Simple Oil Facts

Written By Nick Hodge

Posted April 14, 2010

My colleague Keith Kohl does an excellent job researching and discussing the oil industry.

This week, he published a brilliant piece about the immediate threat of peak oil.

As usual, comments poured in — both in support and opposition of Keith’s conclusion that oil production is entering terminal decline.

Today (as I’ve done before), I’d like to take a look at some of those comments and evaluate their merit. What we find should not only help paint a clearer picture of the global energy scenario, but will highlight some crucial investment themes.

Drill, for a Few Years, Drill

When domestic deniers are confronted with peak oil, they usually turn to the hackneyed argument of domestic drilling, be it in Alaska, offshore, or elsewhere.

Here are the comments that fell into this trap:

Under US soil there is still something like 336 Billion barrels left that we can’t extract… supposedly. If a way could be found to get the rest of it, how hard would it be to find the financing to develop the equipment and procedures to remove the rest of it?     Gilbert E.

It doesn’t make sense to leave out the oil that’s available but blocked by governements. Like ANWR Alaska, offshore US, and some big offshore discovery in Mexico that they won’t let foreign companies get to. Maybe there is really peak oil, but you’re so inaccurate leaving out those facts that your analysis is obviously way off. How about accurately accounting for everything?     Chuck S.

I don’t disagree with the general idea of ‘peak oil’ But the obvious reason the US does not produce more oil is POLITICAL. I am not saying that production would exceed what was produced in, say, 1970 — but it certainly could be much greater than it is now if government didn’t block it.     John S.

Those are the comments.

Here are the facts….

Peak oil is a global event. It’s happening on a globe where approximately 85,000,000 (85 million) barrels of oil are consumed each day. Annually, that works out to over 31,000,000,000 (31 billion) barrels.

The United States consumes 19,500,000 (19.5 million) barrels per day or 7,117,500,000 (7.12 billion) barrels per year.

Now let’s look at the maximum — the maximum, not the estimated recoverable oil — amount of reserves in these locales:

  • ANWR – 21 billion barrels

  • U.S. Offshore – 16 billion barrels

So we’re looking at roughly 37 billion barrels at most. With a yearly consumption rate of 7.12 billion barrels, that gives us enough oil for just over five years… It’s enough to supply the world for only one.

You see the problem here?

By all means, get that oil. Get it fast and get it now. There’s plenty of money to be made in doing so…

But it isn’t much. And it’ll be gone soon.

That’s why both the Department of Energy and the Energy Information Administration have said that to harvest those sources would have minimal impact on global markets, with respect to both price and supply. Domestic oil is a teardrop in the ocean; a Band-Aid on a bullet wound.

The era of cheap oil is over.

A Moronic Abiotic Theory

If thinking Alaskan and offshore oil will solve our woes isn’t bad enough, one reader seems to think that oil isn’t finite at all. Instead, he thinks there’s plenty of it and believes more oil is constantly being made.

The reader’s use of capitalization lets you know he’s serious:

Oil is NOT a fossil fuel. There is a MASSIVE, MASSIVE EXPANDING amount of it.

THINK PEOPLE: JUST BECAUSE A PARTICULAR formation or well is decreasing, DOES NOT IMPLY THAT THE GLOBAL SUPPLY IS DECREASING — it only means that THAT ONE PARTICULAR AREA IS DECREASING, naturally. If you have a gallon of juice and continue to drink it, the total amount will decrease. Duh?

THERE IS PLENTY OF OIL. Stop spreading disinformation. READ THE ORIGINS of who put forth the ideas of how oil is produced, and that is this "fossil" fuel. That is incorrect, false, shortsighted, disingenuous and arrogant.    John H.

I don’t know about you, but I live in the real world — a world where crude oil was formed over geological time (millions of years) from intense pressure and heat applied to organic material under the earth.

In my world, there is a finite amount of oil. And half of it is already gone.

So keep these numbers and arguments in mind when investing in the oil market. There’s plenty of misinformation out there that can lead you astray.

Sure, 16 billion barrels of offshore oil sounds great… Until you learn that the world would consume all of it in six months.

But rest assured, we’ll use every last drop. And billions will be made as that happens.

Obama has already begun to ease offshore drilling rules as prices climb back toward the $100 per barrel mark.

Yet, our best prospects for domestic oil production are actually in the Midwest. In all reality, the fields of North Dakota may hold more oil than Alaskan and offshore sources combined.

It won’t stave off peak oil by any means. But it will help us hold out a bit longer, reduce our dependence on foreign oil, and make smart investors a boatload in the process.

Peak oil is here. It’s real.

Rather than waste time denying it with inaccurate information, why not profit from the opportunities it will create, both from the end of oil and the rise of clean energy?

Call it like you see it,

Nick Hodge


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