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April 17, 2005
The End of Cheap Oil - and How to Prosper from it!
America, along with the rest of the world, is about to run out of cheap gas. When it happens, your wealth... your health... and your whole way of life will come under jeopardy!
Now, we all KNEW this crisis was coming soon, but even according to the so-called 'experts'... we weren't supposed to run out of energy for another 25 - 30 years. But that's not the way it's happening. Adison Wiggin of The Daily Reckoning brings us the following report:
"Already, we're seeing the symptoms of a collapse: soaring oil prices; tension between petroleum-starved economies; deadly terrorism in Saudi Arabia… But this time, it's not about ideology... it's about geology. Deep underground, the world's source of cheap oil is on the brink of running out. And nothing you do to make or protect your money can or will ever be the same again.
First a little history. And let’s start at the very beginning ('a very good place to start', so I’ve heard)...
Millennia ago, oil was a laxative. Then in 480 BC, the Persians used oil to dip and light fire-tipped arrows, which they launched over the walls of Athens. Back then, it's hard to believe, oil didn't mean much at all!
The world had the Renaissance, the Enlightenment, and the American Revolution... all without the benefit of oil. Then something changed… something people didn't expect to make such a difference at the time.
Cities got bigger. Big cities needed better lamps. Along came kerosene! In 1861, Nikolaus Otto invented the first gas-burning engine. Along came gas!
Then Ford showed us how to mass-market cars… and build mass-market factories. Oil made it possible to mass-produce food, cities... and war...
For the whole of the 20th century, we soaked up cheap oil to run our cars and heat our houses... light our porches... and power our tractors. Oil gave us plastics. And petrochemicals.
Oil shaped America... and the rest of the developed world. It changed us. And without oil, America… and the rest of the 'civilized' world shuts down... farms close; hospitals don't open; streetlights don't burn; trains and trucks don't run; planes don't fly. This isn't some fantastic doomsday scenario. It's just simple fact.
We burn through nearly 30 million barrels a year. Even 90% of the chemicals we use for farming, making drugs and making plastics... all come from oil. It's a habit we can't quit.
Some of us commute a hundred miles per day to and from work. Six billion people... driving 700 million cars. Globally, cars alone outweigh humans by 4 to 1. Every day, each car uses four times more energy in fuel than people need in food.
At the airport, a thousand planes a day take off and land, each carrying as much as 24,000 gallons of fuel. Passenger jets alone burn about 1,200 gallons of fuel each hour!
The phones, Internet, televisions, washers, dryers, refrigerators and stereos in our homes... the trucks, trains, planes and ships that deliver food to our supermarkets... our factories, tractors, turbines and compressors... weekend car trips to the beach, boxes of cereal on grocery store shelves, fudge-ripple ice cream in the freezers, heaping piles of fruit on the produce rack... none would exist or arrive without oil. On average, most food in North America travels 1,300 miles from farm to plate!
Now some disturbing statistics:
Over the last five years, the world has burned 27 billion barrels per year. But the oil industry only discovered 3 billion new barrels per year. How long can you use up nine times what you're finding in replacement? Not long!
In the 1930s, a geophysics professor at Columbia University made a discovery worth billions of dollars to oil investors and oil companies. He discovered how a liquid under pressure - like oil - can get trapped under hard rock. He also discovered how to get it out. And oil companies STILL use his discovery to find and recover millions of gallons of oil. Oil they otherwise would have missed completely.
But then Dr. Marion King Hubbert made another discovery. In 1956, Hubbert discovered that oil fields CHANGE dramatically as you drain out the oil.
At first, barrels of crude come squirting out of the drill hole. That's when times are easy. But after years of pumping, pressure disappears. Suddenly, the REST of the oil gets harder and more expensive to draw out.
When your entire business depends on how much oil you have in reserve, this is a very big deal. In fact, the biggest deal. When you get to the halfway drainage point - the 'peak' - the cost of getting the rest of the oil out skyrockets. Supply enters a permanent downward spiral. And pretty soon you have to look somewhere else if you don't want to run out of petroleum.
In 1956, Wubbert worked for Shell Oil. His bosses BEGGED him not to release his controversial 'peak oil' findings. But during a speech, he painted a chilling picture nonetheless... for a room full of oil executives and engineers. He told them that by 1970 the United States - the world's largest oil power - would hit its own devastating oil production 'peak.'
Now, you've got to picture this:
At the time, America could crank out more oil than any other country in the world. So nobody believed him. In fact, they ridiculed him. And the controversy that followed nearly ruined his career. Shell even hired other geologists willing to put the peak date in 1990 or even 2010... and Hubbert was all but shunned by the industry bigwigs.
But guess what happened. Like clockwork...
The United States hit its production peak in 1971! Oil well after oil well across Texas and Louisiana started to dry up. Domestic oil production took a downturn and never recovered. Within just three years, gas and oil prices soared... and US oil imports TRIPLED. OPEC suddenly had an advantage over the United States it had never had before. And the face of oil economics... and oil politics... changed forever.
Hubbert had been right. Many people got wiped out financially during the crisis that followed. But it turns out that was only the beginning!
See, the data Hubbert had discovered a full 14 years before the US oil peak didn't just predict a peak in the lower 48 states of the America... the same data ALSO predicted similar peaks for the rest of the world's petroleum nations... until the entire GLOBAL OIL PRODUCTION hit a permanent downward slide!
Sure enough, look what's happening... one by one, other oil producing countries have started to fall.
Libya peaked in 1970. Iran peaked in 1974. Romania - once Hitler's prize petroleum conquest - peaked in 1976. Brunei peaked in 1979. Peru in 1982. Cameroon in 1985. Indonesia peaked in 1997. So did Trinidad.
So far, a total 51 oil-producing countries have already SLAMMED into a wall of peak oil production. That's dramatic. On average for the whole European region, the peak year for oil production was back in 2000! For the whole Asian-Pacific area, it arrived in 2002! And for the former Soviet Union, the oil peak came in 1987!
I don't have to tell you what this means...
Shrinking energy supplies ALWAYS mean skyrocketing energy prices, even when the collapse in supply is temporary. What will it mean when that supply collapse is permanent? What will it do to the stock market... to budding small businesses... to the job market... and to the prices of everyday goods?
Another 16 major oil-producing countries have not yet hit their peaks... but the peaking dates are ALSO right around the corner. Many, many people will get caught unaware. However, others could make hundreds of thousands of dollars simply by buying the right energy and resource investments.
And what is more, some countries might have a lot less oil than they are prepared to admit! That's right. All along, someone has been LYING to us about how much oil they actually have on hand. I'm talking, of course, about the royal family of Saudi Arabia...
You saw what happened recently when Shell Oil shocked investors by admitting to over-estimating their oil reserves by 4.5 BILLION barrels. Think about that. Because it was an earth-shattering revelation...
When Long Term Capital Management crashed, it lost $1.6 billion. When Enron fell apart, it wiped out a breath-snatching $60 billion in investor capital. Yet when Shell admitted their reserve shortfall of 4.5 billion barrels... priced at the recent peak for oil prices... that's effectively a $189 BILLION blunder. No wonder Shell shares plummeted 9% in a single day!
But compared to what the crown princes of Saudi Arabia are doing, Shell Oil's indiscretion looks like child's play! That's right… when it comes to remaining oil reserves, here's the real scandal: Saudi Arabia claims to have enough that they won't hit their oil peak until 2011. Saudi petroleum minister Ali Naimi recently told a Washington DC energy conference "Saudi Arabia's oil reserves are real...There will be no shortage of oil for the next 50 years."
BALONEY! Do they have as much oil as they say they do? Absolutely NOT. What Naimi isn't telling you OR his colleagues is the truth about the Ghawar field. Ghawar was Saudi Arabia's biggest oil field discovery. In 1948, it held a mind-blowing 87 BILLION barrels of oil. That's a huge amount.
Then in the early '70s, the world's top four oil companies - Exxon, Chevron, Texaco, and Mobil - estimated there were 60 billion barrels of oil in the Ghawar. That's still incredible.
Since then, though, the Ghawar has churned out 55 billion barrels of crude. You do the math! SIXTY BILLION minus 55 BILLION... means only 5 billion barrels of oil left! That's not 50 years of oil. It's barely enough to sustain global demand for another THREE WEEKS!
The Saudis know it, too. Every day, they quietly pump 7 million gallons of seawater under the Ghawar oil reservoir just to sustain pumping pressure.
Sure, Saudi Arabia has another 300 oil reservoirs to draw from. But they still get as much as 90% of the oil they sell from a tiny handful of those reservoirs. The rest have already started to dry up! And that shouldn't surprise you, because five of Saudi Arabia's oil fields are so old, they were discovered between 1940 and 1965!
What about the rest of OPEC? Are they lying to us about total reserves too?
In 1986, OPEC made a new rule for its members: You could only export as much oil as your reserves. Within weeks of the 1986 quota rule, almost every OPEC country 'upgraded' its reserves so they could push more oil out the door and rake in more oil revenues for their coffers. Here's the thing: Those countries made the overnight 'upgrades' in their reserves WITHOUT a single new oil well discovery being made... and WITHOUT a single new rig being built! It's a scandal that has ALREADY cost investors and energy buyers hundreds of billions of dollars.
Over the entire history of the Oil Age... starting in 1859... the world has burned approximately 950 billion barrels of oil. Some of the most respected geologists in the world put the remaining oil reserves at 1 trillion. That sounds like a lot of oil. Until you consider:
When you average together peak production dates for all the major oil producing countries... including Saudi Arabia and the rest of OPEC that have not yet peaked... YOU GET A GLOBAL PEAK PRODUCTION FORECAST FOR SMACK-DAB IN THE MIDDLE OF 2006!
That's the conservative estimate. CBS MarketWatch says the coming peak oil crisis will 'dwarf that of 1973.' And the San Francisco Chronicle is saying we're looking at 'social and economic upheaval across the globe...'
And it's not just the geological crisis that will make energy scarce. For instance, take a look at China...
• General Motors just made an announcement. They're about to double their production of cars for the Chinese market.
• China had just 700,000 cars in 1993. Now they have 7 million. They also had only 15 million motorcycles then. Now they have over 100 million!
• China's energy use alone has already doubled over the last 20 years. Suppose China started using oil at a rate like, say, Mexico?
• Right now China uses just 1.7 barrels of oil per Chinese citizen. Mexico uses 7 barrels per person. If China matched those rates, total DAILY oil demand in China would soar to 24 million barrels per day… more than in the United States. And about 30% of the total oil demand worldwide!
• China expects to import TWICE as much oil as the United States within the next 15 years. Their rate of oil demand growth is already double the percentage demand growth worldwide.
According to the International Energy Agency (IEA), global demand just grew this year at its fastest pace since 1980. Average global demand is 88.1 million barrels a day. Out of that, about 20 million barrels of daily oil demand comes from the United States. That's a hard number to get your head around.
Think that $50 per barrel is expensive? How about $150 per barrel or more?
The reality of this could arrive sooner than you imagine. And when cheap oil finally does disappear, the world will search desperately for something... anything... to fill the void.
But wind, solar, hydrogen, thermal and more... most of these alternatives to oil energy are just NOT READY for prime time. They're either just too expensive to use or too different and complicated to develop SOON enough to make a difference.
However, among the most immediate options that DO work is the most incredible energy breakthrough by far... liquid natural gas (known as "LNG").
Natural gas, as you know, has been around forever. You have it lighting your stove, fueling your pilot light, maybe heating your water. But there has always been a big downside to natural gas. It's hard to move it around. In gas form, it can't flow through a pipe like oil. And you can't pack it into the hull of a cargo ship like you can several tons of coal.
"LNG" - liquid natural gas - changes all that:
The gas is super-cooled to a temperature of minus 260 F. You know that cooled gases turn into liquids. And in this new liquid form, natural gas is MUCH easier to handle. It takes up just 1/600 of the space it needed as a gas. It's also incredibly cheap to move around. And because it's natural gas, it still burns cleanly… even more cleanly than oil or coal. And the economics of LNG are perfect for the tricky crisis ahead.
Alan Greenspan recently told Congress that LNG is an ESSENTIAL "safety valve" for exactly the kind of tight supply energy crisis we're facing ahead. Here's what that means for you as an investor:
Washington is ready to throw huge money behind LNG. Investors who get in early, in the right LNG-focused companies, could make a FORTUNE.
The Big Oil companies are excited, too. At a recent energy conference, Exxon Mobil CEO Lee Raymond recently gushed (no pun intended) over the future of LNG. In fact, virtually all of the major energy companies have LNG research, facilities and exploration going on right now... they're getting ready to build more... and across Asia and Europe, this looks like the boom technology of the energy industry for years to come.
There's no denying this will be one of the most important new energy sources of the century! It's practically guaranteed by the fundamentals. Natural gas itself is already the fastest-growing energy market in the world . Nine out of 10 new electrical power plants burn natural gas. And consumption worldwide will double by 2025!
LNG will meet a huge and growing portion of that demand. It's already starting. World oil trade increases at 2.9% per year... while world LNG trade is increasing at more than TWICE that rate... or 6.7% per year! When "E-Day" hits in 2006... global LNG trade should be about 34% HIGHER than it is right now!
Your opportunity to make money investing in the right LNG companies over the next couple of years is HUGE. Make no mistake.
However, you won’t get rich playing LNG's future by buying stock in the majors like Exxon Mobil or any of the other Big Oil companies. They've just got too much else going on. It would be like buying an ocean to catch a fish! It’s necessary to hunt out the specialists in LNG production.
Here's another explosive opportunity you don't want to miss... METHANE.
In the golden age of Texas oil... you could practically tap a new well just by kicking over the right rock. There was that much oil sitting that close to the surface.Those days are over for oil. But right now there are over 700 trillion cubic feet of coal bed methane gas just sitting in coal beds all across the United States and Canada. At least 100 trillion cubic feet of this gas is recoverable already.
Now consider this... unlike most of today's big oil deposits, coal beds are huge and flat. They also sit very close to the surface. And virtually ALL coal beds also contain methane gas. Methane, propane and butane ARE the main gasses in natural gas. And with natural gas demand exploding... new coal bed methane technology will give ENORMOUS new opportunities to smart investors!
Just as in the old days of easy Texas oil wells, the fact that most coal beds sit close to the surface means gas developers do NOT have to drop deep drills to get at the gas. It's right there, within easy reach. Which makes it very cheap to get out of the ground.
And that's not all... exploration costs are low, because most of the coal beds in the United States and Canada have already been discovered. So all that's left now are the costs of processing and recovery.
So there you have it… not only can you survive the demise of cheap oil. Investing in the right LNG and METHANE stocks should enable you to prosper.
To read the full article, see the Agora Publishing site for An Urgent Warning
To learn how to trade the commodity markets and prosper, take a look at some commodity trading systems at Online Trading Systems
Posted by Tony at April 17, 2005 06:37 PM