Baltimore, MD--In honor of the U.S. Government Accountability Office's (GAO) report warning us of the effects of peak oil, this week we'll examine its recommendations on how to delay the catastrophe.

The global peak in oil production is right around the corner, and closer than you might think.

World oil consumption is steadily rising, yet production will soon reach its peak (assuming it hasn't already) and then experience a steep, irreversible decline. The GAO report highlights three ways to enhance global oil production in order to postpone the devastating effects of peak oil.

Enhanced Oil Recovery

The first method involves using enhanced oil recovery technologies (EOR). This can extend proven oil reserves and raise the rate of recovery. Roughly 30% to 60% of the original oil can be extracted using EOR. This can involve injecting gas or chemicals into the well, as well as thermal recovery methods.

Gas injection is the most popular technique. Whether carbon dioxide, natural gas or nitrogen, the gas expands and effectively moves the extra oil to a wellbore. The gas dissolves into the oil and raises the flow rate by decreasing viscosity.

The thermal recovery technique involves heating the oil (typically with steam) to improve flow rates. Chemical injection with polymers is also used to improve oil flow rates.

Presently, over half of EOR production in the world is from North America. Approximately twelve percent of U.S. oil production is from EOR techniques.

EOR, however, will not rescue us from our oil addiction. The simple fact is that investors are hesitant to throw big money into EOR, for several reasons. The GAO report points to a "reliance on out-of-date practices and limited data due to lack of familiarity with state-of-the-art imaging [. . .] technologies."

Deepwater Drilling

Offshore drilling has been around for almost 150 years. In fact, the first offshore drilling design was patented by T.F. Rowland way back in 1869. Granted, the rig operated in very shallow waters.

Deepwater wells have a depth between 1,000 and 5,000 feet while ultra-deepwater rigs reach between 5,000 and 10,000 feet. Offshore drilling is experiencing steady growth as an increasing number of land wells enter depletion.

And deepwater still remains a potentially huge source for future oil production. The GAO reported that deepwater production in the Gulf of Mexico is up to 1.3 MMbbls/day and will reach 2 MMbbls/day within the next decade. Experts have estimated that about 114 billion barrels of oil could be discovered in deepwater.

But here's the problem. Investing in deepwater projects is much riskier than in shallow water ones. The costs associated with deepwater drilling presume a very high crude oil price. Also, the equipment needed for drilling and transporting oil at those depths is quite expensive.

A single deepwater well can cost anywhere from $30 million to $100 million, compared to the $5 million price tag for shallow water wells. As a result, it is difficult for smaller companies to get in on the action. This means that the major oil companies need to commit themselves in deepwater areas.

As an investor, I'm hesitant to throw my hard-earned money into deepwater exploration.

But that doesn't mean you can't make a killing. In the case of deepwater and ultra-deepwater drilling, the money is in the services.

Just look at this: Companies that rent deepwater drilling rigs are charging up to $300,000 per day!

Oil companies spent $19.2 billion on deepwater drilling between 1988 and 2002. But spending doubled to $40 billion between 2003 and 2007. That number will go on increasing as land wells continually decline. Moreover, the size of newer oil field discoveries is much smaller compared to the depleting giants.

The Best is Yet to Come

Before I go enjoy the sunshine that has finally descended on Baltimore, I know what you're thinking: "Didn't you only talk about two ways to increase global oil supplies?"

That's right.

The reason is because I believe the third method provided by the GAO holds the most potential for investors. And the best part is that this method is extremely easy to get into.

Here's a small hint: Energy and Capital readers have been aware of it for a long time. On Thursday, I'll show you even more ways to play this blockbuster.

Until next time,

Keith Kohl