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Page added on August 30, 2012

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Misconceptions Surrounding Peak Oil

Misconceptions Surrounding Peak Oil thumbnail

Some people gloss over when the subject of Peak Oil is brought up.

Some simply skirt the issue, while others make arguments in their favor using smoke and mirrors with fossil fuel production data…

One CEO recently went to far as to call the entire theory “baloney.”

According to the interview:

Frankly, I think peak oil is baloney, and you can quote me on that. The potential reserves, especially on the natural gas side, are just tremendous.

I was just reading a report that even in a place like Argentina, shale gas reserves could be north of 700 trillion cubic feet. That could be another huge gas-producing region. There’s plenty out there. I don’t buy peak oil or gas.

But there’s a big problem with using the “tremendous natural gas reserves” in one’s argument against the reality of Peak Oil…

For starters, the issue has never been whether there’s “plenty” of oil and gas out there. Of course there is. Nobody is arguing otherwise.

Granted, we may question the quality of global reserves and the ever-increasing cost to extract them, but there’s no doubt that we aren’t in danger of running out of underground crude.

Cut the Baloney

So, Peak Oil is a myth…

Really?!!

Earlier this week, one my colleagues talked about how most people are uninformed and misled when it comes to total global oil production. They’re unaware that it isn’t really crude oil — that the 90 million barrels being produced daily is a combination of total liquids.

But don’t take our word for it; check out the EIA’s own data.

Within the last eight years, global production of crude oil (including lease condensate) increased 2.3%. That’s it.

But hey, maybe the aforementioned CEO wasn’t referring to a global peak in oil production…

After all, the mainstream media has finally caught wind of the good, old-fashioned oil boom taking place in the lower 48 states. It only took half of a decade for them to figure it out. Now all we need is for someone to mention it to the United States.

Here’s a chart we’ve seen all too often:

peak oil 8-24

See that little bump at the tail end of the chart?

That represents the best news in the U.S. oil industry since the early 1970s.

Even the most optimistic of analysts will tell you there’s still no chance of topping our peak production of 10.44 million bbls/d, set in November of 1970.

If we add another two million bbls/d of Bakken oil and perhaps another million barrels per day from Texas fields, that would top us off at 9.2 million barrels per day.

It paints a pretty optimistic future for the U.S. oil industry.

However, it doesn’t take a very crucial factor into account — that is, falling output nearly everywhere else.

Sure, North Dakota may be pumping two and a half million barrels per day, but it will also be offsetting the irreversible decline taking place in both Alaska and California. Soon, production in both states will drop below 500,000 barrels per day.

Apples and Oranges… for How Long?

That brings us to the other serious problem of using our cheap, abundant supply of natural gas as a means to dismiss Peak Oil.

It’s another common connection that people (many of whom who share this herd mentality are also found in the investment community, unfortunately) make too hastily.

They see the chart below and they think to themselves, “Hey, a flood of cheap natural gas will solve our oil issues!”

Energy consumption breakdown 8-24

If only that were the case, dear reader, many — if not most — of our energy problems could be shelved for decades.

Just because we have “tremendous reserves of natural gas” does not mean we can kiss our oil addiction goodbye. Not in the slightest.

Here’s why…

oil sector demand 8-24

In order to make any sort of dent in our consumption habits, we need to focus on the transportation sector, which, as you can see above, is dominated by petroleum.

This simultaneously gives us the chance to capitalize on the biggest opportunity in the North American natural gas market.

First, let’s look at where our cheap natural gas is being put to use:

EIA nat gas 8-24

The EIA doesn’t put much faith in the transition to natural gas by the transportation sector… but I have a feeling that sooner or later, they’ll make a few changes to their projections.

I’ve called this very transition the holy grail in natural gas investing.

This is your classic catch-22: Car companies are hesitant to build more natural gas vehicles without the proper infrastructure to support them (think fueling stations, etc.), while companies are reluctant to put that infrastructure in place without a sufficient number of NG-powered vehicles on the road.

So, who’s going to make the first move?

Well, the good news in all of this is it doesn’t matter.

Natural gas is quickly becoming one of our last cheap sources of energy. Even if prices were to double to $6/Mcf, we would still consider it inexpensive.

If you haven’t already recognized the opportunity before us, I suggest you take a second look at new ways to invest in our domestic gas boom.

Until next time,

Keith Kohl Signature

Keith Kohl

Energy and Capital



13 Comments on "Misconceptions Surrounding Peak Oil"

  1. Kenz300 on Thu, 30th Aug 2012 3:03 pm 

    We need to end the oil monopoly on transportation fuels. Bring on the electric, flex-fuel, hybrid, CNG, LNG and hydrogen fueled vehicles. A monopoly is only good for the monopoly and not good for the consumer.

    Oil companies love it when oil prices spike. They make huge windfall profits.

  2. BillT on Thu, 30th Aug 2012 3:56 pm 

    Actually, I think the 2035 bar will resemble the 2005 one. Why? The economy and financial system collapse that will happen between now and then.

  3. Harquebus on Thu, 30th Aug 2012 5:57 pm 

    http://peakoil.com/business/the-natural-gas-ponzi-scheme/

    Kenz300, you are full of it. It takes more energy to make the hydrogen than it gives back.

    I don’t always respond but, I do read you guys.

  4. Plantagenet on Thu, 30th Aug 2012 7:06 pm 

    There is some confusion over what peak oil is…it has nothing to do with natural gas.

  5. SOS on Thu, 30th Aug 2012 7:27 pm 

    The biggest misconception about peak oil is the belief that it is a true and serious idea. Actually its a political idea and a tremendous amount of propaganda exists to confuse the issue, change the terms and meaning of peak oil and try and keep the constinuency on board even in the face of rapidly changing technologies and amazing growth in recoverable reserves.

  6. BillT on Thu, 30th Aug 2012 7:50 pm 

    SOS, your growth is being over whelmed by the contracting recovery of previous fields, and will never be enough to even break even. We are in a constantly diminishing energy and money world.

  7. SOS on Thu, 30th Aug 2012 8:17 pm 

    All human endevor takes 4 things: land, labor, capital and entrepreneurship. Without those you have nothing. Everything is derived from them. The only pitfalls we have had in our ability to let those 4 basic factors provide for us is mismanagement. Right now that mismanagement is coming from the government.

    What this article is about is peak politics because you cant have peak oil without peak politics.

  8. Newfie on Thu, 30th Aug 2012 9:26 pm 

    SOS says “All human endeavour takes four things: land, labor, capital and entrepreneurship.” Uh… What about resources ? The economy basically functions by converting natural resources into goods. Without resources, you can have land, labor, capital and entrepreneurship, but you won’t be able to do dick-squat with them. And we are systematically using up the earth’s one time endowment of non-renewable resources, especially fossil fuels.

    “We have or soon will have, exhausted the necessary physical prerequisites so far as this planet is concerned. With coal gone, oil gone, high-grade metallic ores gone, no species however competent can make the long climb from primitive conditions to high-level technology. This is a one-shot affair. If we fail, this planetary system fails so far as intelligence is concerned. The same will be true of other planetary systems. On each of them there will be one chance, and one chance only.” (Fred Hoyle)

  9. SOS on Thu, 30th Aug 2012 10:35 pm 

    resources = land.

    The economy, at its most basic level, functions by effieciently deploying land, labor, capital and entrepreneurship. Its basic econ 101. Everything else is a derivative.

  10. BillT on Fri, 31st Aug 2012 12:41 am 

    SOS, you need a new econ book…lol. The one you were taught with does not discuss contracting economies and how they will destroy capitalism based on eternal growth. Nothing the government can do will change EROEI. Mother nature does not care if you are poor or even dead. Nor do I.

    Just because something is there does NOT mean it has to be exploited, or that it even can be. You must be in over your head in those oil rocks to be so narrow minded and anxious to blame someone else.

    I personally hope the economy continues to shrink and stops all fraking and deep drilling in the world, including the tar sands in Canada. Only when we are forced to downsize our greed will we have a chance to exist as a species in the future.

  11. SOS on Fri, 31st Aug 2012 3:21 am 

    Any inefficiencies will be corrected in the deployment of land, labor capital and entrepreneurship, at least under good management. We have good management in business. In government we are overloaded with inefficiencies. There are no examples defying this.

  12. DC on Fri, 31st Aug 2012 8:47 am 

    Q\ We have good management in business. In government we are overloaded with inefficiencies. There are no examples defying this.

    LOL! That is without a doubt, your funniest line yet. I sure am glad I wasnt drinking any milk when I read that….

    🙂

  13. SOS on Fri, 31st Aug 2012 7:32 pm 

    I dont see any efficiencies in government. Only waste and corruption. You may not know it but your milk would have been a lot easier for you to earn, if in fact you do earn, if the government was restricted to its basic functions spelled out in the constitution.

    Business on the other hand has advanced technologies, provided resources to society that have built bridges, roads and utility services for all of us. Business, all sizes of business included the feminist book store and all the other business you see on portlandia. Even there business is needed.

    Business transform raw materials into useful things like medicine, machines and furniture. Business gives us everything we have and allows people to say rediculous things like “We have or soon will have, exhausted the necessary physical prerequisites so far as this planet is concerned. With coal gone, oil gone, high-grade metallic ores gone, no species however competent can make the long climb from primitive conditions to high-level technology. This is a one-shot affair. If we fail, this planetary system fails so far as intelligence is concerned. The same will be true of other planetary systems. On each of them there will be one chance, and one chance only.”

    As things change so does the mix of the four factors of production. They are always there and depending on your skill in managing them for yourself determine your quality of life. Even if we go back to the misery of a hunter gather society the four factors will still rule and the strong will command them withour regard for your well being.

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