Bruce Pile

Peak Oil for Dummies

If you think that big new oilfield finds or the steady advance of technology will keep moving the Hubbert method peak far into the future, consider the U.S. lower 48 as a proxy for the world. This production curve peaked in 1971 just as Hubbert predicted. At the top of this peak what happened? We found a massive new discovery in Alaska and piped it right down into the lower 48 - Hubbert did not know about Alaska. We embarked on a technology boom unlike the world had ever known or Hubbert could have imagined. What was the effect of all this massive messing up of Hubbert's method on the peak? How many years did it move the peak? None. The Alaskan oil put a bump in the profile on the down slope, and despite nearly 40 years of a tech revolution, the U.S. production curve looks very nearly identical to the one Hubbert drew in 1956 ! We are too near the global peak to expect any massive new finds to make much difference in the peak time frame. That's just a geological and mathematical fact.

Keep in mind that all the figures quoted in the article are just barrel counting. It does not take into account the whole net energy thing, which comes heavily into play as we go past peak. See my post at goodstockinvesting.blo... where you can see how dramatically unequal barrels are going to become.

Dennis Gartman on Gold, Oil, Government and the Economy

So he apparently is calling a bottom in the stock market saying stocks will be higher 6 months from now, much higher 12 months out, and higher still 24 months from now. We will hold him to that and see if he is right.

Not Calling Crude Oil Prices a Bubble For Now

Reduced demand is cited as an automatic trip to lower oil. But consider that net exports is what largely sets price, and net exports are declining even as total liquid production eeks out new highs now and then. And this decline theoretically accelerates post peak per the ELM model, which has been accurate thus far. If exports to the U.S. are declining by 5% per year, that means we must destroy demand at the rate of 5% per year just to keep oil at it's current value (not counting short term speculation).

Per the model, which simulates a hypothetical land where about half of all produced oil is exported around the time of peak (roughly the global condition now), exported oil goes to zero in just 9 years after the global production peak. So we must destroy all demand for imported oil in 9 years to keep oil where it is! If we did a switch to electric cars so fast that half of all vehicles on the road in five years were electric, we could not match this demand destruction rate.

Destroying demand for imported oil is what needed to be done 30 years ago when Carter and Ford tried to get a build out of CTL (coal-to-liquids) plants going along with nuclear power plants, OCS drilling, solar and other things. But nobody believed or understood the math of Hubbert and others about the global production peak even though his modeling of the U.S. oil production peak in 1970 had just been proven stunningly accurate. In his 1956 work projecting the U.S. peak for early 70s, he predicted the global peak for shortly after 2000. So instead of listening to these people, we developed energy policy dictated by environmentalist airheads who reckoned that we needed to ban the needed changes to protect the natural habitat of the yellow speckled squirrel.

Well, here it is 30 years later, and America's natural habitat is about to be destroyed. But thank God, the yellow speckled squirrel is OK.

Barron's Banks on $100 Oil

On one of Cramer's shows, he presented a table that listed all the times and dates that Saudi Arabia promised to increase production by a certain time and the result. All of these proclamations proved to be false. Cramer called them "serial liars". Even if they would put 500,000 bpd on the market, it likely would be heavy sour crude and would have limited bidding on it from the importers, most of whom have limited refining ability for it. The Saudis are planning to build some new refineries to handle their heavy crude, then sell refined product, which would help with oil prices. But those are not on line yet.

As for what the dollar does, the price of oil has been charted in the other major currencies, and the big climb happens there too (just a little more moderate).

What is really behind the price climb is not total oil production versus demand. It's total exported conventional crude - and this is severely lagging total production and has been falling since '05. As global peak production is approached, a much higher portion of total liquids is unconventional and consumed by the enriched producing nation (see the Export Land Model ELM). This presents two big problems few consider. The unconventional oil (oil sand, shale, deep water) all must be ground up, heated up, or manufactured with massive amounts of fossil fuel as opposed to conventional oil, which traditionally comes spewing out of the ground already made up for us and ready to put into a pipeline! This produces a net energy math problem such that you net only about 1 out of every 3 barrels added from all these sources that have EROI around 3-5. This means it takes 3 barrels of deep water or tar sands oil to replace each barrel of declining conventional crude production! Compound this with the math of ELM, and you have a much sharper decline in net energy supplied than just the total "oil" production numbers indicate. And net exported net energy is what is setting oil prices. This is becoming more and more detached from what has always been considered "oil production", but nobody seems to understand this.