Skip to comments.Peak Oil and the Investment Landscape: A Look at the Potential Winners and Losers
Posted on 02/19/2010 11:39:41 AM PST by Bookworm22
Last month, I explained in an article how and why the world is approaching a worldwide peak in oil production sometime in the next decade. Although there are large implications throughout the economy, I want to say upfront that I do not think this will bring on Armageddon. Oil prices that are significantly higher than earlier in our lifetimes will bring about great change, yet I firmly believe that our economy has the ability to successfully adapt. Despite the strong headwind oil scarcity will create, I am still an optimist.
I have structured this article by segmenting the "winners" and the "losers." These monikers may be a bit strong, and it is worth noting that even a company that might have a slower growth rate than before because of peak oil can still be a good investment. In other words, I'm not running out to buy the peak-oil benefactors, nor am I dumping the peak-oil losers. Rather, increased oil scarcity is but one of many factors Morningstar's analysts and I consider when projecting future cash flows and business positions. With that, let's jump right to it.
Loser: Existing Petro Infrastructure With lower production of oil, there will be less of a need for the energy infrastructure needed to support the processing and transportation of liquid petroleum. All else being equal, this will mean low-to-negative growth, slack capacity utilization, and lower profitability for refineries as well as certain pipelines and energy storage assets. In terms of companies held in StockInvestor's model portfolios, ExxonMobil (XOM), Kinder Morgan (KMR), and Magellan Midstream (MMP) have a significant portion of their assets that are in the bull's-eye here. Full article at: Peak Oil
(Excerpt) Read more at oilprice.com ...
How can there be peak oil when the U.S. Hardly knows Whats available,nevemind allowing drilling to access it.
Haven't 'they' been saying this for nearly a half-century?
If we can't drill for our own oil, we could always occupy Saudi Arabia, with a few helicopters and a company of Marines. Or a company of boy scouts for that matter. I think we will run out of sand before we run out of oil.
No . . . Seriously. This time we will run out of oil. We just got lucky the other 50 times peak oil was predicted and did not exhaust.
Please support oil price speculation and agree with me.
Actually the article is not bad analysis. For example, that US labor would benefit from high oil as it makes more sense to produce locally rather than ship product long distances.
As for peak oil, I do buy the notion. It makes little difference if there’s plenty of oil in the US if we are not allowed to extract it.
Considering about 80% of the area in this country that could contain oil is out of bounds for exploration for various reasons you are on the money.
They’ve been saying it 10 years after they brought in the first well in PA.
Lets consider the arguments of the peak oil promoters. The more alarmist of these people claim that oil production peaked sometime in the past few years, and that helps explain the triple-digit prices that occurred last year. But blaming peak oil for the price spike requires two rather extraordinary beliefs. One is that the May 2005 peak in crude-plus-condensate production is irreversible, even though such peaks have occurred in the past. The other is that last years 3-million-barrel-per-day reduction in OPEC production was due to a decline in OPEC capacity that just coincidentally happened as prices were collapsing and OPEC reduced quotas by 3.5 MMbbl/d.
The recent round of warnings began in the 1990s, when some geologists used so-called Hubbert curves to estimate resources and predict production around the world. This resembles the fallacy many economists fall prey to, namely believing the model over reality. Hubbert curves are not the norm in the real world, nor have they successfully predicted production except in rare cases. In 1980, Hubbert himself used the curve to estimate remaining US gas resources at 270 to 400 trillion cubic feet; US gas production since 1980 has totaled 500 Tcf, and gas reserves have increased.
Most (but not all) peak oil advocates have abandoned this theory, along with the corollary that a peak in production represents the point at which half of the resource has been produced. Since many countries have had multiple peaks, this is obviously false. Instead, these analysts rely on estimates of resources using creaming curves, made up of discovered fields by size, which tend to flatten out as an area is depleted.
Unfortunately, in doing so, two shortcomings have been ignored. First, field size estimates are not fixed, but tend to grow over time as better recovery methods are applied and new investment adds to oil-in-place. Peak oil advocates argue that new methods do not improve recovery, pointing to occasional field examples to support their claim, despite the overwhelming evidence to the contrary. Again, reality trumps models.
Additionally, creaming curves are only reliable if there are no serious constraints on drilling. Witness the interpretation (by Jean Laherrere) of the sharp drop-off in field size in the Middle East as evidence of resource scarcity in the region, when in fact it merely represents the shift in drilling after 1980 from the major countries (Iran, Iraq, etc.) to Oman, Syria and Yemen. Policy, not geology, is the explanation.
Finally, there are the recent efforts to predict production by categorizing fields and/or countries into rising, plateau or declining categories. Like other efforts, this ignores all variables (politics, economics, infrastructure, technology) in favor of a time-element, presumed to represent geology. Again, this flies in the face of the historical data, where many countries have seen production decline, only to recover upon tax reduction, the welcoming of new foreign investment, or by the simple expedient of investing more money
The operative word underlying the entire article. This article isn't about another "Peak Oil" prediction.
I've come to believe that we'll never run out of crude oil, anyway. Search on "abiotic oil" and get an education in why we'll never run out of the stuff.
Hint: the dino-genesis oil theory is provably flawed.
Just thinking outside the box a little, it’s kind of like we use up the lower cost foreign known reserves vs our, about same priced, reserves. Thus, if anything did happen, and say the sea lanes, with right now a supertanker of oil every hour are compromised, we’d be in fairly good shape. Kind of turning the whole nation into a Tea Pot Dome reserve.
( but, I doubt it. Never the less, it is the fact, that the present main obstical is a vote by Congress and a President signiture. What would that take, a day if need be? )
Most of our continental shelf is virtually unexplored for oil and gas. For decades, as the technology for low ‘environmental impact’ drilling in offshore and sensitive environments has advanced by leaps and bounds, the prohibitions on drilling in these areas have increased, and not been eased.
Environmentalist ravings about Navy SONAR exercises show that geophysical surveys (which involve bouncing intense sound waves off subsurface—meaning below the surface of the ocean floor, not the water—strata boundaries) will likely be prohibited from any part of the shelf where whales have been seen.
Add in the over 50% of the US west of the Mississippi River in Government hands, much of which the oil industry is not permitted to look at, and when leases are let, they are subject to being revoked (which does not inspire confidence in the Government as a business associate) or require prohibitively expensive surveys and amenities in order to drill.
Areas designated “wilderness” or ‘National Monument’ are proscribed ‘forever’, and the area from which we may draw our own resources is thus artificially limited by proclamation.
Is the oil there? (as in does it exist?): Entirely likely, but we can't say so if we haven't been allowed to find it. The geological situation is favorable, but the only way to have confirmed reserves is to drill a well.
NIMBY plays a part as offshore areas are prohibited because someone might see an oil rig in the distance, and a host of concerns are raised which are far more hype than not.
So Americans stand on the beach while Cuban offshore leases get drilled, and and while Governments unfriendly to the US are increasing their hegemony over areas which have established production or good potential.
No, I don't think we have reached peak oil, unless that peak is an artificial construct. I think there is a lot more out there and we are constantly developing the technological capabilities to produce an even greater fraction of what is present.
For now, I think the limiting factors are governmental, and not a question of whether there is more oil present.
I doubt we’ll ever know. Even operators of long term, 50 year, oil fields don’t know what they have. The have estimates, projections, all heavily qualified.
If everyone in the country was a doctoral oil geologist, or like that, we still wouldn’t know.
Guys i realise that both sides on the peak oil debate have pretty fierce beliefs - and even though i do believe peak oil is something we should prepare for i centainly don’t think the sky will fall. I actually think the article gives a pretty good analysis of the situation and who the winners and losers will be.
The amount of oil is unknown. Period.
Peak oil is the Global Warming for oil.
Their data is junk. Let’s put aside, even if we knew to the gallon, the worlds amount of oil. We don’t know production. A significant amount of oil is extracted by regimes, families, organizations that are secretive, disorganized, hiding to others inside and outside their own organizations and countries. If you don’t think there is massive oil cheating of partners, of bosses, of the ever loved public, then you are crazy. Is this everywhere? No. But how about most of the middle east, through Russia and down to Indonesia, through Africa and South America?
So, we don’t know production rates. We don’t know refining rates. We don’t know consumption rates. Not world wide.
Well, hows that Peak Oil formula working? We don’t, in any way at all, the world reserves at ANY price level. In other words, there might well be still massive amounts of oil..out in the world at lower cost that the average cost is now. We. Just Don’t Know.
We don’t even know know the generation of oil.
So, we don’t know the reserves. We don’t know even know the error rate of what we guesstimate is the extraction rate. And yet we have authoritative palaver about something sexily called Peak Oil.
Yet, like the fraud of Global Warming, we are supposed to have, forever, burdens placed upon us for a notion, unsupported by data.
Who would go along with such a thing?
We have real problems. We don’t have unlimited resources. We should use what we have to tackle real problems, if in fact they are a problem.
I always point out that the two largest suppliers of oil to the United States are Mexico and Canada. Does anyone really believe that in light of that fact, that there are no recoverable reserves in America?
Just as you point out, they are massive. Not only that but the bans on exploration actually increase pollution and environmental damage because the extractions just take place in countries where there is no deference to problems such as pollution.
Mexico better get their act together or they will be importing oil. From what I've read Pemex is so corrupt and their infrastructure out of date that they will end up not having the revenues to sustain itself.
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