When will the dam break?

I've been asking myself that for the last two years. Many of you already know that I'm referring to the energy crisis we're facing. The reality is that we're a lot closer to it than most people think.

But I'm not going to lay the blame on just one event. The truth is that there's a long list of reasons we're going to be in trouble.

China's economy has become more like an out-of-control freight train. They've been averaging double-digit GDP growth for the last five years. And their economy is on track this year to grow by a record 11.9%!

It's no wonder their fossil fuel imports are rising drastically. So far in 2007, oil imports have grown 11.2%. According to Chinese coal analysts, coal imports are expected to rise dramatically by the end of the year. This is when demand is at its highest.

Since January, China's coal imports have grown 48% compared to last year. The country will consume an estimated 2.54 billion tons of coal this year, an increase of 5%.

Things aren't looking any better over here in the U.S., either.

Don't forget that with only 4% of the world's population we make up 25% of its oil demand. With our domestic oil production is falling, we're left with nothing to do except increase our imports . . .

If only it were that easy.

Our major oil exporters are having problems of their own. Iraq, our sixth largest supplier, has lowered crude shipments again. According to the U.S. Department of Energy, Iraq exported 341,000 barrels a day in May, a 39% drop from exports in April.

That's okay, we can make up the difference someplace else, right?

Well, we can't exactly look to Venezuela and Mexico, which together account for 25% of our imports. Oil production is in jeopardy in both countries.

The story of the giant Cantarell oil field in Mexico isn't something new. Production at the field is rapidly declining. The immediate result is less oil for us. Exports to the U.S. in the first quarter of 2007 fell a staggering 13%.

The loss of Cantarell is going to put a serious dent in the Mexico's oil production. This field has supplied over half of the country's oil for years. And the lack of investment is a cause for concern.

Venezuela isn't looking much better. After giving the boot to foreign oil companies, the question is whether or not the state-run oil company has the expertise to develop the country's oil reserves.

Perhaps the best we can hope for is that these countries are able to keep their production rates steady. But this is a major task, especially for Mexico. And it's safe to say that neither will be boosting production in the next few years.

The OPEC Comfort

I think we all know a thing or two about Middle Eastern oil. But let's forget the chances of war or even the risk of a major storm disrupting the oil they supply. Those are just possible events.

Instead, the threat comes from their own consumption. The more oil those countries consume, the less they can export.

Makes sense, doesn't it? Their demand for oil will start taking a toll on their exports. Saudi Arabia's oil consumption grew more than 6% in 2006.

And then there's the development problems again. I've read reports that Iranian oil exports could drop by up to 12% within the next eight years. The country is rushing to make oil revenues and neglecting to put in the necessary investment money to develop new resources.

In the wake of several recent reports calling for oil prices to reach nearly $100 a barrel by the end of 2007, OPEC has officially stated that oil prices between $60 and $65 per barrel are "appropriate." OPEC has even given assurances they would pump more oil into the market if things got too tight.

That's comforting, indeed.

Wasn't this the same group that said $50 a barrel was "comfortable"? I can't help but wonder when they'll say $80 a barrel is OK with them . . . or even $200 a barrel.

Here's the thing, though . . .

This energy crisis isn't the end of the world. Rather, it's the opportunity of a lifetime. Not only do we recognize this, but we're going to do the logical thing . . . profit from it. If you're interested in finding out exactly how you can do so, just click here.

Until next time,

Keith Kohl