Peak Oil Stocks for the Future

Oil prices, US oil independence and basic economics

I just listened to the another politician screaming about opening up ANWR for oil development. These politicians claim our recent sky high oil prices are due to lack of new supply here in the US. As an economist, and an energy user, this view really annoys me You can't dig yourself out of this scarce resource pricing issue. One needs to let economics work: prices need to continue to rise, until demand falls and alternatives are properly funded.

These same politicians also claim that the US economy will crash due to the high cost of hydrocarbons. Actually, I believe the opposite is true. The US oil fueled economy is old and tired. A new vibrant US economy is coming - if we start real investing in all the oil alternative technologies.

US oil independence and ANWR

Let's be very open and clear. If you want the US to be independent from middle eastern oil, the price to the end users needs to continue to rise. While the US should continue to drill in all our current developed areas (US land, GOM up to 2 miles of coastline, deep water, etc.), there is no economic reason to drill in ANWR.

An Energy Information Administration analysis in 2004 concluded that "by 2025 ANWR is projected to reach .9M barrels a day". This report further states that it would take about 12 years for the US to receive any hydrocarbon from ANWR. So, if ANWR were approved today, the US would get its first barrels of oil in 2020. Of course, between now and 2020, there would need to be a huge increase in infrastructure and construction activity to develop ANWR. This activity needs energy, specifically diesel fuel for all this construction. The US would have a further rise in oil demand while this project is being built-out, increasing fuel cost for all Americans.

With this above time-frame in mind, it appears some politicians feel we will still be highly dependent on oil in 2020-2040. We could just build cars that don't use oil, would this not be more logical? My view is to just let economics work. Gas at the pump at 5-10 dollars a gallon would make the manufacturing of the combustion engine vehicle a big ole dodo bird.

Even better, the US does not need any technological breakthrough to make the current vehicle engine extinct. Coal liquification into diesel fuel has been done on a large scale since WWII. Can the CTL technology be clean? Well, yes it could, but not at 3 bucks a gallon. The diesel engine is 30% more efficient than a combustion engine, so if we use coal vs oil, this one component change would make the US independent from middle eastern oil.

We also have natural gas powered cars, fuel cell and electric cars. These technologies are here today, and will continue to improve every year if we allow natural economics to continue.

Peak oil theory

This is a very misunderstood concept. Peak oil has very little to do with actual oil reserves. Let's assume that the world has 100 years of oil reserves; hell for argument's sake, let's just bump that figure up to 2,000 year's supply of oil reserves. So with 2,000 years of oil left, how does the peak oil theory stand up? Actually, very well. One needs to understand economics and infrastructure.

Peak oil has nothing to do with reserves, but instead with the rate of extraction, distribution, and refinement. Wiki gives a concise view:

Peak oil is the point in time when the maximum rate of global petroleum production is reached, after which the rate of production enters its terminal decline.

Currently, world oil extraction and distribution is about 85 million barrels a day. Is this the peak? Hard to say, but we can say based on economics that the world is either at the peak or within 5-10% of a possible peak. Current actual demand is estimated to be around 87 million barrels a day, so it's obvious that prices will continue to rise until demand is brought back in balance. Here is Boone Picken's current view:

Eighty-five million barrels of oil a day is all the world can produce, and the demand is 87 million," he said. "It's just that simple. It doesn't have anything to do with the value of the dollar.

Of course we need assumptions. An economist can't get through the day without a few assumptions! Here are my world oil economic assumptions.

1. World-wide demand for energy and transportation energy will continue to increase between 1-3% per annum.
2. Supply and distribution of oil will be between 85-87 million barrels a day.
3. World-wide pollution taxes, or cap and trade programs, to increase dramatically over the next 10 years, the effect of which is a 10-20% tax on polluting sources of energy (oil and coal).

So if the world is currently capped at about 85M barrels a day of extraction and distribution, but demand for oil rises 3% per annum, what happens next? Since the demand curve for oil is very inelastic, this means that the price of oil can rise very sharply in the short term. This is what we have seen during the past 3-4 years.

For me, as a long term investor, I am very interested in the next question: What about the pricing dynamics for oil in the long term? This is also the most important question for any decision on ANWR, since consumers will not see any significant oil from ANWR until 2025.

Long term oil economics

This is more complex than it appears. As stated above, the short term economics indicate much higher oil related energy prices given the above assumptions. Governments and investors all over the world are very interested in this topic. We all see that it is transportation - vehicles - that drive the demand and price for oil. For the first time, it is clear that alternative vehicles will be competitive long term.

In order for current oil extraction and distribution to even stay at 85M a day, or to increase this amount, oil infrastructure investment must increase. For future extraction, the world needs new oil platforms and deep sea oil rigs. For transportation, the world needs VLCCs - 500,000 dead weight tons of steel. Once transported, we need large refineries to create the distillates. After refining, we need miles of steel pipelines, trucks, etc. In the medium term, I like investing in steel stocks.

The cost of the above infrastructure is huge. Building a VLCC takes years, at a cost of over 120 million. This cost has risen over 50% in just a few years. As fuel costs rise, the cost to make everything also rises - steel plates, large diesel engines, precision tolls,etc. This economic dynamic is the same for the very expensive new rigs, refining capacity and transportation pipelines and vehicles.

Here comes the crux. CEOs of firms in the oil industry must always do a financial cost benefit analysis of these new large infrastructure purchases. With the current high cost of gas and diesel ($4-5 dollars a gallon), and pollution taxes in the future increasing this price to over $5 a gallon for the foreseeable future, alternative natural gas engines (1-3 dollars a gallon), electric vehicle engines (under $1 a gallon) and coal-diesel engines (4 dollars a gallon) are all economically preferred.

With the much higher differential in the cost of powering the current oil based vehicle engines, the world will quickly adopt natural gas, battery and fuel cell powered vehicles over the next 10 years. So why invest 120 million dollars in a large crude carrier when it could be obsolete in 10 years? The same thinking applies to large oil rigs, new refineries, etc. And again, why waste money money drilling in ANWR - by the time the US gets the oil, we probably will not even need it.

As in investing and life, timing is everything. When will firms stop ordering all this expensive oil infrastructure equipment? If they were prudent, I would expect a drop-off in oil infrastructure demand over the next 3-5 years.

What will happen with oil prices?

As stated above, oil prices will continue to stay high in the short run, but at some point in the next few years, I predict a downturn in oil prices, as alternative power sources are used in vehicles. This is how economics should work. I am surprised that this shift has taken 100 years. As an investor, this changes how I value many energy firms.

Firms that are 100% levered to the extraction and distribution of oil will have falling cash flows after 2013-2015, in my humble opinion. Individuals and businesses change their vehicles quite often - every 3-5 years - so one can see how the technological changes in the transportation area can impact the demand for oil fairly quickly. As for the electric generation, this timing is different. We don't change our power plants out every 5 years, so the demand for coal and natural gas will remain strong at least 10 years out.

As I have written before, firms that are in the natural gas business will outperform the oil related firms in the future. Also, firms in battery and fuel cell technology should outperform. These changes will invigorate the US economy - if the government stays out of the way. Current ethanol mandates and ANWR drilling plans all have one effect - to slow down the natural economic change from oil to all its alternatives.

Some of my favorite long term stocks for this peak oil economics are:

• Precision Drilling (PDS)
• Apache Corporation (APA)
• Chesapeake Energy (CHK)
• Pengrowth Energy Trust (PGH)
• Provident Energy Trust (PVX)
• Pride International (PDE)
• Bronco Drilling (BRNC)
• Helmerich & Payne (HP)
• Swift Energy (SFY)
• Pioneer Drilling (PDC)
• EnCana Corporation (ECA)
• Nabors Industries (NBR)
• Devon Energy (DVN)
• Capstone Turbine (CPST)
• FuelCell Energy (FCEL)

Disclosure: Author holds positions in CHK, BRNC, APA, and CPST

Comments

[richjoy:]

We need to drill where the oil is...if we had drilled in ANWAR when Clinton stopped it, we would have the oil now.

Yes, oil needed to rise to make investments in alternative technologies viable...an it has!

Our Congressmen are totally nuts!...but Mr. Ellard is just as nuts on the opposite end. He sits on his lofty perch and completely ignores the economic destruction, job losses, and international chaos now accelerating to no one knows what conclusion (and long before his favorite alternative energy stocks produce a meaningful impact). It will be YEARS before wind, solar, biofuels, wave, geothermal, or others make a significant contribution to our energy needs. Oil doubling in a year is not good for either the short term or long term. The bubble must burst so we can catch our breath.

2008 May 22 08:49 AM

[Ozarker:]

Mr. Ellard is right on. There is no bubble to burst. Oil is high and will get higher. If we convert all our coal fired power plants and vehicles to Natural gas and compressed natural gas, respectively, our polution and supply problems could be fixed by next year. We have maybe hundreds of years of reserves and natural gas, which is 80% hydrogen, burns cleaner than almost any other fuel. Lets get a move on. Git er done!

2008 May 22 09:44 AM

[MrWord:]

The oil executives now testifying before congress (and their lackeys in congress and the Bush administration) have redefined chutzpah. It used to be defined by a man who murdered his parents and asked for clemency from the court because he is an orphan. Now chutzpah is defined by an oil executive who explains his company's tremendous profits (and his enormous salary) are because he's not allowed to drill in ANWR.

2008 May 22 09:48 AM

[User 193313:]

Richjoy - perhaps you should actually read the article before calling someone nuts. ANWR drilling solves nothing and needlessly ruins a pristine environment. If ANWR had been drilled in the 90's we would still be where we are today. Stop living in the past. If the auto makers wouldn't have created the SUV and made more fuel efficent cars in the 90's we'd be better off today but that didn't happen either! Perhaps you should ditch your bias and look at the facts instead.

2008 May 22 10:20 AM

[William Ellard:]

"economic destruction, job losses"

Actually you are incorrect. High oil prices increase US GDP and economic activity.
This is the chart of crude oil prices and real GDP for the past 10 years:

============== oil===================...
Year==oil ====Price inc.===real GDP growth
----------------------...
1998== $11.91
1999== $16.56===+39%===== 4.5%
2000== $27.39===+65%===== 3.7%
2001== $23.00=== -17%==== 1%
2002== $22.81===-1%===== 1.6%
2003== $27.69===21%===== 2.5%
2004== $37.66===36%===== 3.6%
2005== $50.04===32%===== 3.1%
2006== $58.30===17%===== 2.9%
2007== $64.20===10%===== 2.2%

As one can see, there is no negative correlation between oil price increases and real GDP changes. If fact the data shows a positive correlation. The years with highest oil price increase - 1999, 2000,2004,2005 had the highest real GDP growth - well above normal.

Conversly the years with negative oil price changes 2001, 2002 - had the weakest growth.

The reasons are simple - with increases in prices, drilling and exploring activity increases big time - creating jobs and higher GDP. Also alternatives start to get funded, creating more jobs.

If you think oil independence is important for national and economic security as I do - the only fix is higher, higher prices for all oil related products - the main one being gas at the pump.

2008 May 22 10:45 AM

[Brahm:]

This article is well-intentioned, and the primary thesis behind it that price should determine supply and demand and hence solve the energy conundrum is sound. However, the problem comes up when the author points to some directions and potential solutions of which he does not know enough. This actually is one of the primary problems why an expeditious solution to the problem is not going to be easy. There are too many amateurs around, though having good foundations in economic and financial analysis, are not sophisticated enough about the sciences and the engineering. Even scientists and engineers per se fail on these issues very frequently because they often lack the wide range of knowledge and experience they shouild have for making an apt contribution. One only has one life-time to live and contribute. Often it takes more than that to genrate the right approaches!

The author mentions CTL from coal. Well, he is right that this could have been intiated long ago (I was a manager of some Federal programs relating to this area in the distant past!) However, in the context of global warming threatening us, this would be one of the most misguided and horrible approaches to solve our energy problem. The efficiency of converting coal through CTL is only about 50%. Petroleum cracking to yield the spectrum of products we use (diesel, gasoline, and chemicals, etc) has an efficiency of about 90%. Think about doubling CO2 when anyone mentions CTL from coal, and also efficiency! Perhaps, more than doubling CO2, if bureaucrats, engineers and other less sophisticated persons are willing to consider that it takes a lot more to mine coal (think diesel powered heavy equipment, electricity, etc) , transport it by rail/truck, etc. I would not be surprised if someone comes up with an overall efficiency of less than 40%, after factoring these issues. Pumping petroleum or gas out of the ground and transporting it by pipe and/or ships is far more efficient, and hence less CO2 polluting. Petroleum has far more hydrogen in it than coal, and unit energy per unit energy generates significantly less CO2 than the use of liquids derived through CTL from coal.

Most of the public discussions now on the subject of CO2 is dominated be politicians, public policy "experts"/do-gooders , bureaucrats and so-called environmentalists who do not have enouch knowledge at their command. Sadly, they do not want to seek out the few well-grounded people available(such as your's truely) who shun the public limelight or the rough and tumble of that come from swollen egos. Quite often they don't have the time and patience for acquiring the deep real knowledge required. That is how we have gotten into the wrong tracks like producing alcohol from grain which is ruining our planet and is going to increase poverty around!

There are other statements in the article which cannot be supported by rigorous scientific analysis, though the ideas seem to bew current wisdom in the public domain. In a nut-shell, without going through the sophisticated reasons like the above and others relating to gas, power, etc., the approach of producing CTL from natural gas is also not a good idea. It should be used in other ways to meet our energy needs, and at the same time enhance our global warming interests. But this is a very sophisticated discussion which has not even been touched yet, as far as I know.

2008 May 22 11:23 AM

[22thoroughbred:]

Why aren't there hearings inthe the profit margins on Nintendo or Take-Two's games, they make more than 10-12% net on their product, oh yah I know, it makes no political points. If the oil companies weren't dealing with such huge numbers 10%-12% NET profit wouldn't mean anything. It;s like tobacco, no politician will defend oil or tobacco because it gets them no points so they just keep holding hearings. Stop wasting time, if I was an oil exec. I would just call them out on live TV and ask "exactly what has congress or the senate done to help increase oil supplies in the last 10-15 years? Then the hearings would stop

2008 May 22 11:54 AM

[20-20 Hind ...:]

You can't have it both ways, Mr. Ellard.

There is a decade lag in developing new oil fields. It takes almost as long for consumption profile to change. If consumers bought only subcompact or alternative fuel vehicles, the national gasoline consumption won't appreciably decline for several years.

I do agree that petroleum prices have to high and stay high for new investments to bite. Let market forces affect both oil production and alter consumption patterns.

The estimated recoverable reserve at ANWR is put at 6 to 10 billion barrels -- roughly a cool trillion dollars. Think about NOT sending a trillion dollars to the Middle East.

C'mon, I have to believe we know how to do "low impact" drilling. Declaring ANWR out of bounds is pure NIMBY. It is ok to drill in the fertile river delta of Nigeria instead? Please explain how the Earth's environment is thus improved.

2008 May 22 12:11 PM

[Shaggieman:]

I couldn't finish this article before barfing! We need to drill for the oil wherever the oil is; period.

The greenpeace folks have gotten us in the current mess were in today and the silent majority needs to speak up or we're all finished.

2008 May 22 12:16 PM

[Craiger:]

Like the article. Very interested in coal gasification! US has more coal than any other nation/continent. Too long a time line on ANWAR, need/profit will push construction to 1/2 the time then 1/2 it again. 1 million barrels/day = all crude US gets from Saudi Arabia today. High oil impacts everything not just fuel use; plastics, fabric, electronics, food production, etc. Keep in mind that more than 1/2 of US carbon fuel goes to produce electricity! Most burn coal, it will take billions to replace them with natural gas or nuclear. An individuals car or SUV is nothing on the scale of fosil fuels, trucks hauling frieght is significant, passenger cars are blip on the radar screen.

2008 May 22 12:17 PM

[William Ellard:]

Hi Brahm;
Thanks for your input. My article is based on the science of economics. My original degree was in marine biology(unfinished), and my overall background in the sciences are sound, but not up to your level.

I have researched technologies heavily over the past 5 years including CTL and the FT processes. My current view is that we need pollution taxes on NOx, SOx, and mercury. I am not so sure on CO2. So unless CTL can be done without a pollution reduction, then it will not work for me. Can CTL be done without increased pollution? You would know better than I, but I think at the right price it could be. The efficiency issues are important, but the US needs a viable alternative away from oil based vehicle transport. What power source do you think is best for out auto, and truck fleet.

I think developing plug in, and fast charge electric vehicles would be the best solution, Since we could manage energy, and pollution from much fewer power points - the grid, now we have millions of little inefficient power plants driving all over the place!.Then we could just tax pollution and let economics decide which is the correct energy for the future. When the government picks the winners(Ethanol) with subsidies, everyone losses IMHO.

I am getting ready to start a web site on energy economics, and future policy decision needed to move the US into the future. Your input would great to have. e-mail me if you the time at [e-mail].

regards;

William Ellard

2008 May 22 12:22 PM

[William Ellard:]

Oilsupply and Shag;
I was hoping for responses, maybe not barf-age! Thanks for your opinion, and I do agree with continuing to drill. Yes I am an environmentalist, but also a capitalist pig. I own CHK, and many oil firms, drillers, refiners, etc....Greed and drilling is good, and can be done in an environmental safe way.

My personal view as stated in the article about ANWR, is that it just does not make economic sense. Lets drill our coastal waters were the infrastructure already exist.

I would have to respectfully disagree on how long it will take for the US to move away from oil based combustion engines as the main source of automotive power. If we just shift the income tax to gas taxes(net would be less total taxes), and create the proper economic incentives for new technology - The US will respond with greed, and US economic activity would thrive IMHO. If the US auto fleet just moved to clean diesel technology, we would not need middle eastern oil.

2008 May 22 12:35 PM

[Global Warm...:]

I agree with Brahm here. It does not make sense that the author wants to 'protect' our environment by not drilling ANWR, but suggests coal to liquids which would release tremendous amounts of carbon dioxide. These types of plants can't get funding because the investors realize that future carbon emission limitations might prevent them from operating the plants for their expected lifetimes and they are not going to risk losing the huge investments required. It is even difficult now to fund a coal-fired power plant for the same reason.

We should have a plan to reduce greenhouse emissions and it should start with cutting back on fuels like coal that have the highest carbon emissions for the energy produced. Oil should be in the mix of fuels we use now until we can produce all of our energy from alternative fuels. I have a web site on Global Warming (examiner.com/x-325-Gl... where I discuss how the mix of fuels affects our environment. So called environmentalists who are against any type of fossil fuel production are actually making the global warming situation worse. We are not producing enough new alternative energy to even meet increasing demand, much less replace existing fossil fuel consumption. I could take 40 years to switch to alternative fuels. To suggest that everything will change in a few years is not reasonable. 'All we need is hope' will not put gas in the tank.

Not producing oil from ANWR hurts us economically, about $1 trillion dollars that we will import from foreign countries. It hurts our trade balance which hurts the value of the dollar. It causes industry to move off-shore to countries like China that pollute worse than we do. It hurts the people in Alaska who won't get the tax revenue for their state endowment fund. It hurts everyone who has to pay higher prices for gasoline (special thank you to Bill Clinton), and can't buy an alternative energy vehicle this year. It's not just ANWR, but also all of the oil and gas resources off our coast that can't be utilized.

Drilling in ANWR will only require about 2,000 acres out of 1.2 million acres in the reserve. A lot of infrastructure like the Alaska pipleline is already in place. Some of the time-line estimates include the time to fight the legal challenges. This supply could come on faster than some of the estimates.

I am actually very bullish on natural gas producers. Replacing all of our coal plants with natural gas would cut the emission of carbon dioxide from electric generation in half. But it is not going to happen in 3 years. This would be a huge infrastructure investment in new gas wells and pipelines. Maybe in 30 years, a little at a time. Some of that natural gas may come from ANWR.

2008 May 22 01:40 PM

[MonkDonk:]

Shaggie, I too puked in my mouth but only because it reminded me my tank is almost on E and undoubtedly the cost of a gallon of gas has increased today.
Thoroughbred, (nice tag, way to go Big Brown) Nintendo can make 50% net on its products and most of America would not care because you can't fit a Nintendo in your gas tank. What I mean by that is that without gasoline I cannot get to work and I can't make the money to pay for more gas. However, you are right about politicians...but we put them there, right? Last I heard they don't even fill their gas tanks, we do with our taxes.
Mr. Ellard, nice article. We are a impulsive people, and greedy. Until demand diminishes (which it will not because last time I checked there were way too many me-me-me baby boomers) we will be paying more at the pump. Hey baby boomers, maybe you can stop buying your kids those fancy cars and paying for their gas. Make them get jobs and learn the value of a dollar... oh wait, does a dollar have any value today?

2008 May 22 02:28 PM

[sivere:]

We need to develop our domestic sources asap. In addition we need to start developing alternative sources- coal, nuclear, solar, etc.

The $100+ dollar/barrel oil prices are a blessing in disguise, because they make alternatives economically possible. But they will kill us (potentially literally) if there is no organization around developing the alternatives.

This is coupled with a collapse of our financial system. That is the 1, 2 double punch and you are out.

We need, in addition to the above energy scenarios, to TakeBackTheFed.com

If we do not get off our duffs, we will truly be in trouble. NOW IS THE TIME TO ACT.

2008 May 22 03:08 PM

[scoots:]

In terms of selecting the "right" companies, this is extremely problematic. Buy either IEO or XOP for more peace of mind.

2008 May 22 03:17 PM

[MonkDonk:]

I am joining your revolution sivere.
I agree alternatives must be pursued and fast. But the problem is financing and politics. Where do you get the money to completely overhaul the American infrastructure and where do you get the money to grease the political machine?...oops...did I just say that? What I mean is old dogs don't learn new tricks...not even for a bone....
What we really need is for Americans to start using their brains instead of allowing themselves to be led like cattle to the slaughter. Whose bright idea was it to use all the corn (that we need to EAT by the way, i.e. survive) for a biofuel? What a dumb idea, and don't think we aren't paying the price for that one too.

2008 May 22 03:19 PM

[William Ellard:]

Global Warming;
My article does not suggest at all that we should not drill in ANWR for environmental reasons. My reasons are purely economics - it does not make sense IMHO. We should drill in the lower 48, and coast as we have all the infrastructure already.

If the US does not get a comprehensive energy policy - economics will do the job - but in a more painful way. We need to raise the price of energy from oil, to the point were the US demands 20-30% less of it.

Since the demand curve is very inelastic - the price at the pump may need to go up much more than 30%. This will not take decades - one way or another, the US can not economically use this much oil. We can not drill our way out of this problem....

2008 May 22 03:49 PM

[old Tex:]

What Ivy league school did you go to? You need a dose of reality. While we get from here to there we need to explore all our areas. It will be a long and difficult journey and just hoping some miracle technology will fall out of the sky to save us just isn't going to happen.

2008 May 22 04:10 PM

[MonkDonk:]

I agree vehicles are the first things that must change and I am a proponent of fuel cell technology myself.
But what about the dependence on by-products. What will we pave our roads with? Will we have to recycle more of our plastic? Will there still be plastic? And what about jet fuel? I don't want to be the first passenger on the experimental trans-continental flight powered by a mystery fuel source.
The changes that have to be made because of the extent of our dependence on ANY oil from ANY source are so mind boggling it makes me dizzy. When by products are considered as well, think of all the changes to the infrastructure that will be required.

2008 May 22 04:21 PM

[William Ellard:]

Monk;
If we move vehicles off of oil, we will no longer need middle eastern oil. For me this is oil independence. We will still get oil from Canada, and Mexico(#1, and #3 importers). We will still need oil and NG, and we should continue to explore and dig.

2008 May 22 05:33 PM

[surgcare:]

People like you anoy me ,because of stupidity . Energy is not for free . People like the author and other liberals seem to think that electric cars are free energy . How do you think electricity is made . Either coal , nuclear or oil which your against . That leaves natural gas which brings up the second idiocy of these people . You have to drill for natural gas which is found with oil . Its not found in your back yard for free . You can't dissociate natural gas from oil . They come from the same place .This is why we have a severe energy problem in america which will probably destroy this country . Stupidity like the verbage presented by the author . Must be a democrat .

2008 May 22 05:39 PM

[MonkDonk:]

Hey surgcare, do you like music? Records evolved into 8 tracks before they evolved into CDs. 8 tracks were shortlived failures but it got people thinking of alternatives didn't it? You have to start somewhere.

2008 May 22 06:25 PM

[whisperonth...:]

Monkdonk, THIS baby boomer is tired of the "I deserve it" generation, where they deserve more than what they earn, they deserve to have everything WE worked for and even more. THIS baby boomer has two self-supporting kids, THIS baby boomer never bought them a big fancy car, and THIS baby boomer is working HER tail off to keep the money coming in so I can retire and not have to work with people like you. The baby boomers are the ones putting money into social security now. Soon we will all be retired and all those jobs will be available, and there aren't enough of you to take on those jobs. Add to that the "I deserve it FREE" group, who will expect you to support them with your taxes.

2008 May 22 06:36 PM

[MonkDonk:]

Yeah, so sorry I hurt your feelings there. Anything important to say about, oh I don't know, OIL??? The actual topic?

2008 May 22 07:06 PM

[MonkDonk:]

Like I said the me-me-me generation

2008 May 22 07:16 PM

[PAULWOT:]

Being "independant" from foreign oil means nothing in a free market. The market and demand will determine the price, so even if we were independant, the oil we have would be sold to china or someone else that has the higher dollar for it and our gas would still be high. One thing I was suprised that hasn't come up. The number one consumer of fuel in the USA is OUR MILITARY! Come November, when the democratic party is in the white house, and 150,000 (now unemployed) troups come home, you can expect that oil demand will ease off. You can also expect unemployment to rise, and inflation to take over. I think NOW is the time for investors to look closely at building CNG (compressed natural gas) stations. I recently was looking into a new Honda that runs off of CNG and It has its good points and its bad points, but in the long run I find that it will create a significant competition to oil industries and more car manufaturers will "feel" the demand for this type of vehicle if the CNG stations are already in place. By the way, they also have a way for you to fill your tank in your garage, from the existing natural gas line in your house. That part of this type of infrastructer is already there.

2008 May 22 07:43 PM

[cook503:]

I'd rather let the free market decide if drilling in ANWR makes sense. This isn't the Soviet Union where the government will be paying for drilling; the money comes from private funds. If companies think that they can make a profit and add some energy supply to the US market, I say let them. If they end up losing money because of this since it might take time for wells to come on line, then it is their problem.

Of course, in the long term, a better solution is natural gas--and the free market has responded to that. Look how natural gas stocks have performed. And also of course, environmental extremists are trying to prevent drilling off of our coastal shores. Or, how environmental extremists have scared people away from nuclear power. We do have alternatives that involve real technology, and not pie in the sky daydreaming (ethanol), and all we need is the will to use it.

2008 May 22 08:02 PM

[green_cheeks:]

afjak

2008 May 22 08:28 PM

[rockybullwi...:]

It's no wonder this country (the US) can't solve a big problem like the one we are now facing from skyrocketing oil prices. There are too many people like "surgcare" who would rather call anyone having a different perspective "stupid", "liberal", "democrat", or whatever, than try to engage in constructive dialogue that might actually help advance us toward a solution.

We also have a do-nothing legislative branch of government that spends 99% of its time raising money for re-election campaigns, passing meaningless resolutions, or debating completely futile, useless issues like "the sanctity of marriage" and "prayer in the classroom". Such meaningless debate is only intended to divide Americans rather than unite them in common causes like ending our energy dependence on foreign-sourced oil.

As for ANWR, if opening that place up for drilling would really make a significant difference in America's supply of oil, I'd be glad to support it at the expense of a bunch of caribou (which by the way is good eating, if a little stringy). But facts are facts: even if maximum output were achieved tomorrow, ANWR could only supply 5% of our nation's daily petroleum needs. We currently produce about 60% of the 20 million barrels we use each day. We get the other 40% from other countries. Of that portion, the largest exporters are Canada (17.2%), Mexico (12.4%), Saudi Arabia (10.7%), Venezuela (10.4%), Nigeria (8.1%), and all others round out the remaining 50%.

So even at its peak, ANWR could reduce our dependence on foreign oil from 40% down to 35%, and only for a maximum of 44 years, and that's using the highest estimates for recoverable oil. If the lowest estimates are used, the recovery period is closer to 21 years. When you factor in the reality that 17% of current US oil production comes from Prudhoe Bay, which is basically next door to ANWR, and that PB production peaked in 1998 (2 million BBD) and is now less than half that, with only 2 billion more recoverable barrels left (according to BP Amoco estimates), that 5% contribution from ANWR would be more than negated by the expected continued declines in production from PB.

The best thing we can do, besides getting our elected officials to focus on issues of actual importance, is to promote technologies that maximize the energy we currently have access to. Microturbines are one such technology. Solar and wind are two others. Nuclear too, that is if an intelligent, long-term approach to storage of the waste can be reached and plutonium can be kept out of the reaches of hotheads who would rather silence than respect cultures and values different than their own. Hmm....maybe not nuclear. After all, imagine a nuke in the hands of "surgcare".

2008 May 22 08:29 PM

[green_cheeks:]

Hello

2008 May 22 08:44 PM

[green_cheeks:]

Has anyone visited lifeaftertheoilcrash.c...? Pretty interesting. I am not an expert in oil reserves or peak oil, but what I read was mind blowing, in a good sense. At first it was depressing to read about the doom and gloom but his idea of a possible return to a forgotten lifestyle close to the land made sense despite it's "radical-ness".
It seems that much of our current oil use is based on wants rather than needs. I guess that a lot the wants create and sustain jobs, promote the economy, and on and on. Yet things could always be simpler and may turn out that way.

2008 May 22 08:56 PM

[William Ellard:]

Hi surgcare;
I guess you did not read my article. And take your personel attacks elsewhere. A move to non-oil powered vehicles like electric, is important since we would be using our own energy, NG, coal, solar, etc...vs sending 600B of US $$ overseas. So you like sending all this money and GDP outside the US?

Also the economic and security issues are very important. With our current addiction to oil, If Iran, or a large middle eastern war, could shut down Suadi oil, what do you think would happen to Oil price and more impotantly - supply. How would you like rationing?

Lets us the electric grid. Coal and NG powered cars would also be much cheaper, and create US jobs...Electric engines are not free energy - it would come from US coal and Natural gas and cost consumers less than current gasoline...

2008 May 22 09:29 PM

[fran:]

THANKS FOR THE ARTICLE! after all the emotion and paranoia being hyped in the media on OIL/ENERGY/POLITICS, it's pleasant to get back to basic realities and simple things which can be understood and performed.

2008 May 22 10:00 PM

[bionerd2:]

I must have missed something. I don't see how outlawing development of ANWR is "let[ting] economics work". Seems to me outlawing economic activity is preventing economics from working.

2008 May 23 02:46 PM

[aurorium:]

Lots of finger pointing in the comment section. A few personal observations.

1. I recommend people visit theoildrum.com for what I consider informative discussions on oil. (I will warn that most of the participants on the site buy into the peak oil (production) scenario.

2. I have to side with those who are pointing the finger at our politicians. Step back and look at it objectively and one see that the republicans have said "lets drill our way out of this mess" and the democrats have said "lets conserve our way out of this mess" for the past decade. Instead of doing the sane thing and doing both as hard as possible, they have fought to win political supremacy. Each side has effectively blocked the other political party's ideas from being enacted. IDIOTS!

3. Someone asked who came up with the ethanol idea. By in large it was Archer Daniels Midland. In a brilliant move (for them) they promoted the idea hard to midwestern congressmen and it took off. I know McCain used to call ethanol the boondoggle that it is, but he has backed off significantly. As it is now, McCain avoids the subject and Obama and Clinton still love it. Why, of course its about getting elected. You won't hear anything bad about ethanol from them out of fear of loosing the heartland's votes. IDIOTS!

4. Mr. Ellard I think you are underestimating the costs and difficulties involved with converting our power systems to electric. The demands on the power grid and need for sustainable power production would be enormous as will the consumption of certain metals needed to manufacture the power systems from production to battery storage units. I won't even get into the NIMBYs that will come out to sabatage any attempt to develop new electric power generation (FROM ANY SOURCE). That said, I do agree with you that we need to work towards an economy that runs on electricity vs. hydrocarbons. In the long term, hydrocarbons will get too expensive and scarce to be the main power source. Again, this conversion will take longer than you think and we will need as many reliable sources of hydrocarbons as we can secure in the transition. I think it will take 20 to 25 years if we push hard.

5. I believe that Matt Simmons is correct, for us to get through this painful transition time, we will need to change how we do business. I see work at home and video conferencing booming in the next couple years.

6. Paulwot2008 Yeah, when the military gradually pulls out of Iraq, it will cut back on its fuel consumption. However, your apparent point is totally off the mark. The real question is will Iraq degenerate into all out civil war. If it does, there will be far more oil pulled off the world markets from lost production in Iraq than are consumed by our military. Heaven help us if this happens. It could potentally spread to other vital producing nations in the region as well.

On a positive note, everyone who posted a comment no matter what their slant, at least is keenly interested in this subject and is looking for real answers which is far better than the simplistic garbage one hears from our politician or mainstream news sources. Best of luck to all...

2008 May 23 10:52 PM

[fossil:]

What the heck is afjak?

It seems to me that developing EVERYTHING is necessary, including new oil projects.

As a nation, we should stop spending on foreign wars, agriculture subsidies (to not grow food), education (most of California's budget going to waste on kids who do not care) and other forms of corporate / personal welfare. We should spend our tax dollars on wind, solar, natural gas, nuclear and coal liquidifaction.

As for global warming and the green movement, good luck. All you youngin's will be starving and freezing to death in twenty years. Will you still be worried about pollution, or out stealing from your neighbors' wood piles?

oldguy

2008 May 23 11:09 PM

[pachanguero:]

Anwar would be producing and we would have good paying jobs for Americans if we would have started drilling ten years ago. Stupid.

The green movement is a religion. Drill Now and damn the wackos

2008 May 24 07:25 AM

[Redscotian:]

Interesting article. Regrettable to see so many ignorant and nasty comments. Mr. Ellard is entitled to his opinion, and we should respect that. You think you have it bad in the USA. Here is Canada (which is full of oil) many of us are paying $C1.37 a litre, about $US5.12 per US gallon- thanks to high fuel taxes. Americans would be freaking out with prices like that. People here generally drive smaller vehicles, but there is absolutely nothing happening to transition to hybrids, electric, hydrogen, etc. Federal and provincial governments here are addicted to oil tax revenue and thus reject innovation. We can expect higher fuel prices and serious inflation as diesel prices here are quickly approaching $6/gal. I don't think higher gasoline prices are going to spur innovation soon, but rather will force people to buy smaller vehicles.
As for CTL, there is always carbon capture, so rejecting the idea for environmental reasons is premature.

2008 May 24 11:58 AM

[lntwo:]

thanks for the article, and the follow-up responses. Good posts brahm and rockybullwinkle. Long time liberal-environmentali... but investing realist, started reallocating from oil to NG about 6 months ago. Thanks for some ideas and points of departure for further investments. I'll stay out of the political discussion and let my returns do the talkin'.

2008 May 24 02:16 PM

[Brother Kar...:]

Mr. Ellard, thank you for an intelligent article on this crucial issue.

And thanks to those who posted rational responses.

2008 May 24 02:16 PM

[Catfish:]

I fully agree. If everyone can only afford to drive half as many miles, then the businesses they traveled to will eventually close up. The the $#$%^ mathematics of economies will indeed kick in, then the economy will CRASH. One redeeming factor; this country will no longer be as attractive to the "undocumented Americans" as Harry Reid has labeled them.


On May 23 02:46 PM bionerd2 wrote:

> I must have missed something. I don't see how outlawing development
> of ANWR is "let[ting] economics work". Seems to me outlawing economic
> activity is preventing economics from working.

2008 May 24 06:06 PM

[Catfish:]

Ah yes, you yearn for the life in the gulags. How simple it was. After a few years, you didn't yearn for the "wants" because you forgot what they were. All you cared about (all you could hope for) was a warm place in the winter, spring, and fall. Now you greenies can call that utopia ---- I call it misery.


On May 22 08:56 PM green_cheeks wrote:

> Has anyone visited lifeaftertheoilcrash.c...? Pretty interesting.
> I am not an expert in oil reserves or peak oil, but what I read was
> mind blowing, in a good sense. At first it was depressing to read
> about the doom and gloom but his idea of a possible return to a forgotten
> lifestyle close to the land made sense despite it's "radical-ness".
>
> It seems that much of our current oil use is based on wants rather
> than needs. I guess that a lot the wants create and sustain jobs,
> promote the economy, and on and on. Yet things could always be simpler
> and may turn out that way.

2008 May 24 06:16 PM

[jimmy46:]

he author and almost all the commenter's are idiots.
No wonder we have a problem, and it's not likely to be solved.

BTW,
"For transportation, the world needs VLCCs -500,000 dead weight tons of steel."

This ship doesn't have 500,000 tons of steel in it,
rather it can carry that weight of cargo.

2008 May 24 09:19 PM

[george flood:]

Thank you for this refreshing view of reality.
I dream of the US being self sufficient 1

2008 May 25 10:33 PM

[barnburner:]

I just love how these "interactions" about energy always finds it's way into the gutter. Terms like "idiots", "$#$%^ ", "stupid" to describe the author of the article or others who have a different opinion find their way into the mix. I guess about the only thing that is agreed upon is that the U.S. has no energy policy but to read the vehemence of some of the above post I guess that Congress is a reflection of the ignorant, $#$%^ and stupid public.

2008 May 26 01:01 PM

[mushrumps:]

The author argues that we should let the market work in raising price of oil, which will then lead to all good things.

Why, then, not let the market and private operators decide what to do with ANWR instead of the government?

2008 May 28 11:13 AM

[dvorakquart...:]

Let's say you have 100 apples. Now, you can eat the apples directly, or you can use them to make other things, like candied apples, apple pie, vinegar, apple cider, etc. If demand for apples is 1 per day, then math says you only have 100 days of apples. And I think we can all agree that after 100 days, we will also not have candied apples, apple pie, vinegar, cider, etc. To me the argument about oil is the same. We talk about using other technologies to supply our energy needs in the future, but are they not all derived ultimately from oil? Everything in our lives is derived to some extent from oil, unless you made it yourself, or picked it from your garden. So to me, to say that we should look to solar, nuclear, natural gas, wind, wave, or anything for our energy needs is moot. They still are only produced with oil. It's like saying we that we know we can't have anymore apples, but still expect there to be pies and cider. Further, any change to ANY other natural resource will still eventually lead to that resource's depletion, period. We unfortunately don't live on an infinite world with infinite resources. There is a limit to everything we won't to use. For that reason, I am a firm believer in Peak Oil, Peak Coal, Peak Natural Gas, Peak Wood, Peak Anything that we choose to use as an energy source. Switching to another energy source regardless of what it is, will still bring us, in the long run, to the same problem we are facing here. And shouldn't we be trying to solve the real problem, which is our form of civilization itself is unsustainable? We will run out of cheap energy someday, no matter if it is oil, coal, natural gas, or whatever. Would you rather be having this discussion in a hundred years when the population is much higher and the possible draw backs much worse? Or should we just deal with it now and get it over with? Or am I completely off-base and clueless as to how it works?

2008 Jun 13 11:46 PM

[User 218829:]

Some of the best parts of the author's article came in his comments:
600b being sent overseas, a lot of money to fuel extreme movements in other parts of the world, hate money to impliment terror activity for acts that others preceive the USA has done.(right or wrong) We lose twice. money we can use here and money to fight the people we sent it to.
We need to take back control by putting our minds and money to work finding ways to solve our energy problems. Non- petroleum solutions will happen; by us, some other country, organization, or individual that fills the need. And the need is always filled. Will it be the people of the USA who do it ?
Also, I saw referrence to oil canadian trust companies, but did not read about that group in the article.
Did I miss somthing?

2008 Jun 28 01:30 PM

[Ames Tiedeman:]

PVX, HTE, PWE, PGH, these are the long term income producers.

2008 Jul 11 04:31 PM

[bing:]

Well, now here's a guy with a plan: www.pickensplan.com/


On May 23 02:46 PM bionerd2 wrote:

> I must have missed something. I don't see how outlawing development
> of ANWR is "let[ting] economics work". Seems to me outlawing economic
> activity is preventing economics from working.

2008 Jul 22 05:50 PM

[User 222098:]

193313 - Have you really looked at where they want to drill in ANWR - it is a salt water mud flat along the ocean. Prinstine indeed!



On May 22 10:20 AM User 193313 wrote:

> Richjoy - perhaps you should actually read the article before calling
> someone nuts. ANWR drilling solves nothing and needlessly ruins a
> pristine environment. If ANWR had been drilled in the 90's we would
> still be where we are today. Stop living in the past. If the auto
> makers wouldn't have created the SUV and made more fuel efficent
> cars in the 90's we'd be better off today but that didn't happen
> either! Perhaps you should ditch your bias and look at the facts
> instead.

2008 Aug 28 12:35 PM

[thomas728:]

I think, from your tone, that a "place" to drill would never meet your acceptance.

And you proclaim that the saltwater flat is the only site !

The time to begin drilling was many yesterdays........ and while we drill we continue
the quest for the alternatives.

No need to ask how you feel about reactor production is there ?

Smarten up and don't get too wrapped up with Hollywood portrayals.


On Aug 28 12:35 PM User 222098 wrote:

> 193313 - Have you really looked at where they want to drill in ANWR
> - it is a salt water mud flat along the ocean. Prinstine indeed!
>
>

2008 Sep 09 02:32 PM

[shure46:]

I am amazed at the " Let's not drill in ANWAR , because it will take ten years to get the oil " non-sense .........That's like saying , " Don't waste your time going to college , because it will take four years for you to get your diploma " .......... Sometimes I think total morons are in charge of this country ............ I am ALL FOR alternative energies ...... but anyone that thinks we can completely ween off of oil is seriously delusional ........ The computer you are looking at right now comes from petroleum !!!!!!! We are completely saturated with products that are made from petroleum , or natural gas ................ ie - Plastics , Paints , Synthetic Rubber , Nylon , Dacron , Rayon , Polyester , Formica , Naughahyde , Laquers , Polyurathanes , Glues , Epoxies , Tars , Roofings , Cosmetics , Gasoline , Diesels , Jet fuels , Oils , Kroger plastic shopping bags !!!!!! Oil is a MAJOR part of our lives , not even considering the gas pump ....... So forget all the hogwash of getting petroleum out of our lives by 2025 , and all that crap , and go drill !!!!!!! NOW .........and yes , we ALL need to start conserving energy , and driving as fuel efficient cars as possible ........... and I am all for solar , wind , and nuclear ...... but those are never going to completely replace petroleum hydrocarbon energy ............ and electric cars are a joke ....... Wait , in 5 years when people have to spend 5,000 dollars for new batteries ...... and where does the electricity to charge your car come from ????? Power plants , that use coal or natural gas !!!!!!!! Hybrids are a joke also ....... Just wait ............ People are going to freak when they have to buy new batteries , and PAY for old battery disposal ........ Watch and see

2008 Nov 25 01:27 PM

[shure46:]

As a sidenote - Our economy is going to completely collapse if we don't figure out a way to stop sending a trillion dollars a year to China , and the Middle East .............THAT , is why our economy is in trouble now ........ We print money , and eventually it ends up overseas ....... sooooo , we are forced to PRINT MORE MONEY ........... This has GOT TO STOP , or we are financially doomed ....... We MUST get our manufacturing rears in gear , and start EARNING some money BACK from other countries

2008 Nov 25 01:33 PM