From Russia with Love

Written By Nick Hodge

Posted March 8, 2011

Everyone I talk to is worried about rising gas prices.

It’s the lead story on the local news. My neighbor says he’s “already had enough.” And my family’s e-mailing me for an explanation.

In less than a month’s time, chat about oil and gas prices has risen to the number one small talk topic in the country, beating out weather by a long shot.

And while those I’ve come across believe they’re getting the short end of the stick, there are plenty of people, companies, and countries reveling in $105 crude…

They don’t get it — or they get it wrong

Guess who’s the world’s largest oil producer?

You said Saudi Arabia, right?


Russia passed the desert nation last year and is now producing 9.93 million barrels per day, according to the most recent data from the Energy Information Administration (EIA). The Saudis have fallen to second with 9.76 barrels per day.

This goes against everything Middle America thinks it knows — and against most of what you read in the media.

Normally, anger against high oil prices is directed at Muslim nations or OPEC.

Russia is neither.

So while unrest in the Middle East is the primary driver of the recent 25% rise in oil, Russia is actually the country raking in the most money as a result.

I share this for several reasons:

  1. To show you that popular sentiment isn’t always correct;
  2. To reveal the country with the highest reserves (Saudi Arabia, 259.9 billion barrels) isn’t the largest producer (Russia, 60 billion barrels);
  3. And to highlight the very nature of Peak Oil: It’s not about what you have; it’s about what you can get.

Musical chairs

The largest fields of easy-to-get oil in Saudi Arabia are now in permanent decline. They’re now trying more and varied techniques to get less and less oil.

Russia’s production, meanwhile, is rising.

Slowed down during the Cold War while OPEC was ramping up, the Soviets have now increased production in Siberia and the Caspian Sea. At one point last year, the country was producing more than 10 million barrels per day.

Basically, Russia is the new Saudi Arabia. While it may not have the most reserves, it currently has the easiest access.

But oil is a game of musical chairs. And with every depleted field, a chair is taken away.

To stay in the game, you’ve either got to find new fields and exploit them… or come up with new technologies to access the more difficult oil.

The next time the music stops

Let this sink in: Russia is number eight when it comes to world oil reserves, but number one in production.

It’s all about getting the oil, not having it.

And three areas stand out as the Meccas of future production.

First, Canada. Second in world oil reserves (175.2 billion barrels), our neighbor to the north is still lagging behind several countries when it comes to actual production.

Conventional oil production in Canada peaked in 1973, but advanced technology to harvest oil sands means production is now rising… and will continue to do so for a decade.

Canadian Oil Production

Some say 1.7 trillion barrels could be recovered from the Athabasca oil sands.

Second, the United States — home to the largest shale deposits (1.5-2.5 trillion barrels) in the world and the Bakken Formation (3-4.5 billion barrels).

New techniques like horizontal drilling and hydraulic fracturing mean the U.S. is ripe for a ramp-up in production.

There’s a reason oil billionaires like T. Boone Pickens are weighting their portfolios heavily in oil services companies operating up and down North America…

And lastly, Africa. The whole of it. It’s home to the last great oil fields on earth.

And because of political turmoil and lack of development, these fields have yet to be exploited.

Fresh off near-1,000% gains from untapped oil in Mongolia, East Africa is Christian DeHaemer’s next target.

Remember, Energy & Capital was founded on the premise of Peak Oil.

We’ll continue to be vindicated as it plays out… And you’ll continue to profit.

Call it like you see it,

Nick Hodge

Editor, Energy and Capital

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