Arthur Berman, editor of the Houston Geological Society Bulletin has a very well thought out piece on the commodity price environment, the causes, the myths and the theories.
Highlights from Ideas Are Like Stars: The Current Oil Boom, 2001-2005:
- While Hubbert's prediction on peak U.S. oil production was correct, he missed on U.S. gas production and world oil production.
- Questions Hubbert's assumptions. Concentrating on the need for reserves to remain static for the theory to work. Basically, no new significant reserves could be discovered and proven.
Petroleum is abundant and will be an economically important commodity for a long time. What is certain is that the cost of petroleum will increase as it becomes scarcer.
- Points out that unconventional reserves are not factored into the peak oil theory. Blog comments: High commodity prices are needed for these plays to be economically viable.
- He debunks the theory that new reserves are not being found. He believes that new large reserves exist but are inaccessible to people with the know-how and capital to discover them.
Two-thirds of discoveries made between 1999 and 2003 were made by privately held companies that hold less than 20% of the world's reserves. National oil companies have the remaining 80% of world reserves but invest little and have questionable exploration and production effectiveness practices....
- The China and India demand theory has merit but should not be looked at as main driver.
- Does believe that demand is outpacing supply but its a global issue and should not be confined to two countries.
- He does believe that there is a real problem with refinery capacity, specifically in the U.S.
Berman thinks that the current boom is a natural progression of a valuable, if not necessary, resource in a Geo-political environment characterized by fear and insecurity.
I think this is why seasoned analysts have had a tough time being convinced that this cycle might have legs. They know all the supply/demand numbers and nothing has really changed over the years, or I should say nothing that dramatic (barring the lack of refining capacity). However, analysts had to come up with answers and theories. Fear and insecurity is not a very quantifiable data point. Awareness of where oil is produced might have dawned on people for the first time.
In other words, we are on the cusp of a new kind of war -- between those who have enough energy and those who do not but are increasingly willing to go out and get it. While nations have always competed for oil, it seems more and more likely that the race for a piece of the last big reserves of oil and natural gas will be the dominant geopolitical theme of the 21st century.