Baltimore, MD--The U.S. government's latest plan to save us from peak oil comes from the Department of the Interior. The latest ploy is to exploit offshore oil targets in Federal waters. It may not help, but at least our government's last stand against peak oil gives us another chance to reap the benefits.
My family has always been sticklers for tradition.
For as long as I can remember, we have always gathered together to celebrate the first days of spring (or any warm weekend in April or May, really). These barbeques rival any Fourth of July bash. More importantly, it's nice to catch up on everyone. And yesterday seemed as good a day as any. So I ducked out of work early and soon found myself lounging in the bright Baltimore sunshine on my brother's patio.
Believe me, the last subject I thought I'd be discussing was peak oil--especially not with my twelve-year-old niece.
But amid the beer and bratwurst she said, "I got to read your article last week, Uncle Keith."
It took me a minute to respond. I had fallen out of my chair.
At first, I thought one of my siblings had put her up to this. I could think of a few suspects trying to have a bit of fun at my expense. But my curiosity was piqued at the idea that our youngest Energy and Capital reader might want to weigh in on the future energy crisis.
I had to know just why a fifth grader was reading about peak oil (although it will affect her much more than me). "Did you like it?" She nodded. "And you understood it?"
After she nodded again, I had a feeling that wasn't entirely truthful. So I took a few minutes to explain how much oil our world uses. I tried to show her how the oil we're taking from the earth is getting much more expensive to produce.
Given the age of my niece, I put it all in one simple metaphor. "Imagine you're picking your favorite fruit off a tree. Now, as you pick the fruit and put it in your basket, all the easy-to-reach fruit will eventually be picked, right?" She nodded, so I continued, "So as climb higher on your ladder, won't you get to the point when the fruit won't be worth picking anymore? You'll be too high, or the fruit will be really far out on the branches."
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"Of course."
Satisfied, I went on, "Well, oil is a lot like that fruit. Sooner or later the oil is so deep in the ground that it costs us too much money to take out."
But my precocious niece was a step ahead of me (friends, never underestimate a child's intelligence). "So why don't we go get more? I mean, if the oil is harder to get in one place, why don't you just get a new spot?"
I'll admit, I was pretty shocked. I had assumed I'd be talking about Disney movies rather than peak oil. But who am I to turn away a faithful reader?
"That's what we're trying to do right now. You see, it took our government decades to figure out what you did in five minutes," I said.
And there it was.
The truth.
Over the thirty minutes I talked with my niece about peak oil, she realized that we're going to be in a lot of trouble if we don't find more oil.
It took the government 51 years (since Hubbert presented his peak theory to the American Petroleum Institute in 1956) to realize the same thing.
And on the heels of the GAO's report fretting over peak oil, the government has moved its pawns.
The solution?
Offshore drilling.
Ten Billion or Bust
On Monday, the U.S. Department of the Interior announced its attack on peak oil. They are initiating a five-year plan to expand offshore drilling for oil and natural gas.
But just how much do they expect to extract from the previously closed Federal waters?
Almost ten billion barrels of oil and 45 trillion cubic feet of natural gas over the next forty years.
Let me put that another way . . .
The government expects to generate more than $170 billion dollars by exploiting oil targets off the coasts of Virginia, Alaska and the Gulf of Mexico.
Acres of precious oil targets on the outer continental shelf (OCS) will be leased between 2007 and 2012.
Here's an idea of how rich these waters are. Drilling in the OSC already produces 30% of U.S. domestic oil production and 20% of our natural gas production.
This plan, known as the "Five-Year Outer Continental Shelf Oil and Gas Leasing Program" (originality has never been our government's forte), consists of 21 lease sales in eight areas.
There's no denying that the potential is there.
Too Little, Too Late? Not for Us
Although this expansion is a perfect example of "too little, too late," the investing opportunities are enticing.
And I'm not talking about blindly throwing our dollars at the possible winners of those leases, hoping to hit the jackpot.
I don't play the lottery.
Let's face it, you have a better chance of being struck by lightning--three times.
Instead, I bet on the sure things. That's how I make my money--because hopes and dreams don't pay the bills.
If you're interested in doing likewise, you should know that readers of The Pure Energy Report are in prime position to profit from these unconventional oil sources.
During the rapid expansion of offshore drilling following this government plan, service companies are going to explode to the upside. Right now there is a major shortage of drilling rigs. These companies are going to be able to sharply raise their day rates.
Why?
Because they can. Plain and simple.
Rising energy prices make these unconventional sources much more attractive. But the window of opportunity will only stay open for a short time.
Ruminating over my peak oil discussion with my young Energy and Capital subscriber, I began wondering what she would like more for her birthday next month--a pony, or stock in some of my favorite energy companies?
Until next time,
Keith Kohl
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