Despite the rush of warnings this year, peak oil deniers are still ignoring the signs.
You know them. They’re the ones sitting in the corner, their tin foil hats neatly perched atop their head as they plan out their next tirade. Their whining is always ridiculous, often making outlandish assumptions and citing wild sources.
Take last week, for an example. I was told that all the world’s oil problems would be solved if the U.S. only opened up ANWR.
Regardless of how you feel about opening up ANWR, do you honestly believe it’s the solution to the peak oil crisis?
Like I said, most of their rantings are absurdly articulated.
And when my colleague, Nick Hodge, laid out some simple oil facts, there were still a few of these folks to come out of the woodworks. Believe me, dear reader, peak oil deniers don’t hold anything back. And oddly enough, their caps locks buttons always seem to be broken.
At some point, the naysayers and conspiracy theorists will have to come to terms with their peak oil denial. I only wish that I’m in the same room when that happens.
U.S. Military Cries Peak Oil
The U.S. military makes up 80% of our government’s total energy consumption. Two years ago, the DoD’s budget was $20 billion… and that number is still only a fraction of what many believe to be the military’s real energy costs.
Here are a few more interesting statistics to consider, taken from a report on energy security by The Pew Project :
70% of the tonnage the Army delievers to a battlefield is fuel- and water-related.
Delivering fuel to a forward area can cost up to hundreds of dollars per gallon, sometimes as high as $400 per gallon. Refueling jets in the air can cost between two and 20 times the price at your local pump.
On average, every $10 change in the per-barrel price of oil means $1.3 billion in additional DoD energy costs. Think about that the next time you see oil prices climb from $33 per barrel to $80 per barrel in less than a year.
Recently, the Department of Defense released a report warning us about the upcoming peak oil crisis. You can imagine how much they’re concerned over a global oil shortage.
The report echoed my own sentiment that $100/bbl oil is right around the corner.
Yet the DoD went on to state that surplus oil production capacity could disappear within two years and severe shortage with five years.
Energy and Capital readers might see a familiar statistic buried on page 24 of the DoD report:
By the 2030s, demand is estimated to be nearly 50% greater than today. To meet that demand… the world would need to add roughly the equivalent of Saudi Arabia’s current energy production every seven years.
It gets even better, too…
The central problem for the coming decade will not be a lack of petroleum reserves, but rather a shortage of drilling platforms, engineers and refining capacity. Even were a concerted effort begun today to repair the shortage, it would be ten years before production could catch up with expected demand.
Although I’m not as optimistic as the U.S. military report that production will ever reach that high, we can at least get an idea of how serious the situation is. In fact, I believe the world will be hard-pressed to reach 90 million barrels per day, let alone the ridiculous amount of 118 million barrels per day.
Making up a shortfall of 10 million barrels per day will not be as easy as opening up some oil and gas leases in federal waters. No matter how much President Obama would like to appease the "drill, baby, drill," crowd, it simply won’t have a significant impact on production.
Furthermore, by the time the shortage occurs, I can’t help but wonder whether the Saudis will be there for us.
Shunned by the Saudis
The fact is that Saudi oil imports to the U.S. is declining.
See for yourself:
Notice that our Saudi imports peaked in May, 2003 at 2.3 million barrels per day. As the second largest oil producer (and OPEC’s largest producer), are the Saudis giving us the cold shoulder?
That could certainly be the case. Oil from the middle east isn’t exactly a popular topic these days.
So where are they shipping their oil, if it’s not to us?
This week, Saudi Arabia announced it will increase oil exports to China by 125,000 barrels per day. It’s a burgeoning relationship. Saudi Arabia makes up 20% of both China and India’s oil imports. During the next ten years, Chinese oil imports could nearly double, from 5.1 million barrels per day to 9.4 million barrels per day.
And without Saudi oil, things will get even tighter for the U.S. Military.
Taking Peak Oil Profits
So where does that leave us?
The answer seems obvious to us, doesn’t it?
Ramping up domestic production and Canadian production could be the only chance we have. Canada is currently our largest source of oil imports, and lately their oil industry has been booming.
I might not have to remind you of that part. Investors have been taking peak oil profits for years, and there’s no reason to stop now. In fact, the opportunities are still out there for the smart investor. One stock alone has raked in more than 1340% within the last 12 months.
Until next time,
P.S. I’ve had the pleasure of reading the Department of Defense’s report, and if you’re interested in looking it over, you can download it here.