Dave Gonigam

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A Big Oil CEO who gets it

It's a little scary when Jim Cramer says something that makes sense.

In making his case this week for ConocoPhillips, he said COP pretty much stands alone among the international oil companies in recognizing the supply-demand equilibrium starting to become unglued; that is, as we noted here last month, the next big oil shock will likely be the first one ever driven by high demand rather than restricted supply.

You don't have to buy into Peak Oil theory to know this is the case.  And that's what makes the recent comments of COP CEO Jim Mulva so gratifying to see:

Talking a little bit about the supply challenge. This is a slide that's been prepared by International Energy Agency and it just shows if you take all of the oil production around the world today, say, 86 million barrels a day, the natural decline on average is about 8% a year.

"So, if we're going to stay with 86 million barrels a day, we've got to be out there adding 6 or 7 million just to stay flat. So the question is, where is that all going to come from when you see Saudi, Arabia saying they're going to go to 12 million to 12.5 million and maybe up to 15 million barrels a day? How is this going to happen? It's not so important just what I think or say, but I know we've been saying for the better part of nearly 12 months. Personally, I don't think we're going to see — for three reasons, I don't think we're going to see the supply go over 100 million barrels a day. The reason for that is, where is it all going to come from?

Where indeed?  I doubt the people at the IEA who prepared that slide Mulva spoke of buy into Peak Oil either.  But they do see supply and demand coming into serious imbalance sometime between 2009 and 2012.

Maybe the advocates of Peak Oil are misdirecting their efforts.  Rather than a quixotic campaign to get everyone to buy into Peak Oil, they're better off citing mainstream sources like the IEA in trying to debunk the polyanna new-sources-will-always-be-found outlook of folks like Daniel Yergin and his merry band.

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