and $500,000 in the first eight months. Then again, OPEC countries are used to reporting shady numbers.

Until next time,

Keith Kohl

www.energyandcapital.com

P.S. I know certain OPEC countries are happy to let their oil industries waste away, but the fact is there will still be trillions of dollars spent over the next ten years improving the world's oil infrastructure, you just need to figure out where to look. If you're interested in finding out more, please feel free to check out the $20 Trillion Report.