Currently oil futures are at bargain prices for fear of a double-dip recession. Demand destruction on oil prices will have only temporary impact.
Oil resources with Net Energy greater than 10:1, seem likely to increase in value by more than 4 times in the next 24 months for the following reasons:
- Life requires energy, so the market will pay what ever it costs to have energy.
- Between 1950 and today government actions made oil the lifeblood of our economy. Until there is a Constitutional Amendment oil will likely remain the lifeblood of our economy.
- Joint Forces Commands warning to all US military commands: "By 2012, surplus oil production capacity could entirely disappear, and as early as 2015, the shortfall in output could reach nearly 10 million barrels per day."
- IEA World Energy Outlooks note that the world has passed Peak Oil; that the economic future of 2012 will depend on oil fields "yet to be found" and "yet to be developed."
- Mexico's government will face collapse from reduced income and increasing demand; depleting oil, increasing domestic consumption of oil, lower food inventories, higher food prices and drug wars. The US will lose our second largest oil supplier.
- As economic recession/depression sets in, oil exporters may start hoarding their resources to develop their own economies. Oil supply will drop.
- There is a string of tropical depressions forming in the Atlantic. If anyone of this Falls hurricanes hits Venezuela, Mexico or the US oil fields hard, recognition of oil supply fragility will drive oil prices much higher.
- LA is due an earthquake that will significantly disrupt the oil supply chain in the West.
- Terrorism and other risks all will drive the value of easily obtainable energy prices higher.
- Net Energy greater than 10:1 (energy out:energy required to get energy) because as oil prices leap, costs to extract oil sands and shale will become uneconomical.
My efforts and investments focus on replacing oil in transportation (disclosure, author is founder of JPods, Inc. a PRT company). PRT is essentially a physical version of the Internet, packet switched computer networks direct ultra-light robotic vehicles on ultra-light railroads to chauffeur people and goods using about 1/10th the energy of highway networks.
Here is the most specific investment advice I can give:
- Mimic T. Boone Pickens. He understands and invests in oil and gas based on a clear understanding of Peak Oil. Invest in companies that have domestic oil reserves with Net Energy over 10:1.
- Mimic Warren Buffett and buy railroads. When about buying BNI he noted they can move a ton at over 470 miles per gallon. That economies are hard to judge, but in the long run efficiency will win. My opinion is that in an energy constrained economy, railroad will be the logistical arteries and PRT will be the logistical capillaries.
- Invest in PRT companies knowing they are as risky as personal computer makers in 1982. The companies are tiny. Like communications infrastructure before 1984, there is no market for transportation innovation. I do expect government debt, higher oil prices and need for jobs to breaks the government monopoly on transportation infrastructure. When the market opens a flood of 10x (ten times) productivity solutions will commercialize. Picking Apple, Microsoft, Google in pre-1984 is as difficult as guessing which companies will dominate the shift to sustainable infrastructure. Here are some early guesses: King Power, Knowledge Publications, Millienum Reign Energy, SkyTran, Taxi2000, ET3, VectusPRT, ULTraPRT and MisterPRT. My investments are in JPods, Distributed Grid and Soleil Micro.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
Additional disclosure: Author is the founder of JPods, Inc., a Personal Rapid Transit company.