Baltimore, MD—The global peak in oil production will be the single greatest event of our generation. And I'm still surprised to find some people fail to believe that peak oil is right around the corner.
Every morning when I get to work, one of the first things I do is clean up my email inbox. Many of you understand exactly what I mean when I say I receive dozens of unwanted spam daily, from miracle cures to get-rich-quick schemes.
I know some people view the mindless task of deleting numerous messages as a chore. I've heard a few of my friends say they don't even look through them and directly hit the "delete all" button immediately.
I'm a bit different. I actually look forward to this morning ritual.
In fact, I find it entertaining.
You might find it odd at first, but you'll soon be laughing after taking the time to look over some of them.
Among the spam I got today, I received a plea from a woman who was stuck in a refuge camp (which one, she didn't mention) asking me to hold on to fifty million dollars for her. Apparently her husband died a few months ago and left her a sizeable fortune, but it's stuck in some bank and all she can do is transfer it to another account...
Sounds a bit fishy, right?
Naturally, she needs me to forward her my complete financial information so I can "hold" onto the money. My reward for helping this widow in distress was a cool million, payable when she gets back.
I think she may have taken the quote credited to P.T. Barnum, "There's a sucker born every minute," too literally.
But right underneath this questioning offer was something even more ridiculous.
I opened up an email that said oil prices would drop back to $30 a barrel over the next two years. Once my initial shock was over, however, I was intrigued. I had to find out why this guy was convinced peak oil was a sham.
It's remarkable how many people have dismissed Hubbert's theory, and their only argument is that it's an old theory. That just doesn't make sense to me. Didn't Hubbert successfully predict that U.S. production would peak in 1970?
Since that peak, our oil production has seriously declined. In 2006, we produced roughly the same amount of oil than in the mid-1940's. That statistic isn't some wild, outdated theory, it's a fact.
But it's not our declining production that I'm worried about, but rather the dangerous consumption increases. Consider that the U.S. consumes a quarter of the world's oil yet has only 4% of its population.
Here's a better look at how serious it has gotten:
But U.S. peak oil is in the past. As you can see, we're going to increasingly rely on foreign imports in future. The danger is when the global peaking of oil production occurs. Once global oil production reaches its peak, the gap between supply and demand will widen. A direct result of peak oil will be a dramatic rise in oil prices.
As I continued reading, I found that he felt the only reason the peak oil theory was wrong was because CERA said so. Forget the hazy reserve data from the middle east, or even the declining production rates around the world.
After all, according to them, the world has well over three trillion barrels left—almost a century's worth of oil. Why should we worry now if we have enough in the ground to last that long?
I've never heard of "running out of oil" as being a concern. That's not the problem.
The problem, my friends, is that we're running out of cheap oil. Oil is getting harder to extract. New methods to enhance recovery have had a tremendous effect on how much oil producers can pull out of the ground, but it's not enough to keep meeting the rising demand.
This email not only suggested oil would drop to $30 a barrel by 2009, but also that it would fall to $20 a barrel within the next decade. The thought alone is worth a thousand laughs.
To me, that seems more like wishful thinking than sound investing.
Using the Energy Information Administration's latest projection, the world will be consuming 97 million barrels per day in 2015. That will be difficult to produce, considering our new oil discoveries are tiny compared to the giant fields we have today.
Also take into account that a staggering number of those giant fields are depleting. This includes nine of the world's largest fields. So not only do we have to find thirteen million barrels of new oil, but we also have to make up for the production lost from depletion. I think we'll easily see oil break $80 a barrel before it drops to $20.
Although this email kept me laughing from start to finish, there was one idea that I completely agreed with: There's going to be a lot of companies that stand to make huge gains from oil.
And the only reason I know that is because I've already seen my readers earn a small fortune off of these small and mid-cap oil producers. But don't take my word for it, you can see for yourself here.
Until next time,
Keith Kohl
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