Over the next year or two, you will likely find yourself paying a LOT more at the gas pump. Big changes are taking place in the oil industry. With increased global demand and declining supply, easy oil is not so easy anymore.
Everything is about to get more expensive. From gasoline to anti-freeze, life jackets to golf balls, and eye glasses to fertilizer. There are very few things in the modern world that aren’t made from oil, made by machines dependant on oil, or shipped by vehicles powered by oil.
The implications, at first glance, appear to be the opposite of good news. In fact, it’s enough to strike panic in the hearts and wallets of the average consumer.
And that’s exactly why the International Energy Agency just released its annual World Energy Outlook, clearly rejecting the possibility that crude output is now in terminal decline. Their attitude seems to be, what you don’t know won’t hurt you. For now that is.
The truth is beginning to surface, however, and from an investor’s perspective, the truth can mean money in the bank. Right now, the IEA’s claim that oil production will be ramped up from its current level of 85 million barrels per day to 105 million barrel per day by 2030 is receiving harsh criticism.
The Guardian reports, “The world is much closer to running out of oil than official estimates admit.” This observation comes from a whistleblower inside the International Energy Agency who states the fear of triggering panic buying has caused them to intentionally underplay the inevitable shortage.
Kjell Aleklett, professor of physics at the Uppsala University in Sweden, and co-author of a new report ‘The Peak of the Oil Age’, states “oil production is more likely to be 75m barrels a day by 2030 than the ‘unrealistic’ 105m used by the IEA.”
According to Professor Aleklett’s research, the IEA is making a dangerous and unjustified assumption – one that is dependent upon the oil industry’s ability to ramp up production to levels never before achieved.
Are you beginning to see the opportunity here?
Whistleblowers and scientists are not the only ones disputing the IEA’s report. The folks who pump oil aren’t buying its rosy scenario either.
The Globe and Mail recently joined the debate stating, “New [oil] fields, generally smaller, are less productive than old ones – note the virtual freefall in production rates from the North Sea fields, which reached peak output in 2000. Another reason [for the decline] is development pace, or lack thereof. The yet-to-be-developed reserves in the WEO report cover 1,874 fields of various sizes that would have to come into production in the next 20 years.”
That works out to almost eight new fields being brought to production each month. A realistic target? Only time will tell. Even if the oil exists, the next question becomes one of money, and where it will come from in order to keep this pace of development on target.
When you add in professor Aleklett’s conclusion that production will shrink to 75 million barrels per day by 2030 – almost one-third less than the IEA’s figure and 10 million barrels less than current production, it’s easy to see why investors need to take notice.
Shrinking supply and ever-growing global demand are creating an unparalleled investment opportunity. The current price of crude could be the bargain of the century.
Until next time,
Marin Katusafor The Daily Reckoning
Marin Katusa, who works with Casey Research, is an accomplished investment analyst who specializes in the junior resource sector. He left a successful teaching career to pursue analyzing and investing in junior resource companies. In addition, he is a member of the Vancouver Angel Forum where he and his colleagues evaluate early seed investment opportunities. Marin also manages a portfolio of international real estate projects. Using advanced mathematical skills, he has created a diagnostic resource market tool that analyzes and compares hundreds of investment variables. Through his own investments, Marin has established a network of relationships with many of the key players in the junior resource sector in Vancouver.
Speculators you have your marching orders. Meanwhile I think I’ll buy about 20 gallons.
Analysts (and reporters certainly) also tend to omit the fact that all oil in the future is more expensive than oil in the past. Not only is oil from gas and shales more expensive to use (otherwise we would have used them already!), and not only is new fields becoming much harder and more costly to find. Extracting oil from the existing fields is also getting more difficult, as all the easy grabs are taken. So even if the supply curve can somehow manage to match the rise in demand exactly, the price will still rise considerably over the next decade.
I share the same view with Marin. Old oil fields have been pumped too long a period; surely the bottom is in sight. Every inch of the earth has been virtually scanned for oil.
There is plenty of oil out in deep blue sea, but, extraction in terms of economic value is near impossible. Rationing would be inevitable in the near future.
What about alternative energy. Some years ago I read about a genetically grown sea-weed that grows rapidly seemed to be promising in solving the energy crisis. But to date
I have not heard of any further progress. Then, others were talking about renewable energy, nuclear-power and even thorium were brought in the discussion. Well, folk these are only and solely for discussion. And, “I cannot promise you”. The discussion will carry on indefinitely until further notice …. ???
Just right Nick. This will be happening as we blithely go about life like oil will last forever. I see no evidence to any change in peoples patterns so far as use and conservation. We are a people that just love to run into walls before we change our patterns.
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