We're Nearing Crunch Time for Oil

It’s looking increasingly like Crunch Time for oil will be in effect during the 2010 to 2016 time frame. I’m being optimistic in forecasting an end date for it, but the starting time is, if not etched in stone, predictable with some substantial certainty. If any new reader wants to understand why supplies will diminish sharply around 2010, click on megaprojects, Mexico, Saudi Arabia, Russia, oil demand, and oil supply. You should be up to speed in about half an hour.

Crunch Time is when global supplies will start diminishing while demand is still trying to grow. It’s when the price of oil will move into the stratosphere as poor countries and poor people are priced out of the market and competition for oil is mainly between the wealthy. As I’ve analogized before, it will be similar to the competition for waterfront real estate in Palm Beach. And you know the price of that.

Prior to 2010 oil supplies should be able to grow somewhat, or if not grow at least compensate for the decline in older fields. After what I suspect will be a successful near term test of the $100 support level, the oil price should continue edging up, perhaps exceeding $200 by the end of 2009. But just as $100 oil is now starting to look like a bargain after we’ve seen oil pushing $120, so will $175 oil seem like a bargain when oil is trading at $200, etc.

The reason I suspect that Crunch Time may last only for about five years after it begins is that a number of new trends now being formed are likely to hit the market place in sufficient scale starting around 2015 to have an impact collectively. All of these trends will get stronger over time. They include:

• Substantial new oil supplies from Brazil and Khazakhstan. Also possibly from Nigeria, Iraq and Mexico.
• Scalable cellulosic ethanol capacity.
• Substantial changes in the car fleet toward more plug-in hybrids and fewer gas hogs.
• Adjustment of populations to depend more on mass transit, less on cars.
• Adjustment of industrial production and distribution from trucks to rail.

All of the above is, of course, a hazy – and, as I said, optimistic - guess. Nobody can know the timing or exact impact of these inter-related mega-trends. It’s like forecasting a battle among resurrected dinosaurs whose general dimensions are known but whose battle strategies and skills are not. But even though we cannot be certain about dates or degrees of difficulty, given the awful human dimensions of the oil shortage we will face I think it is incumbent on us to start making educated guesses about the future in order to increase the chances that as a society we might finally do something intelligent to mitigate it.

Time for Natural Gas

Natural gas sells for about half the price of oil on an equivalent BTU basis, plus it’s cleaner burning, thus causing less environmental impact. Not only is gas a better bargain and better quality product than oil, but gas demand also “sports some strong fundamentals.” North America gas supplies may come under pressure over the next few years as demand increases for fertilizer and as natural gas usage in transportation and electrical generation increases.

Overseas, natural gas demand strains can be sensed in the fact that recently Iran has gotten bids from China, India, and Switzerland to finance their gas projects in contravention of U.S. efforts to isolate Iran. The willingness of such countries to ignore strong U.S. pressures indicates how important new gas supplies are to them and perhaps - in the case of Switzerland, which may be acting as a proxy – to other unnamed countries.

Chris Skrebowski recently indicated that the availability of sufficient gas to supply Europe, particularly after 2009, is looking increasingly precarious. The short story is that the visibility of sufficient supplies of natural gas in Europe and Asia, given current trends, is a little hazy. The implication for North American gas is that Europe and Asia will give us stiff competition for LNG shipments. I have also recently posted a number of pieces (found here) indicating such intensified competition. The impact of competition for LNG, obviously, is that it would tend to boost the North American price of natural gas.

The price of gas in Europe and Japan is already much higher than it is in North America. My sense is that the North American price over the next year or two may appreciate more rapidly than oil prices. Therefore I have tilted my stock portfolio toward the gas side. You may notice that for the first time XTO Energy (XTO) is one of my top five holdings. Moreover, as mentioned above, I have added to my options-on-futures portfolio a long position in late 2011 natural gas.

Current Oil Outlook

What about the near term outlook for oil? There’s been a lot of talk about why oil is “so high” – how much of that is due to speculation and how much to the weak dollar. I suppose the rest must be caused by supply and demand.

In that regard, recent postings include evidence of very high Chinese use of oil, weak supplies from Russia and OPEC, increasing domestic demand among oil exporting countries, and rapidly declining production at Mexico’s giant Cantarell field. On the other hand, to the extent this information relates to the supply side it should have much more impact on the out years (the Crunch Time) than on today’s market.

Here are some comments from one man in a position to know the fundamental forces acting on the price of oil, Chevron (CVX) CEO David O‘Reilly as interviewed in The Wall Street Journal on May Day. You can read the whole interview here.

WSJ: Gas use in the U.S. is down. Do you see signs of that happening elsewhere?

D O’R: No. I was in Turkey a couple of months ago. The price of gas is almost $11 a gallon. They’re selling a record number of automobiles. Traffic is backed up all over Istanbul.

WSJ (paraphrased): What about cellulosic ethanol?

D O’R: It’s years off yet.

WSJ: When you hear politicians talk about oil independence, what’s your reaction?

D O’R: Unrealistic.

WSJ: Won’t ever happen?

D O’R: No.

O’Reilly credits booming global oil demand for the rise in oil prices. Is he right?

It IS the dollar!

I wrote about the role of speculators recently. My take, the short version: the best reason to think there has been some speculative push to recent oil prices is that most of the really scary facts about oil supply (the Saudi decision to stop building capacity, Mexican decline, Russia peaking) have their greatest impact in the out years more than today. So that suggests speculation.

What about the dollar? Well, if you measure the price of oil, a global product, in dollars as we in the U.S do, then fluctuations in the dollar must by definition impact the dollar price of oil. Here’s a chart from the U.S. Energy Information Agency that shows how much of a difference the currency valuations have made since 2001:

This chart clearly shows that oil has not been getting more valuable in absolute terms as measured against gold. Rather, all currencies have been depreciating compared with both gold and oil – but the dollar has depreciated more than the euro.

Could this be a reason why the OPECers are not pumping more oil but rather are saying that it’s all the fault of speculators? Maybe what they really mean by “speculators” is not the traders or their customers in a personal sense, but rather that the markets simply don’t think currencies are such a hot thing to own compared with certain truly useful things like oil.

I imagine that a chart of oil vs. copper or wheat or the stock of First Solar (FSLR) would show the same lack of appreciation in the price of oil that the chart of gold vs. oil shows because all these things have appreciated substantially compared with a dollar bill. On the other hand, oil vs. U.S. residential real estate or oil vs the value of an hour of labor outside the executive suite - things that have depreciated against the dollar - would show a full hockey stick shaped chart.

So what are we to make of this? Is it helpful? I think it is.

1. It tells us that the U.S., the most profligate oil consumer in the world, where humongous trade and budget deficits have become the financial theme of the Bush years, now pays the same price for oil in gold-adjusted terms that it paid in 2001. Meanwhile the Europeans, with fairly balanced budgets and far lower oil consumption per capita also pay the same in gold-adjusted terms for their oil but they pay about half the increase that Americans do in terms of their own currency.
2. It suggests that the world is in fact reasonably well supplied with oil as OPEC has stated since the price of oil in terms of gold has not risen, but
3. It also suggests that oil – unlike a residential house, an hour of labor, or a flat screen TV – is in sufficiently tight supply that it is failing to lose its value in the face of a currency that is depreciating much more rapidly than other currencies (which are also depreciating) compared with gold, and finally
4. It tells us that when the price of oil begins to appreciate vs. gold we will know for sure that demand is seriously outstripping supply.

As an energy investor, all this is a little humbling. It suggests that if I had invested in stocks related to virtually any commodity when I started investing in oil stocks I might have done just as well or better because all the commodities have appreciated against the dollar.

But I’m not about to give up on energy. If I’m right in my view as discussed at the start of this letter about the next seven or so years, oil and natural gas will begin to out-perform gold, agricultural commodities and, especially, base metals. That’s because the supply of oil, unlike supplies of gold or the other commodities, will stop increasing and will start declining in absolute terms. That will make all the difference.

Meanwhile demand for base metals is likely to crash because the declining supply of oil is likely to cause a stagnating world economy. Economic stagnation may possibly be exacerbated by a financial crisis if my views about Crunch Time are more or less correct. Not a happy thought, sorry to say.

Comments

[blackbody]

you sound like those people predicting housing price will never fall because you can't create new land. It does not matter if the world runs out of OIL tomorrow, people will only be able to pay what they are capable of paying.

[User 143167]

blackbody, the differences are that oil has global consumers while US estates only have mostly Americans to consume them.
So the easiest way to reflate the house prices in America is to let more foreigners buy them and award them green cards when they sign the contracts. Then the house prices will bottom out, right away.

[bluesmoke]

Excellent article.

[JREwing]

I find it interesting, that stocks like Amazon or Apple can have ridiculous P/Es, but when oil costs more then 10 bucks a barrel, folks begin to round up speculators and burn them at the stake, metaphorically speaking.

Folks never see the fact, that speculators are also responsible for low prices, as shown impressively on fridays short covering rally in oil.

First of all, every investor is a speculator. When you are 25 years old and you invest for your retirement you 'speculate', that when you are about to retire your investments will have done well.

Second of all, futures trading, which is used to 'speculate' in oil for example prevents price shocks like in the 70s. By anticipating shortages they drive up the price and give the economy a chance to adjust to higher prices and use oil more effective and give oil producers an incentive and the capital to invest in more production.

The same thing goes for every other commodity.

As for the dollar/oil relationship: Friday showed, that dollar appreciation or depreciation has not as much to do with price of oil, as most people believe.

Oil rallied, because it seems clear, that the economy is not falling of a cliff and has a good chance of a second half recovery. Both the USD and oil rallied. That Turkey/Northern Iraq situation and the pipeline attack in Colombia may have supported a little, but the bulk of the rally was on the back of economic data.

P.S. The article was very interesting. May be we can have an article by someone, who's smarter than me, about wether speculators are more harm than good or, like I believe, the other way around.

[BrianPursley]

Big improvement over Friday's article. I try to look for companies that will benefit no matter what happens. For example companies like Transocean and Varco will win big whether or not oil is biogenic and is peaking or is abiogenic and cornucopian. If I'm right and oil is abiogenic, then RIG and NOV will benefit as we go deeper (Jack, Tupi, Carioca, etc). If I'm wrong and oil came from dinosaurs, then RIG and NOV will benefit as we still go deeper because all the low hanging fruit (Ghawar, Cantarell, etc) has been cherry picked...=)

[JREwing]

Brian, I agree completely.

[objective]

Some observations:
On 5/2 Nymex Volume on the June 08 Crude oil Contract was
277,973 ( I assume that is contracts). At 1,000 bbls per contract
that is 277.97 Million bbls. that day, other days in the last weeks have had similar volumes.
Global oil consumption is 85 Million bbls. per day.
US consumption is 20 million bbls per day.
Why would the US futures mkt. have to trade over 3 times the actual consumption of the underlying for the globe, and over 13 times the US consumption on a given day?
I'm not even considering add'l volume on foreign exchanges and OTC trade in oil.
US airlines (big users) ex-Southwest dont even hedge, btw who does hedge? FEDEX? UPS? JB Hunt? YRC? CSX? Doesnt seem like they do come earnings time.
If my above assumptions are correct. I have to also assume the big volume is from speculation.
$8700 to go long 1,000 bbls. (~$115,000 value) for NYMEX.

I am a non-professional trying to improve my understanding of this oil issue. If any of my assumptions are incorrect I would appreciate feedback.
Thx

[JREwing]

Of course there are speculators. Why shouldn't there be? What makes speculating in oil dirty?

[pockyclips2020]

We should have started working on this in 1973! We will shortly be in panic mode unless 5 trillion barrels of additional proven reserve pops up in the next 4 years. There will be little to no oil to import by the end of the next decade, and domestic supplies will be reserved for military or government use. The Manhattan Project for energy needs to start now.

[bearfund]

blackbody, he actually started out saying that there's definitely going to be an end to the rapid price increases; he even explained the 5 factors he expects will cause it. I happen to agree with all of this - the current oil dependency has been brought on mainly by a history of cheap oil; with more expensive oil, we should expect the market to invest differently and eventually adjust. There are longwave demographic shifts (the return to urbanism, especially among post-boomer generations) already in progress in the United States that will reduce demand for oil, or at least growth in demand for oil. The other four factors he notes will surely play a role as well.

I doubt very much we'll ever see $50 oil again, just as we'll never see $1 wheat or $1000 houses again. As our author once again points out, that's more down to the devaluation of the dollar itself than anything else, but rising demand and limited supply will surely take their toll in coming years. That doesn't mean that substitutes won't be found, that living patterns won't be adjusted, or that new sources of supply won't be brought online. All of those things will happen. Whether or not we have reached peak oil or monotonic decline from that point is inevitable, the market will adjust to higher prices and any period of rapid appreciation must eventually come to an end. All of this is fundamental economics, and I do not believe anyone here has suggested otherwise.

[TheShadow_115]

After listening to these "Peak Oil" horror stories for more than 40 years now, they begin to grow a little tedious. Never trust a "peak oil" fanatic like this author who never even mentions oil shale. There is still more oil available from shale than all the oil that has been produced conventionally since men first began pumping oil.

[JREwing]

It is not a question of how much oil is out there. I agree, in on form or another, in place or another, there is probably a lot.

The question is: How much can you produce every day?

[JREwing]

Let's try that again, because the spelling was a disaster.

It is not a question of how much oil is out there in one form or another.

The question is: How much can you produce every day?

[ari5000]

Interesting -- focused -- until the last paragraph and then it turned into a typical Seeking Alpha article. What does base metals have to do with oil and why does dwindling oil supplies mean a Financial Crisis might occur? Maybe the need to update the power grid (to conserve energy) and build alternative energy supplies will lead to an increase in investment and more use of copper and other base metals.

Basically this article is a rehash of Peak Oil theory but without any actual details or data.

[John Egan]

I think the article was pretty concise.. And the relation between oil and metals (etc) is pretty clear in the article... I really don't need a rehash of all the reasoning for peak oil and if anyone does, I can suggest reading "The Coming Economic Collapse" By Stephen Leeb, PhD. He lays out everything you'd ever want to know.

My one issue is the possibility of mass transit making much of an impact in the US... It would work in Europe and any country where the populations are consolidated into large urban areas, but I just don't see a country like the US being able to develop a working mass transit system capable of working very efficiently. It's my opinion that our "free market" wouldn't seem likely to produce anything of this nature. Our administration isn't inclined to maintain our existing infrastructure, and clearly, the independent market is incapable of maintaining an affordable health-care, or insurance system. We hand out billions to big agriculture and nothing to the rail system (which is pretty effective). Where would the motivation for a national transportation system come from? I don't want to hear that "government will have to open its eyes and do something". What have they done regarding the social security or medicare systems?

Thx jegan ;-)

[punk_ash]

User 143167 = foool. Who is going to pay for trillions of dollars in education and other costs for those millions of people you are proposing to be let in just to increase the price of the houses. Go back and do your 3rd grade homework dummy

[User 170394]

Comparing home prices to oil prices is ridiculous. People can afford $100 to fill up the gas tank, but they can't afford a $600,000 house. Especially if the bank refuses to lend the money. People can always rent a home to save money, but can they rent gas? Some can take mass transit, but many can't. Anyone in this country can rent if home prices get too expensive to own.

What makes you think foreigners are willing to flock here to buy overpriced homes? What makes you think they want to come here if they can afford a $600,000 house in California? They probably already have a very nice job or business in their own country and would rather stay there.

[User 170394]

There are 4 trillion barrels of extra heavy crude in Venezuela and Canada. We need to move to clean diesel engines in order to put it to use though. Start mining the oil sands.

[Alan vonAltendorf]

"If I'm wrong and oil came from dinosaurs..." No, jeez, not from dinosaurs. It comes from organic silt, mostly sea plankton and other oraganic goop deposited 30-50 million years ago. Doesn't bubble up out of inorganic magma, either, no matter what the Russians say.

And there are no trillion barrel oil reserves in Venezuela and Canada. Trillion barrel asphalt reserves, yes. Perfectly good for repaving an infinite number of parking lots and low-traffic residential streets.

[JREwing]

Alan is right about the oilsands. You need to blend it with conventional oil in order to put to use. On top of it, it production consumes an awful lot of Natgas. That is why i think Suncor will have some problems, considering, that Natgas is catching up to oil prices.

[paultaut]

Things be a changing in Canada...new tech...steam instead of nat.gas

[SailDog]

I agree with A von A - tar is tar. It is not oil.

Jim did acknowledge his 5 point wish list was just that - wishing on a star. New oil production must outstrip production declines elsewhere significantly and there are quite a few roadblocks in the countries mentioned. The projects will be more difficult and more expensive than can possibly be imagined.

Ethanol is a form of top-soil strip mining. It can be done once, for a short period and the you are in worse trouble than ever.

Plug in hybrids - maybe. Lithium seems to be a problem.

Adjustment of populations to mass transit? In the US? Or here in Oz? Like the morons in the US we have craftily built all our new suburban McMansions at the end of dead end streets. Buses will never run down them.

Industrial production from trucks to rail? I read somewhere else today that "Just in Time" is a concept whose time has passed. Jim seems to agree, but I am not sure that our warehouse on wheels economies will adjust smoothly. At the very least there will be significant losses in efficiency and higher costs.

My point really is that all of these megatrends must come together spectacularly well (and a lot else besides) for there not to be significant dislocation as oil becomes unaffordable.

[Mmarrkk]

Uhhhh paultaut...you say steam is replacing natural gas in the oil sands??? Please tell me where the steam comes from???

hint: you have to burn something to generate heat. You need heat to generate steam. Guess what they burn? gas! Now they could burn coal, but the greenie weenies don't like that. But gas from the Arctic is coming in 6-10 years (been saying that for the last 6 years!!) but nat gas will be an issue. But there's lots of gas to be drilled too! At $10/mmBTU!

[Bill W.]

• Sir, Oil and natural gas are not the answer. You're left off solar as a new mega trend. It may be that in your mind set that alternatives can't power America. This is simply not true.

And the cost of continuing to do what we are doing is ruining our economy. Switching to alternatives will end the estimated $800 billion in annuall hidden costs of oil. Instead of giving the oil companies and estimated $80 billion annually in tax credits and subsidies, we could be investing in something with a future. And solar and wind and other clean energies won't cause wars in the mideast costing trillions of dollars and thousands of GI lives.

If you were paying for the hidden costs of oil at the gas pump, the price would be approaching $12/gallon.

The Greenies could be the smart ones. They aren't burying their heads in the sand.

And here's an example of what solar can do. and do it without any of the dangers of hidden costs of nukes and oil.

Yes alternatives need subsidies to get up to scale. So far they are miniscule compared with the subsidies for competing fuels.

Scientific American A Solar Grand Plan
sciam.com/article.cfm?......

"Solar thermal power plants such as Ausra's generate electricity by driving steam turbines with sunshine. Ausra's solar concentrators boil water with focused sunlight, and produce electricity at prices directly competitive with gas- and coal-fired electric power."

"Solar thermal power plants can store energy during daylight hours and generate power when it's needed. Ausra's power plants collect the sun's energy as heat; Ausra is developing thermal energy storage systems which can store enough heat to run the power plant for up to 20 hours during dark or cloudy periods."

"Solar is one the most land-efficient sources of clean power we have, using a fraction of the area needed by hydro or wind projects of comparable output. All of America's needs for electric power – the entire US grid, night and day – can be generated with Ausra's current technology using a square parcel of land 92 miles on a side. For comparison, this is less than 1% of America's deserts, less land than currently in use in the U.S. for coal mines."
ausra.com

blogs.business2.com/gr... /
And go to Green Wombat to see what's already happening in California with solar thermal power plants
•
frflyer
Mar 30 01:44 PM
Sources of estimates of oil's hidden costs and subsidies.

setamericafree.org/saf......
monitor.net/monitor/10......
progress.org/2003/ener...
eoearth.org/article/Te......


Respectfuly,

Bill W.

[captbob]

Speculators only wish they could effect prices:
Only the actual sellers and users set the price of oil which the speculator never "lays hands on" but only bets on how much the seller will have and what the user will be willing to pay for at some future date. That price is known the day the speculators oil contract expires, and he has nothing to say about it--he either wins or loses, depending how close he pitched his penny to the curb.
I'm tired of Pundits, talking heads and even high ranking politicians with their "Show trials" and proclamations of evil price fixers.

[jjason]

There is a US Senator who said last week that we should stop futures trading in oil. I agree with him. Futures trading in oil should be made illegal. Then prices for oil will come down.

Also last week, on SeekingAlpha, someone posted that Warren Buffet had once bought over 50% of the worlds available silver. By allowing the wealthy ( whether they are billionaires or OPEC or companies that produce potash) to control markets by limiting supply you cheat the average man/woman. There is a limit to what I will pay for a gallon of oil, gas, or heating oil. That limit has been reached and so I will travel less, heat with electricity, and buy a bicycle.

There is no doubt in my mind that oil, gold and other commodities will go up and down just like everything else. The fact that a lot of fools paid too much for real estate is evident. Some speculators will profit and some will lose. It happens all the time.

[wayneS]

It IS in my mindset set that alternatives can't power America.
Thirty years ago I participate in research to:
Produce crude from tar sands using microbes,
Produce methane from carbon dioxide and water, 70% efficient
Produce ethanol for use in "gasohol"
Also:
There were solar farms miles in diameter to produce electricity
There were plans that put wind generators in each home.
There were plans for hybrid cars in Mother Earth News.
What has changed in thirty years?
We are right where we were in 1980.

[galewhitaker]

The world will never run out of oil because as it gets more expensive it the demand will subside. Since the price of everything is tied to the price of oil, higher prices are going to be devistating. Just imagine all the millions of people around the world who will not be able to drive, heat their homes or buy food because they can't afford the higher prices. The effects of $100 oil have not yet been felt through out most of the economy. When it is the world economy is going to tank big time.

[wayneS]

There is something we can do right now:
I drive a one-ton dually truck and I get over 60 mpg.
I car pool to work.
I obey all traffic laws. The result is better gas mileage,
less maintenance costs, no repairs from car crashes, no loss
of life or hospital costs.

[Gasdependent]

Who isn't oil dependant?
Everyone is (at least for right now, the future is all speculation- cheap energy- hydrogen, solar, and fuel cells... sure when investors actually see potential in them they will invest). Oil prices prevents
innovation in this market.

The price of oil will come down when supply concerns ease, but it won't crash to below $100 a barrel (unless the Fed takes an aggressive role in increasing the value of the USD).

It will go up to whatever those big money investors are willing to take the price risk on. it seems to be stable at the $110-115 mark. If it goes above $125, as a short term trader, I would sell it off and buy it back when it hits the $110 mark. It's a commodity and not equity. Supply/Demand should govern the price, but after the gold market exploded, people lost faith in the US economy. (and the decline of the USD ensued... if the US gets back on track expect price decreases but not more than 30%.

$200 dollars a barrel is a joke. Their is global competition for selling oil. Unless something major happens, it probably will not even come close to that. If it does investors will cash in on it.

[User 30121]

Terrific article! Thanks for writing it!

To: Gas dependent: $200 oil will occur by 2011 for certain! Can you wait that long? Unfortunately, its no JOKE! Get real!

[Tom Lindmark]

Shortly after the discovery of oil in Pennsylvania by John D. Rockefeller the United States government proclaimed that we would soon run out. Since then peak oil and subsequent shortages have been forcast as often as the next recession. This is just a rehash of the same tired old argument.

[iThinkBig]

My firm belief is that the U.S. can use all it's own resources and be completely energy independent and exporters to boot as well. What is lacking is the political will in Washington. What is your incentive to pass laws to create a competing product against big oil, especially if your are invested in big oil? This will change as Americans feel the pain and demand heads on pikes.

[getreal]

JJason,
Your comments are pretty clueless - so you still believe US politicians or Fox TV blaming speculators/traders, rather than the following facts:

1. Silver market was cornered years ago by Hunt brothers, not Warren Buffet. The price then collapsed, because there was no real increase in the silver demand, just the speculation.
2. It is the growth in demand and the ever increasing cost of producing (especially when it comes to tar sands, shale, etc) that will cause the prices to skyrocket.
3. For people that think oil supply is never ending - not too long ago US was self sufficient, and we are the biggest importer now. China, India and other populous countries are just entering the industrial revolution with a huge middle class to acquire US spending habits. Like the US, Great Britain and other ex-large producers, the whole world will run of economically recoverable oil - when that happens, where will the world import the oil from.
4. The use of alternative energy sources such as solar, more nuclear etc. should be implemented for all feasible applications (like electricity generation) and oil should be used only for things that currently do not have much alternatives, such as jet engines, chemical processing, etc. Certain alternatives (fuel cells, corn ethanol) are just a political hype, as they use more non-renewable energy than they produce.

[itsonlymoney]

Societies that are not able to adapt to changed circumstances disappear. If we continue to think in terms of drilling and mining and burning then the predicted consequences will arrive and are arriving. What will it take for this country to get the message that we need to free ourselves from fossil fuels!? Even if we have enough oil sands to last "forever", and enough gas and water to process them, it will still contribute to global warming, vastly degrade the Canadian wilderness, and continue to foul our air with the concomitant health costs. Not to mention that we will transfer our wealth to foreign nations for dubious national advantages. How much is a trip to the mall really worth?
The rising price of oil is just an economic reminder that we continue down the wrong energy path and as the price goes up the urgency for change accelerates. We need to get off the sauce for good. And do it while we still have the accumulated capital. We are rapidly transferring our nations wealth to others for fossil fuels and toys and may not have enough capital left for the huge investment needed to make the transition.

[VP ofCommon Sense]

'Shortly after the discovery of oil in Pennsylvania by John D. Rockefeller the United States government proclaimed that we would soon run out. '

I can't believe an inventory analysis done shortly after oil was discovered is even considered relevant.

[Ironman]

Interesting article and responses. I have a few things to add, as a retired mining/petroleum engineer I can tell you that an ore deposit or oil reserve is not a finite size, but changes daily based on price. The higher the price for gold, copper, oil or any commodity the larger the ore/oil deposit becomes as the lower grade ores can then be profitably mined and refined. So it may be true that someday we will reach peak oil we are not yet close to running out of energy. We are just out of cheap energy. The known reserves of energy from coal, tar sands, oil shale, natural gas and oil will last hundreds of years at the current escalating use of resourses - but it will come at a cost - I am not much of an enviromentalist but as a planet we risk running out of clean fresh water, food and clean air before we run out of energy.

[mtmike]

Very informative. CHK and gas drillers look good.

[special1person]

Forget about "Peak Oil".

Start thinking about "Peak Water" and how that will affect Phoenix, Tucson, Las Vegas, LA, Tucson, Denver, Bangkok, The Ogallala aquifer region, etc, etc, etc....

[LucaAvellini]

Interesting articles, as most of the comments it triggered.
However, I think as the conversation progressed some lost sight of the point the author was making.
In my view, this is not about how large potential oil supplies might be. As all the above comments suggest, people have different, often conflicting opinions. The truth is that we don't really know, not does it matter. What does matter is the perception that the (negative) spread between supply and demand is widening. But even that is not really the point. The issues, I think, are:
1- At what price are we going to see a real shift from traditional to new sources of energy?
2 - Who is going to pay for the research?
3 - How long will the entire process take?
Question 1: At what price? Europe has been paying for decades almost four times what we pay in the US, and still not that much has happened there in terms of a serious changes
Question 2: Who is going to pay? Well, not the oil companies, who would have the resources, but not the interest. Not the auto industry, which might have the interest but not the resources. And not the governments, at least until they are buries under a pile of debt.
Question 3: How long? Your guess is as good as mine.
On one point I think most of the above comments seem to agree: natural gas looks like a good bet.

[realityman]

Eventually,we are going to have to address the real root of are budget problems,and that,s sprawl.do city and county goverments operate at peak efficiency?Of course not,but how many communities of any size point proudly to their local government as a bastion of good fiscal sensibility?what distinguishes us is the fact that our infastructure cost continue to climb and the population that must pay for it continues to shrink.Someone,s got to pay for all those new school buildings,sewers,water... and roads.In 1950 75 percent of the county,s population lived in BUFFALO.NOW LESS THAN ONETHIRD DOES.It,s no coincidence that our tax rate explosion mirrors the city,s decline.Every time you see a development going up where none existed before,you,re looking at the real reason why our great cultural institutions are in jeopardy, why are tax load is so heavy and why our quality of life ii threatened.When you look back some day and remember with real regret how we lost that great BUFFALO PHILHARMONIC ORCHESTRA,make sure you give appropriate thanks to our mindless love affair with suburbia.

[guliamo]

I think you're right on. The ideal portfolio should be 50% oil, 30% gas and 20% solar.