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A couple of heavy comments came in over the weekend expressing concern about what might be coming around the bend, not so much in the stock market but bigger pictured items that could impact the stock market--well all capital markets really.
One reader questions whether the the current state of the energy market represents a paradigm shift in that "we are an oil-based economy and the supply of oil is finite."
That oil is finite (aka peak oil) is a complex issue. We know about ANWR, the Bakken Shale, the Marcellus Shale and one or two other spots where there is likely oil. The oil supposedly under water at Tupi and Carioca would make Brazil a big source of oil. I saw a report that the Athabasca oil sands will be able to double production over the next ten years.
That all sounds good, so what's the problem?
There is declining production in Mexico, the North Sea/Norway and probably a couple of other places that escape me at the moment.
At some point the US is going to drill in the places that are controversial which combined with new drilling in the places that are not controversial will buy time versus the gloomiest of forecasts.
It is also quite likely that the pace and subsequent adoption of replacement fuels will occur at an accelerating rate as technological advancement in all fields comes faster and faster (the last 100 years as an example).
None of that is to say uncomfortably high prices won't be something we have to deal with, because we might (depending on your thoughts you might think high prices will be permanent and maybe they will).
The fact is we know what sorts of technologies will contribute to the solution, they already exist. For now, most of them (maybe all of them?) are not economically viable, but they will become more so. Prices will come down, for example solar panels will never be the thing, it will be the cheaper solar film because it is much cheaper.
Knowing what the solution is makes things easier. People need to change their orientation, which will not be easy, but it will happen at some point.
What if my cock-eyed optimistic theory above turns out to be wrong? This leads to another comment about whether somehow oil or oil derivatives could be come the new currency.
My initial reaction to that comment was to question whether the threat of delivery nips this in the bud. What could anyone do with a barrel of oil? Who but George Costanza could lift a barrel of oil? Now factor in that one contract delivers 1000 barrels.
That society could devolve into some sort of Mad Max movie with gasoline being the most prized thing seems very difficult to imagine because as mentioned above the solution already exists. Further when we do start drilling in more places that will relieve some of the problem.
Even if it takes ten years from day one, ANWR is capable of 2.1 million BPD which is in the ballpark of 10% of daily US consumption which I think is significant. At some point it will make sense for some of us, depending on where we live, to cover our roofs with film. More and more of us will have one hybrid in the garage.
I think these things will just happen very undramatically even if gas is $6 a gallon.
My little scenario would not be hiccup free. I would expect distortions with inflation, interest rates and economic stats which would make things ugly but not depression ugly--I don't think.
If you maintain a globally diversified portfolio, you will own the things that do well. I would expect some of the same themes working over the last couple of years to keep on working. China and other countries will continue to ascend, and so anything selling into that need should do well.
Companies providing fossil fuels and alternative energy solutions will do well. That may seem like a contradiction to other comments I have made about solar stocks but it isn't. The technology will matter but we are at least a few years away from anything resembling widespread use and so I think there will be companies that come and go as capitalism does its thing in the next few years.
Or I'll be totally wrong.
Bottom line for me is the same thing I have been saying for a while, which is that historically normal returns will continue to exist but they may not be in all the same places as before. We must be willing to look for them in places that are not as familiar or comfortable for us.
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This article has 23 comments:
Washington politicians are beyond corrupt and besides, they reap massive taxes from $4.00 gasoline (the devalued currency tax) and plan on new taxes in carbon credits, letting the tax cuts expire etc. What they should be doing is creating a massive competing market against petroleum which would solve the problems for Main St. and the markets. I'll report my carbon footprint and comply with the new carbon credit tax when Washington politicians get rid of there SUV traveling circuses.
In my view, it is just like the issues of logging, fishing, or for that matter, heroin addiction. Feeding the addiction is an act of destruction and only meets our short-term need, while laying waste to the future.
I want to leave the planet at least as good as we found it for the next generations - our kids and grand kids and their grand kids grand kids. Time to dial it back. Less is the new more. I have been testing the waters, and been having more fun with less. Less debt, more time for walks and talks, less clutter, less consumer crap, ...
Key Word: Global
Just as our discovery of kerosene largely put an end to the whaling sector (for fuel), so too will the embrace of nuclear and spent fuel reprocessing, along with the adoption of electric vehicles, dramatically reduce the consumption of petroleum.
The fact is, we need nuclear, now, and materials engineered for minimum resistance, to bring us the electric car.
Sadly, I doubt that there is a easy way out of this one because the elephant in the room is over-population. Demand for oil, food, water, and every other resource is now or will shortly be approaching asymptote.
Buy oil, natgas, uranium, other metals, water rights...and guns.
Scott
oilfeeds
Remington Rand Univac's creator is long gone , but IBM , Hewlett Packard and the
Microsfts' and Intels many others survived
mostly by buying other companies to insure
their future growth.
The future of solar may be in film or in painted plastic
Some of the larger players in the solar game today will around tomorrow pickingup little
companies whose technology will help them
grow.
To many traders and pundits I suggest they
devote a little more time to the study of
recent history
In the short-term we can't crank up the hydro, wind, solar, or nuclear production too much...we will be forced to buy and burn more fossil fuels. So as much as we would love to believe that going electric is the same as going green, it's just not the case yet. We MUST put at least as much effort (probably more) into cleaning up the production of electricity as we do weaning our cars off gas.
(Remember 1973 ?) The situation is much worse now than back in 1973 to 1983.
Additionally, when federal or state government do provide some sort of tax incentives to assist a fledgling start up idea or industry, either one of the two major political parties or those industries on the other side of the street run to their laywers and try to shut "change" down.
I'm sick of the partisan politics that run...or should I saw ruin ...this country !
Ever wonder why he never pitched this? Could be he sold the US out in favor of big oil.
Sorry. I'm getting way too cynical about him and George.
Get real... Windfall Profits Tax did not work last time and it will not work now. The only thing that will work is working hard to produce what we have and find an alternative to the black stuff!!
Our elected officials need to be held accountable for this mess... We should demand that they use every means possible to let the world know, especially the other producers, that we the largest consumer will not be held hostage by them. Open up the flood gates and start drilling and refining some US oil from any place we have reserves....
Another thing... Why can China and Castro drill 50 miles off Florida and we can't?
Who is better at making sure we do not create an environmental problem? The US producers that we can control or China/Castro who we have not been able too???????