BALTIMORE, MD -- The world's leading oil and gas producers are terrified. They seem to be in a frenzy to extinguish the peak oil fire. And they'll do, or say, just about anything to get you to believe it's bogus.

Speaking at an OPEC conference last week, Abullah Jum'ah, CEO of Saudi Aramco, directly challenged the peak oil model claiming there is no cause for concern despite hard evidence provided by petroleum geologists that shows the world quickly running out of cheap, easily accessible oil.

Mr. Jum'ah said at the meeting, "The world has only consumed about 18 percent of its conventional potential reserves," contending that we can lay to rest any concerns that the world is in danger of being tapped out.

Jum'ah then added, "That fact alone should discredit the argument that peak oil is imminent, and put our minds at ease concerning future petroleum supplies."

Mr. Jum'ah's statements are clearly quite optimistic and a far cry from what we've previously heard from the world's most prominent peak oil experts.

But the fact is, Jum'ah is only telling a small part of the story. And when all the facts are considered, his optimism seems unfounded.

First, we need to look at the numbers. Jum'ah and his team started by estimating that the world's original in-place oil reserve was about 5.7 trillion barrels (Tbbls). Then, assuming that we've consumed about a trillion barrels in the 150 years of crude production, they came up with the 18 percent figure.

While most experts agree with Jum'ah's estimation that the world has in fact consumed about a trillion barrels since Col. Drake drilled the first oil well in 1859, many will debate the world's original in-place oil reserve.

Most petroleum professionals contend that the world started out with somewhere between three and four trillion barrels of oil. Not 5.7 trillion.

If they're correct, that means we've probably consumed a much higher percentage than Jum'ah suggests. A quick calculation shows that we've consumed somewhere between 25.7% and 34.2% (respective of 3 and 4 Tbbls) of the world's original in-place crude.

Ok, so after using oil for 150 years, having 2/3 of the world's original in-place oil sounds pretty good. But like we've talked about many times before, the world is not running out of oil.

What we're running out of is cheap oil.

You see, oil gets harder to extract as there becomes less of it in any given field. Mature fields -- such as Ghawar and Prudhoe Bay -- require special techniques known as enhanced oil recovery to help the oil flow out. Employing these techniques costs money. Lots of money. So it's more expensive to extract oil from a mature field and these costs are passed on to the consumer.

So really it doesn't matter how much oil is left in the ground. What matters to us -- and to the economy -- is the cost to extract it. A good example of this was the recent Chevron discovery in the Gulf of Mexico. While there may very well be billions of barrels of oil in the ground, the cost of extracting it is very high. And oil must be at a certain level to make extracting it profitable.

So one of the key things Jum'ah failed to mention is the economic viability of extracting the rest of the world's oil. Don't get me wrong. I think we still have enough easily accessible oil to last us a few years. But after that...well, the proverbial feces hits the fan.

There are a few other things that Jum'ah conveniently failed to touch on. For example, he neglected to mention where the world's remaining oil is located.

A large percentage of this oil is trapped in politically treacherous places. This leaves the U.S. relying on a resource that can literally be halted overnight due to geopolitical problems.

Furthermore, some of this oil is located in environmentally-sensitive areas like the Arctic National Wildlife Refuge. And some of it is way the heck out in the middle of the ocean, where it is difficult and too expensive to produce it.

Consider this...

About 800 million miles away on Titan, Saturn's largest moon and the second largest moon in the solar system, the clouds are made of natural gas and all the lakes are completely filled with liquid natural gas.

The energy resource on Titan is enough to supply the world's demand for energy for 50 million years! But getting to it is obviously a problem and bringing it back is certainly not an economic option. Such is the dilemma with getting the oil out of some of these locations here on earth.

The last thing Jum'ah failed to mention is that all oil is not created equal.

Some grades of oil are much easier to refine than others. Depending on the viscosity and sulphur content of oil, there are significant cost implications. Heavy, sour crude -- unlike the light, sweet stuff -- requires special types of equipment to refine. And like enhanced oil recovery, it drives up the cost for the consumer. This type of oil also tends to produce less end-product per barrel, which also tends to drive up prices.

The bottom line is the peak oil model is still intact. World oil production will -- not might -- eventually peak out. Discovery rates have been below production rates for the past 25 years, with no sign of changing. This is the cold, hard fact of the oil situation today. Oil prices will increase, and as investors, we need to be there as they do.