Peak Oil- what it is and how it will impact your life

Discussion in 'Peak Oil' started by Minuteman, Aug 4, 2005.

  1. monkeyman

    monkeyman Monkey+++ Moderator Emeritus Founding Member

    Well KC has no mass transit to speak of. I dont think there is another city out there of similar size with as little mass transit as KC has. All there is is the bus and it dosnt run to the burbs for the most part other than about 1 or 2 limited routs in the morning and 1 or 2 in the evening. Even in the heart of KC the buses dont run enouph to be an efective way to get around. I know when I lived there and was without a car I found quickly that I could get across town a lot quicker and more reliably on a pedal bike than I could by bus. At one point I lived about 5 miles or so from work and if I took the bus I had to make at least 1 transfer and with their schedules it took over an hour to get to work, I could bike it in about 20 min. Then if you work second or third shift you can just forget about the bus all together.

    Ok rant off.
  2. melbo

    melbo Hunter Gatherer Administrator Founding Member

    ANyone see that CNN special last night? "We were Warned" or something like that.
    I recorded it and went to make some copies onDVD today and erased it... :(
  3. ghrit

    ghrit Bad company Administrator Founding Member

    $2.519 for 87 octane today. My raise this year won't cover a year of that. ;)
  4. RightHand

    RightHand Maslow's Contradiction Moderator Founding Member

    We went from $2.30 to $2.60 in a week.
  5. prepareordie

    prepareordie Monkey+++

    A Different View on Peak Oil

    I don't follow the Peak Oil debate that much but after reading all the posts here I thought I would sir the pot a little and present a different point of view from an investment writer I follow. Regards, Prepareordie

    The Bottomless Well
    by John Mauldin
    March 24, 2006

    Today we begin what will be an intermittent series on oil and energy. Each and every year there is a need for more and more energy of all kinds. The one thing we can say with confidence is that energy demand and usage in the next 20 years is going to increase dramatically as more than half the world aspires to middle class (and more!) life styles, which will put huge demands on our energy resources. Will oil production slow down and then peak in the future? Quick answer: yes. Will we run out of energy? Quick answer: no. But that implies a shift in how we currently produce and use energy.

    I have been doing a lot of research for my next book on how the next 20 years will unfold. A lot of it is very exciting, but it is not always good news, as there are issues we are going to have to confront as a world society. Biotech, nanotech, demographics, globalization, the next wave of communications technologies, robotics, healthcare will all cause major changes in the world of the future. And none of the above is more controversial than energy. The variety of opinions on how the future will play out in terms of energy is amazingly wide.

    There are those like James Howard Kunstler, author of The Long Emergency," who predict the end of civilization as we know it. It is not just that we will run out of oil, but that the wars and climate change will undermine the very foundations of human society. He literally suggests you would be better off teaching your children to learn to hitch up a wagon than sending them to school to become a public relations executive. Remove sharp objects from the room if you read his book.

    In later letters we will deal with the concept of peak oil. And we will come to that end, as the amount of oil we can produce in any one given year will one day hit the wall. Slowly the amount of oil we pump will be less each year, forcing large changes in where we capture and how we distribute energy. But it will not be a catastrophic event, just as the change from wood to coal or from whale oil to Kerosene was not the end of the world. It simply changed how we captured energy.

    I want to call your attention to a remarkable book by Peter Huber and Mark P. Mills called "The Bottomless Well." It is provocatively sub-titled "The Twilight of Fuel, the Virtue of Waste, and Why We Will Never Run Out of Energy." Huber and Mills take a very hard look at the way we normally think about energy and turn conventional thinking on its head. I highly recommend it. (

    In the book they propose what they call seven great energy heresies. Let me list them and then comment on them at leisure.

    The cost of energy as we use it has less and less to do with the cost of fuel. Increasingly, it depends instead on the cost of the hardware we use to refine and process the fuel. Thus, we are now witnessing the twilight of fuel.

    "Waste" is virtuous. We use up most of our energy refining energy itself, and dumping waste energy in the process. The more such wasteful refining we do, the better things get all around. All this waste lets us do more life-affirming things better, more cleanly, and more safely.

    The more efficient our technology, the more energy we consume. More efficient technology lets more people do more, and do it faster - and more/more/faster invariably swamps all the efficiency gains. New uses for more efficient technologies multiply faster than the old ones get improved. To curb energy consumption, you have to lower efficiency, not raise it.

    The competitive advantage in manufacturing is now swinging decisively back toward the United States. Steam engines launched the first industrial revolution in 1774; internal combustion engines and electric generators kicked off the second in 1876 and 1882. The third, set in motion by two American inventors in 1982, is now propelling the productivity of American labor far out ahead of the competition in Europe and Asia.

    Human demand for energy is insatiable. We will never stop craving more, nor should we ever wish to. Life is energy in unceasing pursuit of order, and in tireless battle against the forces of dispersion and decay.

    The raw fuels are not running out. The faster we extract and burn them, the faster we find still more. Whatever it is that we so restlessly seek - and it isn't in fact "energy" - we will never run out. Energy supplies are infinite.

    America's relentless pursuit of high-grade energy does not add chaos to the global environment. If energy policies similar to ours can be implemented worldwide, our grandchildren will inhabit a planet with less pollution, a more stable biosphere, and better-balanced carbon books than at any time since the rise of agriculture some five thousand years ago.

    A Quad Here, A Quad There

    They use a measure of energy they call a Quad or 100 quadrillion British Thermal Units. In the US we use about 100 Quads of energy a year: 40 to produce electricity, 30 to fuel our cars and another 30 to generate heat in one form or another. That is up from 7 Quads in 1910 and 35 Quads in 1950, and it is rising every year as we bring on more and more energy demanding products.

    In fact, much of our new technology is inherently energy greedy. Our computers are on day and night. A simple desktop unit "consumes 10 to 100 watts even when it's idle - and considerably more when it's working and connected to a large monitor, printers..." Your broadband connection runs 15 watts, you PDA cradle runs from 2 watts when it's empty to 12 watts when charging. Your TV consumes even larger amounts to be ready to go to "instant on." I mean, who wants to wait a half a minute for a TV to warm up? That was so 1960s!

    This demand for energy will send fuel costs rising. We have seen how the price of coal, oil and uranium has risen in just the past few years. But it is not as big an issue (in the grand scheme of things) as the doom and gloom crowd think it is.

    "Oil is largely out of the electricity side of the picture, because it generates about 5 percent of U.S. electric power. Electricity prices aren't strongly tied to the price of coal or uranium either, which together generated 75 percent, because most of the cost of power lies in the power plant and the distribution system - in capital and logic, not in combustible chemicals or fissile atoms. All in all, raw fuel accounts for over half of the delivered cost of electricity generated in gas-fired turbines, about one-third of coal fired power, a tenth of nuclear electricity, and none of the cost of hydroelectric and solar power."

    Further, taxes can be as much as 80% of the cost of electricity, depending upon which state you live in, and certainly impact the price of gasoline. In many parts of the world, taxes are more than half the cost of gasoline, and yet German Greens want to increase them even more, to where the average German family would only take a driving vacation every five years.

    Of course, it takes a lot of energy to get this fuel to a usable form. But that is already the case. "Energy consumes itself at every stage of its own production and conversion. Only about 2% of the energy that starts out in an oil pool two miles under the Gulf of Mexico ends up propelling two hundred pounds of mom-and-the-kids two miles to a soccer field."

    Most of the raw power of the fuel we burn is given off as waste heat. We purposely waste energy so we can get what is left over into a form where it can be used. Much of the energy in a car engine is given off as heat. How much do we "waste" heating and cooling our houses?

    As we will see in a few paragraphs, we are not going to run out of coal or uranium or other sources of energy. But what about oil? How, Kunstler asks, will we run our cars without oil? And current logic and technology suggests he may have a point. Can we really afford to pay $10 per gallon for gas as supplies dwindle and the demand for oil increases world-wide? But it is not current technology that will solve the problems. It is technology that is still on the drawing boards.

    But even with cool new technologies, oil prices will go up. But $100 per barrel of oil is not the energy problem. It is the solution. When oil gets priced sufficiently high it will enable alternative sources to emerge and become widely used. Is that point at $100 a barrel or $150? No one can say for certain, other than that transformation will happen. Humanity will not go back to horse and buggy as Kunstler predicts.

    As an example, the Human Genome Project was started in 1989. It was slated to cost hundreds of millions. Critics called it a huge waste of money, as it would take over a thousand years to map the human genome. And at the speed of then current technology, they were right! But by the mid-90's, technology had improved and almost 5% of the genome had been deciphered. Good progress, but nowhere near a finish line.

    But in 1998 or so, Craig Ventner and Celera started an independent project using different and faster technologies. By the end of 1999, they had done about a third of the genome. By 2003, the project had been finished by both the public consortium and private company.

    Today, the parts of a DNA synthesizer can be purchased for $10,000. Rob Carlson speculates that by 2010 a single person will be able to sequence or synthesize tens of millions of sequence bases a day. Within a decade a single person could sequence or synthesize all the DNA describing all the people on the planet many times over in an 8 hour day, or sequence his own DNA in seconds. Technology clearly improved the speed and cost of the process.

    And we will see just as radical a transformation of our energy use. We will see the car become an electric car. Not because we are running out of oil, but because it makes sense to do so. And by becoming more efficient, the paradox is that we will use more energy, not less! The car "engine" will become an electric generator. Initially it will probably be some form of internal combustion or diesel engine, but over time that will change. Let's look at a few paragraphs from The Bottomless Well:

    "Electricity is also taking over the power train in transportation - not the engine itself, but the system that moves power throughout the car. Diesel-electric locomotives and many of the monster trucks used in mining have already made the leap to electric drive trains; the oil fired combustion engine is still there, but now it's just an on-board electric generator that propels nothing but electrons. The transition to the hybrid electric car will be completed over the next two decades as well. During this same period, electric power trains will supersede steel shafts, belts, pulleys, and hydraulic systems in factories....

    "Silicon-controlled electric actuators are now set to displace the steel camshaft on every valved engine. Put each valve under precise, direct, digital-electric control, actuated independently by its own compact electric motor - open and close each valve as dictated by current engine temperature, terrain, load, and countless other variables - and in effect, you continuously retune the engine for peak performance. Belts, shafts, and chains melt away. Everything shrinks, everything gets lighter, and every aspect of performance improves - dramatically.

    "The last step in this evolution will be the largest: silicon and electric power will knock out the entire gear box, drive shaft, differential, and related hardware - all of which disappear when direct electric drives end up turning the wheels. .... power chips now make it possible to build high-power motors the size of a coffee can, and prices are dropping fast.

    "When such motors finally begin driving the wheels, the entire output of the engine - anywhere from 20 kW to 100kW as measured now in standard electrical units of power - will have to be converted immediately into electricity before it is distributed, used, or stored throughout the car. It will take heavy-duty wiring and substantial silicon drives and electric motors to propel a hybrid-electric SUV down a highway at 70 mph - but they'll be far smaller than steel structures in today's power train. Cars will shed many hundreds of pounds, and every key aspect of performance will improve considerably.

    "A far-fetched scenario? General Electric's 6,000 horsepower diesel-electric AC6000CW locomotive is powered by an enormous diesel-fueled engine-driven generator; everything beyond is electric. Komatsu's 930E- a monster mining truck with 300 ton capacity - is propelled by a megawatt (MW) Detroit diesel-electric generator. Everything else, right down to the 12 foot-wheels, is driven electrically. All-electric drives already control fighter jets and submarines. The surface ships now on the Navy's drawing boards are all-electric, from the propeller to the guns."

    Electric motors are getting smaller and more powerful with each passing year. This will happen sooner than most realize. When you car is powered by a fully electric power train, the car will look like one big moving electrical appliance. Huber and Mills wrote:

    "Given where battery technology is today, this appliance won't be able to run any great distances on batteries alone, but it will nevertheless have to have a substantial battery pack on board to provide surges of current when needed. This creates, from the get-go, the possibility of at least some opportunistic 'refueling' of the car from the [electric power] grid..." We plug our car in at nights and at work, using cheaper grid power.

    But current battery technology is not what will be in place in 10 or 20 years. The ever elusive fuel cell is becoming more and more of a reality. Other new technologies are still in the labs.

    While I cannot talk in detail, two weeks ago I was in a major university research center with a well known venture capital fund manager, who politely invited me to sit in with him as this university's researchers described some of their latest gee-whiz discoveries.

    The one which really caught my eye was a totally new substance to store energy. They could make one gram of this substance store as much energy as we now store in well over 400 grams of battery. Of course, this was in a lab, with no real production. There will be lots of problems and issues to overcome. But it is now a chemical engineering problem and not a theoretical problem. Engineering is something we're good at. Some company (or companies) will figure out how to exploit this and bring it to the marketplace. Or maybe improve the concept!

    Whether it is this technology or any of dozens being worked on in labs all over the world, battery technology and the application of power for transportation is going to be different in 2027 (not to mention 2017!) than it is today.

    The Paradox of Efficiency

    So, the car gets more efficient. Power plants get more efficient. But that does not mean we use less energy!

    "Two centuries ago, no engine could surpass 10 percent efficiency. By raising boiler temperatures and pressures, engineers pushed performance to about 20 percent efficiency by the turn of the twentieth century. By mid-century, they were up to about 40 percent. Today, the best thermal plants routinely hit 50 percent efficiency.

    "Efficiency gains this large ought to have had a dramatic impact on supply and demand - and they did. The price of transportation and electricity fell steadily. And the total amount of fuel consumed in those sectors rose apace. Efficiency may curtail demand in the short term, for the specific task at hand. But its long-term impact is just the opposite. When steam-powered plants, jet-turbines, car engines, light bulbs, electric motors, air conditioners, and computers were much less efficient than today, they also consumed much less energy. The more efficient they grew, the more of them we built, and the more we used them - and the more energy they consumed overall. Per unit of energy used, the United States produces more than twice as much GDP today as it did in 1950 - and total energy consumption in the Unites States has also risen three-fold."

    But how can we continue to consume even more energy? What if China and India and the rests of Asia start to consume as much energy per capita as the US? How can the world survive? Where do we get the fuel?

    Huber and Mills offer this great quote in a footnote. In 1886, J.P. Lesley, the state geologist of Pennsylvania, declared: "I take this opportunity to express my opinion in the strongest terms, that the amazing exhibition of oil which has characterized the last twenty, and will probably characterize the next ten or twenty years, is nevertheless, not only geologically but historically, a temporary and vanishing phenomenon - one which young men will live to see come to its natural end." Quoted in P. Giddens, Oil Pioneer of the Middle West(Standard Oil Company, 1955)

    There is plenty of energy; it is just the price and the means of transport that are the issue:

    "Today... humanity consumes 345 Quads per year of fossil fuel - which is widely supposed to be a huge amount of energy. Thus, the inevitable exhaustion of fossil fuels has been vehemently predicted since the 1970's, and somewhat less vehemently since at least the 1880's - just as the inevitable exhaustion of food has been predicted since the 1790's, the time of Malthus. But all such predictions center on what today's technology, driven by today's forms of power, makes reasonably accessible.

    "No one seriously disputes that with better technology, and better power, we could retrieve far more. We already know where to find centuries' worth of coal - global deposits hold 200,000 Quads. Oil shale deposits hold 10 million Quad; heavy oils are already being extracted by brute thermal force from the Canadian Athabasca deposits, and bio-engineered bacteria could make the Earth's vast deposits of these oils economically accessible everywhere within a decade or less. Even more abundant is the energy locked up within uranium and other radioactive elements. The world's oceans contain over 10 trillion Quads' worth of deuterium, a fuel that we will in due course learn to unlock through nuclear fusion."

    Fusion? Deuterium? Sounds Sci-fi, right? But an international consortium of various groups just committed $10 billion to a fusion research project in France, with the goal of a working reactor in ten years. Let me make a side bet: some private group or lab will figure this one out before they do, just like the human genome project. But no matter who does it, we will get plenty of cheap power.

    And we may find even new and better ways to produce fuel. Right now, ethanol and hydrogen are expensive to make. But what if there were a better way? Remember Craig Ventner, who started Celera and blew past the government consortium on the human genome project?

    He has taken his fortune made in Celera and is going to create an artificial life form. We have been able to splice genes into a cell or bacteria for three decades. Venter intends to start from scratch, creating his own entirely new life form. He expects to succeed in a few years.

    When he (or the many who are in competition with him) succeeds, we will have a building block to start adding new functionalities. Venter imagines a bacteria that would chew up cellulose and turn it into ethanol. Another could turn sunlight into hydrogen. The list is endless.

    Will he succeed? Who knows? The world is not dependent upon whether he does or not, but I wish him God's speed. Someone, or some group, in the hundreds of thousands of labs and garages all over the world will find new and exciting ways to harness energy. When I was last in London, I met with a very astute gentleman who was the "angel" investor for a new technology in Sweden that is a process to regulate valves and fuel in a regular internal combustion engine. The claim is that this simple device (computer driven! More electricity needed!) improves fuel efficiency by 20% or so and reduces pollution. Saab engineers evidently think it is the real thing. Developed by a team of powerful trained mechanical engineers? No, just a one man band literally working in his garage.

    Will it ever get on your car? Who knows? The point is that there a hundreds of thousands of people and labs all over the world working on solutions to problems. It is a race, but history suggests inventors will win.

    Of course, on the way to this new world, the price of oil will rise. We will need more of it before we need less. As we will see in later letters, there is an investable trend here. Commodity and energy plays are going to be with us for some time. But let's not bet on the end of the world just yet.

    John Mauldin

    Thoughts from the Frontline
    1000 North Ballpark Way, Suite 216
    Arlington, TX
  6. monkeyman

    monkeyman Monkey+++ Moderator Emeritus Founding Member

    Some interesting points and hopefuly he is right but IMHO the one potential stumbleing block is that it is a race. If the inventors get the technoligies that can replace the oil or say triple or more the energy/work we get from a given unit of oil and get it in the hands of the public before the bottom falls out of oil production then his view will come true. On the other hand if the bottom falls out of oil say at the same time or a couple of months before they complete the design and figure out it will work for the next reinvention of the wheel turner from the beast of burden to the steam engin to the internal combustion engin to the ********, then it becomes a mute point since if we dont have the current technologies and energy to fuel the production of the next thing then its like being in the middle of the dessert with a car that has a full tank of gas and the transmission is out and you have a brand new one to slap on and be good to go but you have no tools but your bare hands to do it with, you get to go all the way back to walking even though you have all the means there to drive because you dont have the tools to make it useable. Then say there is a large group there with a fleet of cars all in the same condition, if you have themeans to get one rolling it can bring back the tools to fix them all but you still have to get the tools and may have the fall down time in the mean time and if there are no tools then the cars a new parts to fix them all are worthless. Fossil fules are the tool we have to have to get the next thing going and if it takes longe enouph for the next thing to get ready to go that the tools to get it to the public are gone then there is nothing to continue the reserch or production since we are all to busy trying to feed and shelter ourselves to worry about it and the version of the horse and buggy comes true.

    So both sides are totaly viable possibilities and simply the versions of what will happen depending on the order of events and spaceing in time. At least thats MHO.
  7. ghrit

    ghrit Bad company Administrator Founding Member

    I fundamentally believe that peak oil has or will occur soon, but I also believe technology will overcome the astronomically increased price of production. Continued use of fossil fuels cannot be stopped, but the mix can be altered, and the demand for a given form be forced down to an equilibrium with the other sources in the mix. Simple economics will do that for us; when the price of oil sourced energy rises high enough to make other sources competitive, demand for the other sources will rise (and actually reduce the cost of the alternates as supply scales up.) Plentiful oil has held developement of alternates in check, it simply isn't worth the money and time.

    There will be peak coal, too, in say 300 years.

    There will be no peak nuclear, because we have the technology NOW to produce more nuclear fuel than we "burn" up. Yes, the uranium supply is finite. Yes there may be a peak uranium, but the ability to irradiate other materials and turn them into fissle stock is a known quantity. (FWIW, the French routinely do it in their commercial plants.) Not cheap, either, but fissile matrerials are a product of some reactions, and the process can be enhanced easily in commercial reactors. We have the physics, we have the engineering all in place. But NOT the politics, the economics has not overcome that roadblock. And, as usual, we will be taking a dump in our own mess kits if we are not careful. (Speaking here of nuclear wastes.)

    Mauldin comes to some right conclusions, but his logic is flawed when he says that increased demand will cause price to drop. The end result is pretty close to the same when correct logic is applied, but his essay has some smoke and mirrors in it. Either that, or he is wearing a tin hat. Maybe both. In any case, his blind faith in technological discoveries is touching, but true enough.

    Kunsler is a doom saying hand wringing sky is falling prophet that refuses to reconcile simple economics when he stirs things up. His forecasts are (perhaps) accurate based on a set of questionable precepts, and he does not allow for diligent research and the occasional bit of serendipity. Mauldin does, and sees things in development that may or may not hold the keys to future energy supplies. It isn't magic, this business of research, a lot of paths go nowhere before finding the the one that works. Vulcanization of rubber is one that was accidental, so was the discovery of x-rays, and where would we be without them as starting points for more research? Without good tires, without MRI machines, I'd say, though chances are both would have been discovered sooner than later anyhow. The transistor was not an accident, it was the result of long hard hours in the lab, as are most of the things we take for granted. Fuel cells are in their infancy, and the R&D continues.

    So much for a Sunday morning essay. [gone]
  8. prepareordie

    prepareordie Monkey+++

    Is Venezuela running short of Oil?

    Interesting article from - a site devoted to providing info on the oil and gas industry.

    Venezuela Buys Oil to Meet Contracts
    Dr. Joe Duarte Tuesday, May 02, 2006

    A Sudden Plunge In Production?
    Is Venezuela's oil production rapidly waning? One source reports that the world's fifth largest oil producer is showing signs of a rapid decrease in production, one of the key tenets of the peak oil theory.

    Venezuela is buying oil from Russia in order to avoid defaulting on deliveries to clients. The situation raises serious questions about the country's oil production and the future of PDVSA as a major oil producer, and increases the risk to the U.S. oil supply should the country's oil production suddenly plummet.

    According to the Financial Times: "Venezuela, the world's fifth-largest oil exporter, has struck a $2bn deal to buy about 100,000 barrels a day of crude oil from Russia until the end of the year. Venezuela has been forced to turn to an outside source to avoid defaulting on contracts with "clients" and "third parties" as it faces a shortfall in production, according to a person familiar with the deal. Venezuela could incur penalties if it fails to meet its supply contracts."
    The news has so far been very much inside baseball, as it has not made the mainstream, due to competition from more sensational stories such as the illegal alien marches, and the media's obsession with oil company profits.

    But, as these things go, we may be on the verge of a major developing story.

    Are There More Irregularities Hidden Inside PDVSA?

    PDVSA is a center of financial and political intrigue, as it is the hub of Mr. Chavez' political ambitions. The Venezuelan government uses the proceeds from oil sales to finance Chavez' Bolivarian revolution, in essence the spread of the hybrid Socialism espoused by Chavez and Fidel Castro.

    Yet, despite the secrecy, over the last few years numerous questions have been raised, not just about PDVSA's actual oil reserves and production capacity, but also about PDVSA's finances.

    In 2005, we wrote about "Venezuela's oil receipts," and the significant questions being raised, including a "shortfall in PDVSA cash deposits to Venezuela's central bank" of "perhaps by as much as $2 billion."

    The trail of that story grew cold, but the questions did not. In fact, little has changed. In 2005, we reported that the alleged shortfall was "not totally verifiable, since PDVSA has not filed papers with the SEC in at least two years."

    Indeed, no one really knows what PDVSA's books really hold. As we reported recently, Venezuela is no longer going to report PDVSA's finances to the U.S. Securities and Exchange Commission.

    The Times article confirms several points we made in May 2005 in our article, titled "Running on empty."

    In the article we noted: [" estimates that since Chavez became president, starting in 1998, "PDVSA has lost about 1.5 million bpd of its net crude oil production." The main reasons have been the replacement of capable engineers and workers who disagreed with Chavez's revolutionary views, with inexperienced, and in many cases incapable replacements, and the lack of attention to infrastructure maintenance and improvement. The result of the bad management and neglect, has been the steady erosion and near incapacitation of a major oil-producing region of Venezuela, the Western portion of the country, where as many as 10,000 wells have been estimated to have been rendered mostly useless. Venezuela is nominally the world's fifth largest oil producer."]

    One year later, the Times reports: "The move suggests a growing gap between Venezuela's declining domestic output and its expanding contractual obligations to international customers."

    According to the Times quoting "Under President Hugo Chávez, PDVSA's oil output has declined by about 60 per cent, a trend analysts say has accelerated in the past year because of poor technical management."

    In our article Marketwatch article we suggested that Venezuela had a "potential inability to meet delivery of its oil contracts." Now, the Financial Times notes that "Mr Chávez's push to extend his influence throughout Latin America and the Caribbean with promises of cheap oil for friends and allies may be overstretching PDVSA's finances."

    In that article we asked: "If Chavez' own oil production is only 50% of what it is supposed to be, where is all the money going to come from to pay for all his revolutionary adventures?"

    Two possibilities came to mind:

    1. "First, is a massive asset liquidation, including U.S. bonds, and U.S. dollars."

    2. "Second, is the specter of a Yukos-like nationalization of foreign oil company assets in Venezuela. Such a debacle would have huge ramifications across the oil industry, and could further increase the market's volatility, as it would put a big chill on global oil production and investment everywhere and increase the worry factor for international companies and the financial markets."

    Interestingly, our predictions have already come partially true, since Venezuela has recently tightened the screws on foreign oil companies, renegotiating royalty contracts and raising taxes, prompting Exxon Mobil to essentially give up on its Venezuelan stakes, while others have reluctantly gone along.


    The Venezuela oil purchase report is indeed landmark in our opinion, since it offers multiple possible lines of thought, not the least of which is the possibility that it is a sign of the peak oil phenomenon.

    To be sure, Venezuela's government is increasingly adroit in the financial markets, as Mr. Chavez has reportedly shown interest in using PDVSA and his government in ways similar to hedge funds, by timing markets and moving assets rapidly from one arena to the other.

    Thus, this could be a shrewd business move aimed at cutting transportation costs to some of PDVSA's clients.

    That seems to be the party line. According to the Financial Times: "PDVSA would not confirm that it was buying oil from Russia but said a statement would be issued on Friday (April 28). The company said it would be "logical" that the Ruhr refinery was sourcing some of its oil from Russia because it would be cheaper than transporting it from Venezuela."

    Yet, the other side of the coin, which must be given a fair airing, is that Venezuela's oil production is rapidly dwindling, or that at least Chavez' gifts to Cuba and other left leaning South American countries, in the form of hundreds of thousands of barrels of oil, are starting to take their toll.

    If indeed some 10,000 wells are off line, and Venezuela's technical expertise is near rock bottom, then the latter is more likely.

    Somewhere in the midst of those two extremes is the truth. Unfortunately for the oil markets, and perhaps the global economy, we are not likely to find that truth until it is upon us, or more likely, until it has been in progress for months to years.

    One thing is certain, though. If PDVSA, and Venezuela are running out of oil, the news will eventually leak out, and the situation will gather steam, with significant consequences to follow.

    Dr. Joe Duarte's Market IQ appears daily at Joe Duarte. Dr. Duarte is author of the book "Futures And Options For Dummies," which is available at the Rigzone Book Store
  9. ColtCarbine

    ColtCarbine The Plumber Founding Member


    Excuse me while I read along with all, thanks [camo]
  10. Quigley_Sharps

    Quigley_Sharps The Badministrator Administrator Founding Member

  11. monkeyman

    monkeyman Monkey+++ Moderator Emeritus Founding Member

    Wheres Minuteman? I would be interested in his take on this.
  12. Minuteman

    Minuteman Chaplain Moderator Founding Member

    There has been quite a lot of activity in the "Peak Oil" world since I last posted here. This article is old news now. Other countries have been showing similar down trends in production.

    There has been in the last year a frenzy of mergers and buy outs of oil and gas producers. These companies are scrambling to maintain thier production levels.A lot of the big international companies are buying back into the domestic market.

    A couple of observations;

    1) It is amusing to me to see these news commentators reporting how the price of oil is dropping and how it is great news. We are down to $65 a barrel and around $2.65 a gallon for gas. This time last year it was dire news that oil had topped $50 a barrel and gas had gone up to over $2 a gallon.

    2) The news of this "major" find in the Gulf Of Mexico has made banner headlines and according to the talking heads is going to reduce our dependence on foriegn oil by half. While it is a significant find you have to look at the big picture. We have known for years that there is significant oil deposits in the deep gulf. But, until the recent rise in oil prices it hasn't been economically feasable to drill for it. And it won't be feasable to produce unless the price stays up or goes higher.

    It is the same thing as the "Oil Sands" in Canada, or the "Oil Shale" in the rocky Mountains. It is there, and there is lots of it. But, it is there because it has not been profitable to produce it. Not untill Oil topped $50 a barrel has any of these resources even been considered. And the last two are still not profitable at $50 a barrel. Oil prices and ergo gasoline prices will have to go up much higher to make these sources anywhere near to being an economically feasable endeavor.

    Always remember this, We are not running out of oil, we are running out of cheap oil.There is a lot of oil reserves left in the world, but, it is increasingly harder to reach and of a much lesser quality thus more expensive to obtain and to produce.

    As a side note, I have been getting a lot of responses from folks who say "I remember you telling me about this oil stuff a couple of years ago". They are seeing a lot of the things that I and others have been warning about for years and they are finally starting to take notice.
    They are not falling for the "It's a temporary spike, and things will get back to normal" line. Everyone is wanting to know "What's next?". I will comment on that later, but to sum it up; Remember these days, because in a few years we will be looking back fondly on the $2.65 a gallon days.
  13. Minuteman

    Minuteman Chaplain Moderator Founding Member

    I just came across this article.

    Sept. 9, 2006, 6:48PM
    Oil find unlikely to bring back cheap gasoline

    Recent test shows big potential in Gulf of Mexico, but demand is growing strongly

    Copyright 2006 Houston Chronicle
    News of a successful test in a potentially huge oil field in the Gulf of Mexico last week may have led some Americans to stop planning for hybrids and go back to dreaming about owning gas guzzlers.

    Chevron and Devon Energy's success with the Jack 2 project some 270 miles offshore and five miles below sea level has been heralded as confirmation that the U.S. can continue to count on the Gulf of Mexico as a key source of energy.
    "Biggest find in a generation," touted one news headline. "Oil relief in sight?" another asked, while another predicted "Huge supply has potential to cut prices years from now."

    While validating the big discovery may bolster the view of the oil-supply optimists, even they don't predict a return to the days of cheap gasoline in a world where demand is growing so strongly.

    That includes Peter Jackson, co-author of a recent Cambridge Energy Research Associates report that predicts worldwide oil production capacity could grow as much as 25 percent in the next decade.

    He isn't letting his belief in plentiful future oil supplies change his auto purchase plans.
    "The next time I change my car, I will get one that's double the fuel-efficiency," he said.

    Last week Chevron and Devon Energy made public the results of an oil flow test conducted recently in an area that has long been suspected of holding good oil and gas reserves.

    The region, in more than 5,000 feet of water and another 21,000 feet below the bottom of the sea, is an extension of the Wilcox formation that has been productive onshore in Texas and Louisiana. But no one knew if this deep-water region had the same potential.

    Once the companies proved that oil could flow at reasonably strong rates at such depths, it was seen as a green light by many companies with plans for similar deep-water projects.

    "I can't think of another play, particularly in North America, that has had this kind of scenario," with all the industry interest, said Steve Hadden, senior vice president of exploration and production at Devon Energy.

    'Just Drill Deeper'

    BusinessWeek concluded last week the successful test meant there was "Plenty of Oil — Just Drill Deeper," and the commentary said consumers could " ... tune out all the scare talk about peak oil for a while," referring to the idea that one day soon worldwide oil production will begin to decline.

    But the project, which the companies predict could match the U.S.'s largest oil field, in Prudhoe Bay, Alaska, will not counter the country's growing dependence on imported energy, say many other observers.

    "It strikes me that these announcements can be dangerous if they give people the idea that there is not a problem," said Kjell Aleklett, a professor at Uppsala University in Sweden and president of the Association for the Study of Peak Oil and Gas.
    Large discoveries, like Jack 2, represent about half of the world's oil reserves, but they are becoming increasingly rare, notes Paul Mann, a professor at the University of Texas' Institute for Geophysics.

    Using data dating to the 1860s, Mann and a number of colleagues have concluded that worldwide discoveries of oil and gas fields larger than 500 million barrels of oil equivalent peaked in the 1970s at 220 finds.

    Giant discoveries fell to 95 in the 1980s and 96 in the 1990s. They are expected to climb in this decade to about 109 because of increased exploration and production of nontraditional oil and gas reserves.

    "Despite the technological improvements, they are simply finding fewer giants," Mann said. "Some may say they just haven't looked hard enough yet, but I think it's hard to argue with those curves."
  14. Minuteman

    Minuteman Chaplain Moderator Founding Member

    I have been watching the news tonight and they have been reporting a statement made by the CEO of Saudi Aramco Oil Company.He says that we have only used 18% of the worlds oil supply and we have enough oil to last another 140 years.

    I'll comment on the credibility of this guy later,but first let just assume that he is correct.

    There is enough oil to last for 140 years at our present consumption rate. About 85 million barrels a day.But wait, experts say that oil consumption is rising faster than ever before. They predict that it will double by the end of the next decade. And double every decade after that. And many think that this is a very conservative prediction.

    So if we have enough to last 140 years at our current rate of consumption then by 2020 we would have only 70 years left and by 2030 only 35 years left and by 2040 only 17.5 years and bone dry before 2050.So really he is saying that we will be completely out of oil in about 40+ years.Not such a good thing after all.

    But who is he? He is the head of the largest oil company in the world. The oil company that is completely controled by the royal family of Saudi Arabia. The profits of which are the only thing that is keeping them in from being overthrown. The oil company that refuses to allow any independent review of thier claimed "Proven Reserves" of oil.

    I don't want to sound racist here but I have years of personal experience in this part of the world and I know how the Arab mindset works. Remember the Iraqi guy on CNN saying "There are no american forces in Baghdad" as the tanks were rolling in behind him? How about the national holiday in Egypt celebrating thier great victory in the war with Isreal. Or Saddam Hussien celebrating his victory over the US in the first Gulf war.

    So when I hear a Saudi saying that there is no such thing as oil depletion, I don't put much stock in it. And I certainly wouldn't consider it news worthy. Especially when I keep tabs on whats happening there and know that thier rig count has gone from less than 20 when I was there in the 90s to over 100 today and they want to have as many as 150 rigs drilling there by the end of this year. The wells that were free flowing in the 90s are now having to be forced to flow by injecting water and gas into the resevoirs.
    But there is no problem, what problem? I don't see no problem.
  15. Minuteman

    Minuteman Chaplain Moderator Founding Member

    This is copyied from an article on the first page of this thread. I posted this last year and it quotes and article from 2002. We have seen a lot of this prediction come to be this year.

    How will we know when the oil decline bites. People have made various predictions. The first is from the ASPO Newsletter of March 2002 (the ‘Nemesis Report’).

    Initially it will be denied. There will be much lying and obfuscation. Then prices will rise and demand will fall. The rich will outbid the poor for available supplies. The system will initially appear to rebalance. (this is happening now,but is only a temporary respiteMM)The dash for gas will become more frenzied. People will realise nuclear power stations take up to ten years to build. People will also realise wind, waves, solar and other renewables are all pretty marginal and take a lot of energy to construct. There will be a dash for more fuel-efficient vehicles and equipment. (large suv's and gas guzlers are having the worst drop in sales in years)The poor will not be able to afford the investment or the fuel.

    Exploration and exploitation of oil and gas will become completely frenzied. (the oil industry is drilling and producing oil at a pace that I haven't seen in my 30 year career MM)More and more countries will decide to reserve oil and later gas supplies for their own people.(Venzuela is the first,but not the last MM) Air quality will be ignored as coal production and consumption expand once more. Once the decline really gets under way, liquids production will fall relentlessly by 5%/year. Energy prices will rise remorselessly. Inflation will become endemic. Resource conflicts will break out.
  16. melbo

    melbo Hunter Gatherer Administrator Founding Member

  17. Minuteman

    Minuteman Chaplain Moderator Founding Member

  18. Minuteman

    Minuteman Chaplain Moderator Founding Member

    Many of us in the industry were taking this news with a grain of salt.It was obviously being hyped by the media.This article explains it very well. MM

    The Peak Oil Crisis: Hyping Jack No. 2

    By Tom Whipple

    Thursday, 14 September 2006

    The story broke the morning after Labor Day, when the Wall Street Journal ran a front-page piece reporting that Chevron along with two partners had announced the results of a major oil production test in the Gulf of Mexico. The partners Chevron, Statoil, and Devon Energy ran the test on a well known as Jack No. 2 that was drilled last year in the Lower Tertiary zone of the Gulf of Mexico. This zone is about 80 miles wide, 300 miles long and is located about 175 miles off shore. The well was unusual in that it went to a depth of 28,000 feet and the drilling began under 7,000 feet of water.

    Released details of the test noted that a number of technical breakthroughs had been achieved. By using the latest technology, Chevron was able to discern and drill into promising geological structures that had previously been hidden below a layer of sound-absorbing silt. The test, which achieved flow rates of 6,000 barrels per day (b/d), established that oil could be extracted at acceptable rates from very deep deposits. It also set several records for extracting oil under conditions of extreme pressures and temperatures.

    Although no formal estimate as to the size of this particular find was announced, background briefers spoke of the possibility that the zone could contain from 3 to 15 billion barrels of oil in scattered deposits. If this speculation were to prove true, it would put the Lower Tertiary in a class with Alaska’s Prudhoe Bay and increase domestic US oil reserves by 50 percent.

    The news of this great "discovery" naturally was replayed by nearly every newspaper and TV network in the country. Katie Couric ran a segment about the discovery on her first evening news show. Most reporting emphasized the possibility that the US might have found another 15 billion barrels of oil in its own backyard, but tempered the jubilation with the news that the find would have no immediate impact on gasoline prices.

    A few, mostly financial journalists, took the announcement as an opportunity to disparage the idea of imminent peak oil. These writers are aware that should world oil production go into decline within the next decade the world’s economy would be in a lot of trouble, not to mention the credibility of those who make a living by forecasting decades of growth ahead. Therefore, they eagerly accepted the dubious premise that this one test proves that plenty of oil can be found by drilling deeper so long as oil prices remain high enough to support the costs of ultra-deep oil production; advanced technology is used to the fullest; and environmental restrictions are lifted. Several pronounced peak oil a dead issue.

    As the week wore on however, knowledgeable geologists and petroleum engineers began to question all the euphoria. First they noted that the Jack No. 2 test was not conducted on a single oil field that might contain 15 billion barrels oil. Rather, it was one test of a well in a zone that extends for hundreds of miles under the Gulf of Mexico. Whatever producible oil the zone contains will likely be found in numerous smaller deposits.

    A number of wells have already been sunk in the Lower Tertiary. Some were dry holes and a few struck oil bearing rock, which may have the potential to produce oil profitably. So far, only a handful of these exploratory wells have struck deposits of light oil, which may be possible to produce. Others have struck thicker oils that may be impossible to extract from extreme depths at acceptable rates.

    What seems to be turning up in the deeper waters of the Gulf are a series of smaller oil fields — some of which may someday be profitable to produce and some of which probably won’t. Extrapolating this situation to a major new discovery that will delay the onset of peak oil is clearly a reach.

    To extract oil from 20,000 feet below the surface, where the pressures run to 20,000 pounds per square inch (psi) and the temperature of the oil is in the order of 200 degrees centigrade, is going to be a major technical challenge. Wells drilled to these depths will cost in the range of $100 million each. To drill and set in place the production equipment for one of these fields may cost on the order of $1.5 billion, or more, as the cost of oil production equipment is inflating rapidly.

    Add to this the problem of what to do with very hot oil and the associated natural gas as it comes flowing to the top of a well 7,000 feet under the Gulf and 175 miles from shore. The decision to attempt production from these ultra-deep fields will not be taken lightly by the oil companies involved.

    Although there are no geopolitical problems or nationalistic governments involved in producing oil from the Gulf of Mexico, the fields are right in its center — out where the Category 4 and 5 hurricanes really get wound up. On top of this there are questions of how much oil can be extracted from an ultra-deep field with extreme pressures. Although the recent test produced 6,000 barrels a day, for a month, a knowledgeable old geologist opined that he would like to see a test run for a year or more before committing billions to a whole new regime of oil production.

    Assuming that producing oil from the Lower Tertiary turns out to be economically and technically feasible, will new production from the region have anything to do with delaying peak oil? The answer is an emphatic NO.

    Knowledgeable observers who have commented on the issue agree that even if all goes well, it is unlikely that more than 300-500,000 b/d of production could come into production from all the possible fields in the Lower Tertiary over the next five to seven years. In the meantime, the world will have burned another 150 to 200 billion barrels of oil and US production from existing fields will decline from the current 5 million b/d to somewhere around 4 million b/d.

    This suggests that it will take some spectacular and unlikely gains from new production to offset the natural decline currently underway in the US. Of still greater concern is production from Mexico’s giant 2 million b/d Cantarell oilfield, most of which is exported to the US. Creditable reports suggest that Cantarell is entering very rapid depletion and may be producing at a fraction of its current level five years from now. It would be virtually impossible for this level of new production from the Lower Tertiary to come online in the next five years.

    So long as the world continues to consume some 31 billion barrels of oil a year, there is still nothing in sight that can forestall imminent peak oil.
  19. Minuteman

    Minuteman Chaplain Moderator Founding Member

    This is an old article, 2003, but it is very good at explaining the rise in world demand. And especially how China has affected it. It is from an investment firm who specialises in trading in oil. Wish I had found this when it first came out. Might be driving that Escalade now. MM

    [SIZE=+1]How Surging Oil Demand Will Change Your World Forever [/SIZE]
    By Roger L. Cory

    The world is sprinting to keep pace with its demand for oil. Ten years ago—
    even five years ago—this was not true. But today major oil producers report
    they are sucking out of the ground every drop of oil they can and rushing it
    to market as soon as they can, yet prices remain well above historic norms.

    Why? Could it be that there are deep, structural changes afoot throughout the
    world economy driving energy prices higher across the board?

    We believe there are, and that you need to know what they are and how they
    will impact your net worth in the next year, five and ten years, and beyond.

    You may have already read my accompanying article on the Peak Oil
    phenomenon, "Man's Quest for Crude: Here Comes the Hard Part." If you
    haven't yet read it I urge you download it now from this site and read it first.
    Peak Oil is by far the most important energy-related story of this century and
    no investor should remain in the dark about it.

    But the soon-to-come peak in world oil production is only half of the story:
    the supply half. The other half of the story is demand. Obviously, peaking
    world oil production is less of a problem if demand is peaking as well. But it
    isn't. Far from it, demand is surging, and from corners of the globe which
    previously never imported a drop of oil.

    The world oil market is becoming overwhelmed with demand from formerly
    moribund third-world economies which are leaping up to first-world status
    in a single generation. This sea change in the world economy is the most
    significant economic development in our lifetimes, and it will profoundly
    affect the world, and thus, your investment portfolio.

    They only question is whether these massive changes will affect you
    negatively or positively. And of course, only you can make that choice. But
    first you'll have to educate yourself as to what is happening and why, and
    why we are far closer to the beginning of this "megatrend" then the end.

    The World's Addiction to Oil Intensifies

    Just 15 years ago, nearly a third of the world's population was trapped in
    totalitarian systems which offered almost no economic freedom or

    Most citizens of these benighted, depressed nations were not free to start
    businesses, to trade, to earn a significant income or better their material
    lives. They lived a Spartan, hand-to-mouth existence, according to the
    dictates of the State.

    Then two political earthquakes rocked Europe and Asia, more or less at the
    same time. First, China embraced its own brand of free-market economics.
    Then the communist regime of the Soviet Union and its European satellites

    The shockwaves from these twin earthquakes are just beginning to be fully
    felt, and its epicenter is the world oil market.

    The new participation of the former "second-world" communist nations in
    "first world" international trade, along with the economic awakening of
    India, has introduced over two billion new consumers and producers to the
    world economy—all within the span of a teenager's lifetime.

    Where rice paddies and desolate, empty plains once stood, thousands of
    massive factories have risen, manufacturing everything from toys to
    computers to clothing. Many thousands more are being built now.

    Question: How are all those new factories being powered? And how will
    their millions of tons of products be transported, and where?

    We know the answer. It's all being made possible by oil. We'll look closely
    at China later, but consider for the moment that because that nation doesn't
    produce nearly enough electricity to meet its new needs, many of its
    factories are powered by massive on-site generators. Diesel generators.

    And after products from these factories are assembled, who buys them?
    Wholesalers, who sell to distributors, who sell to retailers, who sell to
    consumers. Eight thousand miles away.

    How do they get there? By diesel trains, diesel trucks, and diesel-powered
    container ships.

    Simply put, the new world economy is greased, paved, constructed and
    powered by fossil fuels. So it shouldn't surprise us that:
    • According to the International Energy Agency, 2004 world oil demand is
      increasing by a higher rate than any year since 1988;
    • The world is now burning a record 80 million barrels of crude oil every day;
      almost 30 billion barrels just this year. To put this in perspective, in 2004 we
      will burn nearly eight billion barrels more oil than the entire U.S. proven oil reserve;
    • The Energy Information Administration projects that, if current trends continue,
      by 2025 worldwide oil demand will exceed 120 million barrels per day, from a
      world oil production system which is, according to many experts, in the process of
    Why is this happening? Aren't home appliances and electronics and
    machines becoming more energy-efficient? Why is world oil demand growth
    so far outpacing its population growth?

    Energy Is Prosperity

    To begin to answer that question we need look no further than our own
    shores. America is the undisputed king of energy consumption. We are home
    to less than five percent of the world's population, yet we consume about 25
    percent of the world's total produced energy. Is that because we are a bad or
    particularly wasteful people? No. It is because we are a particularly
    prosperous people.

    Wealth creation and energy usage are two sides of the same coin. In the
    modern world you cannot have one without the other; energy is, well, the
    energy modern economies use to create products of value for consumers to
    buy. No energy, no wealth. It's that simple.

    Paul Roberts, in his excellent work The End of Oil explains:

    "Every act of economic activity is also an act of energy
    consumption. The hamburger I order from the takeout window
    is the ultimate, concrete form of demand in a cascade of
    individual energy decisions and transactions and uses: from the
    diesel in the tractor that tilled the feed grain to the electricity
    that powered the lights in the slaughterhouse to the gas that
    fired the restaurant grill (and this calculation, of course, does
    not include French fries)…

    Historically, the more economically active we humans have
    been, the more energy we have used to create it with. It is an
    endless cycle: more wealth leads to more purchases; more
    purchases increase demand for products, which in turn calls for
    more factories, more raw materials, and more trips by truck and
    train from factory to warehouse and from warehouse to the
    Wal-Mart and the Pottery Barn. The entire global economy is
    like a huge machine, steadily converting energy into wealth.

    One can trace a country's material advancement by its growing
    appetite for energy, and by its success at feeding that appetite.
    The richest nations use great quantities of energy and do so
    with stunning sophistication and starling obliviousness: beyond
    occasional complaints about gasoline prices or the electric bill,
    the vast majority of Americans and Europeans are no more
    aware of using energy than they are of breathing air."

    That's America. Rich and energy-hungry. But see, in a modern economy, to
    be rich is to be energy hungry. You can't be one without being the other.
    Commentators sometimes opine in newspapers and political talk shows that
    Americans use too much of the world's oil; to them we are oil gluttons, and
    we need to have our wrists slapped for what they believe is our selfishness
    and greed.

    They are right, America is one big oil sponge; the numbers prove it. But they
    are wrong to think we can change our relationship to energy without at the
    same time changing our relationship to the notion of prosperity itself. That
    is, America—or any wealthy, developed nation—can only significantly
    reduce its energy consumption by significantly reducing its level of
    prosperity. What politician do you know will be urging that upon his
    constituents any time soon?

    If you still doubt that energy and prosperity are inexorably linked, consider
    this fact: the four most prosperous nations in the world—the U.S., Japan,

    Germany and South Korea—have the four highest rates of per capita energy
    usage. This can't be mere coincidence.

    And where these great economic powers are, developing nations like China
    and India want to be. So for us to understand where the rest of the world is
    going to be heading the next two decades, we only need look at where we
    are now, and how our own people aspire to live.

    The American Dream Redefined (Again)

    Definitions of what it means to "prosper" change over time. One hundred
    years ago, a family with gas lighting in their home was considered
    prosperous. Fifty years later, a family with a small black-and-white
    television was considered prosperous. Today, even the poorest Americans
    have far surpassed these former definitions of "prosperity."

    So what does it mean to prosper in America today? Let's look at just two
    consumer choices, which happen to be the most important purchases for
    most households: homes and cars.

    Exactly what constitutes a "nice home" has been expanding relentlessly over
    the past 25 years or so. While new homes are undeniably more energy-
    efficient per square foot than homes of a generation ago, there are more
    square feet in the average home than there was a generation ago. In 1970 the
    average size of a new single-family home in the U.S was 1,500 square feet.
    Today it is over 2,200 square feet—a 50 percent increase in living space.

    The latest trend in home development—the mini-mansion—is the
    quintessence of this trend. Homes are built to their legal maximum per lot
    size, with bathrooms the size of what bedrooms used to be. Vaulted ceilings
    require much more air space to be heated. Jacuzzi tubs, gourmet kitchens
    with high-btu professional ranges and oversized Sub-zero refrigerators, and
    massive, floor-to-ceiling, heat-dissipating windows come standard. And of
    course, each model includes a three-car garage.

    And increasingly, what prospering Americans are rolling into those garages
    are light-duty trucks and large SUVs, which have been promoted by
    Detroit's automakers precisely because they are excluded from federal fuel-
    efficiency standards. SUVs and light trucks now account for half of all new
    vehicle sales in the U.S.

    Naturally, these hulking vehicles, some of which are 6000 pounds or greater
    in weight—roughly three times that of an economy car—sometimes achieve
    real-world gas mileage no higher than the high single digits.

    The U.S. government reports that the average fuel economy of light-duty
    vehicles (including cars, SUVs, and minivans) is six percent better than it
    was in 1987. At the same time, however, average horsepower has increased
    76 percent, and average vehicle weight is up 26 percent. If horsepower and
    weight had not increased, light-duty vehicles would consume 58 percent less
    fuel today, not merely six percent less.

    What's more, the tract developments their owners live in are located further
    and further from the cities where they work; average commutes have
    steadily risen for the past two generations, and along with it, the average
    number of driving miles per person per year.

    Have you noticed? All of these consumer choices, choices that issue forth
    from an ever-increasing prosperity, require just one thing (besides money) to
    make them possible: energy. Electricity to power the home (usually
    generated through the burning of fossil fuels), heating oil or natural gas to
    heat the home, gasoline to power the SUV ever more miles per year.

    Perhaps these trends in American consumption explain why, even with a
    contracting economy in 2001-2003, U.S. oil demand increased three percent
    each of those three years. Even recessions can no longer be counted on to
    reduce our thirst for oil!

    More important to this discussion, however, is what these rising expectations
    among American consumers mean for the developing world. Is the desire for
    more electronic gadgets, larger-capacity home appliances and bigger homes
    and cars only an American phenomenon? Or is it somehow hardwired into
    the circuits of consumers in a modern developing economy? For the answer
    to that question, there is no better place to look than China.

    Napoleon Didn't Know How Right He Was

    After a lifetime of surveying the world scene (and conquering much of it),
    Napoleon Bonaparte observed, "When China awakens, she will shake the

    China is not only awake, she is roaring. And the world, especially the world
    oil market, is indeed shaking.

    "China is having an incredible influence on energy flows, not just in Asia
    but on a worldwide basis, said Peter Davies recently, British Petroleum's
    chief economist. "The whole center of gravity of the world energy market is

    In China we have a truly remarkable story of our times. Imagine, a nation of
    famously shrewd people, who comprise roughly one-fifth of the world's
    total population, all trying to get rich, all at once. When something like that
    happens, these are the kinds of things you see:
    • China's real gross domestic product (GDP) grew at a rate of 9 percent
      in 2003, on top of 8.0 percent growth in 2002, according to the Energy
      Information Agency.
    • China's real GDP growth is forecast to reach just shy of 10 percent for
      2004, a record pace for a major economy.
    • China's exports increased by over one-third in 2003 alone.
    • According to its State Statistical Bureau, Chinese factories are producing
      19 percent more goods than last year.
    • Exxon/Mobil economists project that the world economy will grow an
      average of 2.8 percent a year through 2020, but China will more than
      double that growth every year.
    We could go on and on like this; the numbers are simply astounding. It is as
    if the entire country of China is working three shifts a day in a nationwide
    effort to slingshot a feudal, almost medieval system into a modern First
    World economy.

    Now, we know the Chinese are not working this hard out of altruism. Their
    motivation is simple: they want the same stuff you have.

    In 1985, seven percent of all Chinese homes had refrigerators. Today, 75
    percent do. In that same time period, television ownership rose from 17
    percent to 86 percent. Fifty times more homes are cooled by air conditioners
    than was the case twenty years ago.

    Is it any wonder the Chinese government estimates the nation needs to build
    sixty electric plants every year for the next ten years, just to keep up with the

    But all the electricity in China won't power the granddaddy of consumer
    goodies: the automobile. China is falling in love with the automobile. What
    the 1920's were to America, this decade is for China. Everyone wants a car.
    And more and more Chinese are realizing their lifelong dream of owning

    Have you ever attended an auto show? Have you ever met anyone who has
    attended an auto show? Do you even know when they are held, and where?

    The Chinese know. Over half a million of them crowded into the most recent
    Beijing International Auto Show. The throngs were so massive,
    eyewitnesses report that during peak times attendees were swept along in
    waves, unable to control their individual movements.

    In 1984, the first private vehicle rolled tentatively into the heart of Beijing,
    parting a sea of bicycles in its path. Today, five concentric beltways encircle
    the city, yet a 15-minute drive will often take an hour or more. Beijing now
    boasts over 1.5 million car owners.

    None of this has occurred by accident. The Chinese government planned it
    all along; or at least since the mid-1980's. That was the time when China
    decided to revive itself economically. And it realized the nation couldn't
    become a real modern economy without cars to buy, and cars to build.

    So they proclaimed auto manufacturing a "pillar" industry, and set a very
    ambitious production target of one million vehicles per year by year 2000.
    They were off by two years; Chinese automakers didn't hit the one million
    mark until 2002, with sales growing by 20 percent per year.

    Yet for all this growth, fewer than eight in a thousand own a car today. But a
    third of urban Chinese own driver's licenses, and three-quarters report they
    plan to buy a car in the next five years.

    General Motors, which has invested heavily in joint Chinese ventures,
    estimates that by the end of this decade China will buy one out of every five
    cars built worldwide—twice that of the U.S. This has led some researchers
    to predict that, at current growth rates, by 2015 China could be fueling as
    many as 100 million private vehicles.

    But how? Where is all the gasoline to power all these cars going to come
    from? Why, from oil, of course. Where will the oil come from? We'll get to
    that in a second, but one thing is certain: it won't be coming from China.

    China's oil production system has been stuck at 3.5 million barrels per day
    for years. Despite billions of dollars invested in exploration and
    development, Chinese oil production seems to have reached a peak, and is
    showing signs of decline.

    The demand and production lines crossed in 1993; for the first time,
    domestic demand outstripped domestic production, and China became an oil
    importer. It's been importing more oil every year, to the point that now,
    China imports nearly twice the amount of oil it produces, placing
    unprecedented pressure on world prices.

    That's why in 2003, China surpassed Japan as the second-largest world
    petroleum user, with a total demand of over 5.5 billion barrels a day—just
    behind the U.S.

    Now, let's put China's oil demand growth into perspective. At present rates
    of growth, by the end of this decade China will be consuming more than
    nine million barrels of oil a day, exceeding the entire oil output of Saudi
    Arabia, the world's largest producer.

    To put this into further perspective, let's compare mainland China with its
    nearby cousin, Taiwan. The two are similar in almost every way, except
    Taiwan got a long head start over mainland China in the industrialization
    game. Today, China consumes about 1.5 barrels of oil per person per year;
    Taiwan, 12.5 barrels.

    Now, suppose China just reaches half of Taiwan's level of consumption.
    That would mean a total demand of about 20 million barrels of oil per day—
    twice Saudi Arabia's daily output. Should China someday equal Taiwan's
    per capita usage, they would require the entire oil output of five Saudi

    Just for laughs, let's ask, what if China reaches its goal of attaining
    American standards of wealth? China would gulp down the total daily oil
    output of ten Saudi Arabias.

    And we haven't even begun to talk about India, which is tracking just behind
    China in oil demand growth, along with the other "Asian tiger" nations.
    Simply put, worldwide oil demand growth is skyrocketing, and worldwide
    oil production will be lucky to finish the year flat. No expert foresees these
    massive, historic trends reversing themselves any time soon.

    Given these facts, can you see any scenario in the years ahead which would
    not lead to dramatically higher oil demand, and thus, dramatically higher oil

    Most importantly, as an investor, can you see any scenario where oil would
    not be a very smart commodity to own and produce in the years ahead?

    Crude Oil: Your Dinner is Soaking in it!

    Earlier we talked about America's disproportionate consumption of oil
    relative to our population. As we said, that is very much a function of our

    But there's another reason why we use so much of the world's oil: we feed
    so many of the world's people.

    America is the world's pantry of last resort. We're the place other nations go
    when they can't grow enough grain or other foodstuffs to feed their people.
    We are by far the world's largest food commodity exporter and have been
    for many years.

    Now, if you're over the age of 35 you probably remember hearing from your
    mother at dinnertime, "Clean your plate, there are children starving in (name
    your country—India, China…)"

    Have you noticed? Moms don't say that to their kids today. Why? Simply
    because it isn't true anymore; children around the world eat far better than
    they did years ago. There are starving and hungry children, of course—
    millions of them—but they aren't starving because there's not enough food
    to go around; in most cases they're starving because their corrupt
    governments are stealing it as it comes into the country.

    You may be aware that there has been a dramatic increase in food
    production over the past 40 years, even though less farmland is cultivated
    than ever before. How is this possible? By a dramatic increase in yields per
    acre planted. How has that been made possible? You guessed it: fossil fuels.

    Welcome to the Green Revolution.

    The so-called Green Revolution is really a transformation of agriculture
    from a chance endeavor dependent upon the vicissitudes of rain, insects and
    disease, to a mechanized industry where every possible variable is controlled
    and managed by biotechnology and chemical science.

    And, measured by sheer volume of output, a great success it has been. Total
    world grain production has increased 250 percent in the last 35 years.
    Though much of those gains have come from new hybrid plant varieties,
    credit is equally shared by agriculture's dramatic increase in natural gas
    usage (for fertilizer) and oil usage (for pesticides and machinery).

    The Green Revolution increased energy flow to agriculture by an average of
    50 times traditional agriculture. To give you some kind of idea how much
    fuel we are talking about:
    • Agriculture accounts for 17 percent of all the energy used in the U.S.
    • 400 gallons of oil equivalents are expended annually to feed each American.
    • A pound of beef requires three-quarters of a gallon of oil to produce; a single
      steer requires almost 300 gallons.
    • Each acre of land requires an average of 6.4 barrels of oil to cultivate.
    As a result, the energy equivalent of 96 billion barrels of oil is consumed in the growing of our food, every year.
    Simply put, these historic yields in food production have come at a price.
    That price is the consumption of vastly larger amounts of oil to feed a
    rapidly growing world.

    So, here's the question we need to ask ourselves: If oil demand, and thus
    prices, were to go down, who would volunteer to stop eating? For oil
    consumption in agriculture to drop, food production must drop, which means
    someone, somewhere is going to have to stop eating, or start eating a lot less
    than they are now. Not many people are going to do this voluntarily.

    Which means, then, that ever-higher oil consumption is virtually guaranteed,
    if no other reason than that the population of the world keeps growing and
    ever-more amounts of petroleum are needed to feed them.

    As investors, we are rarely afforded the opportunity to speculate on
    something so certain as population growth and human hunger. But oil, as
    we've seen, lies at the intersection of these global realities, and as such will
    remain a commodity in the highest demand.

    Oil: The Commodity of the 21st Century.

    We hope that the preceding discussion has shed new light on why we all
    keep reading and hearing about higher oil prices in the news. Oil is trending
    higher for a reason. Or, actually, several reasons.

    As an investor, I suggest you ask yourself: Are those reasons likely to recede
    any time in the foreseeable future? Is there any scenario you can imagine
    which would stop the Chinese and India economic juggernaut in its tracks?
    Any scenario you can imagine that would lead Americans to want smaller
    houses? Any scenario you can imagine that would lead people around the
    world to eat less?

    If not, then you've come to the right place. At Mammoth Resource Partners,
    we've dedicated ourselves completely to helping investors appreciate the full
    scope of oil's potential as an investment. We are convinced that oil is the
    commodity of the 21st Century, and we want you to be fully informed of the
    major trends world oil prices which will so greatly impact your life, and
    your investment portfolio—for good or ill.

    That's why we're always here to answer your questions about Peak Oil,
    terrorism & oil, or world oil demand. We welcome your questions, your
    concerns, your insights. And we wish you every success as you explore the
    exciting potential of investing at the dawn of the Century of Oil.
    <HR id=HRRule1 align=center width="90%" SIZE=2>
  20. Minuteman

    Minuteman Chaplain Moderator Founding Member

    December 15th 2005

    A leading Geologist and Peak Oil proponent, Kenneth Deffeyes, predicted in 2003 that world oil production would peak on November 25th 2005. It seems he may have not missed it by much.

    The production reports are in for last year and many experts are saying that December 15th, 2005 was the day that world oil production peaked.
    Peak oil can only be seen in hindsight. Until production figures are evaluated and plotted can you say for sure that a field or region is in decline.

    M. King Hubbert predicted that national production in the USA would peak in 1970. Scoffers were laughing when the figures for 1971 came in. They showed that the production for that year had set a record.
    But the laughing soon stopped. That was the year that USA domestic oil production peaked. We have never produced as much again. And have been in a steady decline ever since.

    2000 was a record year for global production. But it remained flat for the next two years. Then in 2003 just barely surpassed 2000 by 1/2 of 1 percent. 2005 hit the highest peak that we have seen and 2006 is in steep decline. 2007 figures will confirm it. If we continue in the current steep slope, then it will be official.

    December 15th, 2005, a day that will live in infamy?
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