Lately, I've noticed peak oil in the mainstream media a lot more than usual. It has certainly gotten more attention recently.

Around the world, many countries (including the U.S.) are scrambling to find alternative sources of energy. Bush's "Twenty in Ten" plan is a perfect example. Its goal is to reduce U.S. gasoline consumption by 20% over the next ten years. This will be accomplished by increasing development of renewable and alternative energy sources.

I think we've heard all this before. For the last few decades, every president has had some "plan" to eliminate our addiction to foreign oil.

But the real question is whether this is a case of "too little, too late."

Here's what boggles my mind about peak oil: The fact that we've ignored all the warnings.

The truth is that we have been procrastinating about peak oil for over fifty years, ever since Hubbert presented his theory in 1956.

Alarms Over Oil Ignored

Let me show you exactly what I mean when I say we've been ignoring peak oil . . .

In last week's Energy and Capital we saw the ridiculous arguments people have made against Hubbert's theory. I believe the main reason put forward as to why peak oil is just a load of nonsense was because it was an old theory.

The truth is that there have been several people waving red flags recently.

In 2005, the Hirsh Report made some alarming suggestions:

"Peaking (oil production) will result in dramatically higher oil prices, which will cause protracted economic hardship in the United States and the world."

The report concluded that without mitigating the peaking of oil production, there will be some serious consequences.

Also, avoiding the effects of peak oil would "require a minimum of a decade of intense, expensive effort, because the scale of liquid fuels mitigation is inherently extremely large."

In February, the Government Accountability Office released its own report on peak oil. The results were pretty much the same . . .

The global peaking of oil presents dire consequences on a global scale. Also, the effect of peak oil will be particularly severe to the U.S. because we are the largest consumer of oil and heavily dependant on it for transportation.

The conclusion?

The U.S needs to take immediate steps to establish a "peak oil strategy" to mitigate the consequences.

And this week, the IEA's director expressed grave concern over the world's oil stocks and is asking for OPEC to increase its production. If it doesn't, the IEA has suggested the tightening oil supply could become a crisis within the next five years.

That directly translates to higher oil prices.

So how high can we expect prices to go?

The Peak Oil Effect

I've asked a number of people what they thought would be the biggest factor in higher oil prices today. The top two answers were Iran and a potential hurricane.

But those two things are a little off the mark. It's true that geopolitics and weather play a significant role in oil price swings. Fear of a supply disruption has always led to a higher price per barrel.

Those factors result in (for the most part) only temporary adjustments to oil prices compared to the lasting effect peak oil will have. If production begins to irreversibly decline, our soaring consumption levels will cause a massive spike in energy prices.

According to Dr. Imad Al-Atigi, a member of the Supreme Petroleum Council in Kuwait, oil prices are about to rise again. He's predicting that a barrel of oil could hit $100 in two years. One of his major concerns is the poor oil infrastructure in places like Iran and Iraq.

But it's not just their infrastructure that needs help. In the U.S., our facilities and drilling rig fleets are old. And we're investing a lot of money just to maintain them.

Investment of a Lifetime

Personally, I think he was being optimistic. I think we'll see oil over $100 per barrel before 2009.

But that doesn't mean we have to suffer.

In fact, over $20 trillion dollars is going to be spent on our energy infrastructure.

And more importantly, a lot of this money is going to be spent to alleviate the effects of peak oil. Whether it's for renewable or alternative energy or new technology, my readers have already made some serious money off the impending energy crisis.

Until next time,

Keith Kohl

"Energy stocks... The only way a human is going to make any money."

-- Matt Simmons, Peak Oil's first and most vocal proponent,
and founder of the country's last pure play energy investment banking firm.

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