Best of the Week
Most Popular
1. Five Charts That Show We Are on the Brink of an Unthinkable Financial Crisis- John_Mauldin
2.Bitcoin Parabolic Mania - Zeal_LLC
3.Bitcoin Doesn’t Exist – 2 - Raul_I_Meijer
4.Best Time / Month of Year to BUY a USED Car is DECEMBER, UK Analysis - Nadeem_Walayat
5.Labour Sheffield City Council Election Panic Could Prompt Suspension of Tree Felling's Private Security - N_Walayat
6.War on Gold Intensifies: It Betrays the Elitists’ Panic and Augurs Their Coming Defeat Part2 - Stewart_Dougherty
7.How High Will Gold Go? - Harry_Dent
8.Bitcoin Doesn’t Exist – Forks and Mad Max - Raul_I_Meijer
9.UK Stagflation Risk As Inflation Hits 3.1% and House Prices Fall - GoldCore
10.New EU Rules For Cross-Border Cash, Gold Bullion Movements - GoldCore
Last 7 days
Why Banks Will Be Slammed In The Next Crisis—And That May Be Good News - 23rd Jan 18
Medicare Premiums Are A Shared Pool - Coming Changes That Will Transform Retirement - 23rd Jan 18
Charged Atmosphere of Heavy Police and Security Presence at Sheffield Street Tree Felling Protests - 23rd Jan 18
Pension Crisis And Deficit of £2.6 Billion At Carillion To Impact UK - 22nd Jan 18
Two Factors for Gold That You Don’t Want to Miss - 22nd Jan 18
Why You Must Own Silver in 2018 - 22nd Jan 18
This Could Be The Hottest Mining Stock Of 2018 - 22nd Jan 18
Stock Index Trend Trade Setups for the SP500 & NASDAQ - 22nd Jan 18
Stock Market Deceleration / Distribution - 22nd Jan 18
US Markets vs Govt Shutdown: Stock Markets at all time highs - 22nd Jan 18
Land Rover Discovery Sport - 1 Month Driving Test Review - 22nd Jan 18
Why should you use high-quality YouTube to mp3 converter? - 22nd Jan 18
Silver As Strategic Metal: Why Its Price Will Soar - 21st Jan 18
Stocks, Gold and Interest Rates Three Amigos Ride On - 21st Jan 18
Why Sometimes, "Beating the S&P 500" Isn't Good Enough - 21st Jan 18
Bunnies and Geckos of Sheffield Street Tree Fellings Protests Explained - 21st Jan 18
Jim Rickards: Next Financial Panic Will Be the Biggest of All, with Only One Place to Turn… - 20th Jan 18
Macro Trend Changes for Gold in 2018 and Beyond - Empire Club of Canada - 20th Jan 18
Top 5 Trader Information Sources for Timely, Successful Investing - 20th Jan 18
Bond Market Bear Creating Gold Bull Market - 19th Jan 18
Gold Stocks GDX $25 Breakout on Earnings - 19th Jan 18
SPX is Higher But No Breakout - 19th Jan 18
Game Changer for Bitcoin - 19th Jan 18
Upside Risk for Gold in 2018 - 19th Jan 18
Money Minute - A 60-second snapshot of the UK Economy - 19th Jan 18
Discovery Sport Real MPG Fuel Economy Vs Land Rover 53.3 MPG Sales Pitch - 19th Jan 18
For Americans Buying Gold and Silver: Still a Big U.S. Pricing Advantage - 19th Jan 18
5 Maps And Charts That Predict Geopolitical Trends In 2018 - 19th Jan 18
North Korean Quagmire: Part 2. Bombing, Nuclear Threats, and Resolution - 19th Jan 18
Complete Guide On Forex Trading Market - 19th Jan 18
Bitcoin Crash Sees Flight To Physical Gold Coins and Bars - 18th Jan 18
The Interest Rates Are What Matter In This Market - 18th Jan 18
Crude Oil Sweat, Blood and Tears - 18th Jan 18
Land Rover Discovery Sport - Week 3 HSE Black Test Review - 18th Jan 18
The North Korea Quagmire: Part 1, A Contest of Colonialism and Communism - 18th Jan 18
Understand Currency Trade and Make Plenty of Money - 18th Jan 18
Bitcoin Price Crash Below $10,000. What's Next? We have answers… - 18th Jan 18
How to Trade Gold During Second Half of January, Daily Cycle Prediction - 18th Jan 18
More U.S. States Are Knocking Down Gold & Silver Barriers - 18th Jan 18
5 Economic Predictions for 2018 - 18th Jan 18
Land Rover Discovery Sport - What You Need to Know Before Buying - Owning Week 2 - 17th Jan 18
Bitcoin and Stock Prices, Both Symptoms of Speculative Extremes! - 17th Jan 18
So That’s What Stock Market Volatility Looks Like - 17th Jan 18
Tips On Choosing the Right Forex Dealer - 17th Jan 18
Crude Oil is Starting 2018 Strong but there's Undeniable Risk to the Downside - 16th Jan 18
SPX, NDX, INDU and RUT Stock Indices all at Resistance Levels - 16th Jan 18
Silver Prices To Surge – JP Morgan Has Acquired A “Massive Quantity of Physical Silver” - 16th Jan 18
Carillion Bankruptcy and the PFI Sector Spiraling Costs Crisis, Amey, G4S, Balfour Beatty, Serco.... - 16th Jan 18
Artificial Intelligence - Extermination of Humanity - 16th Jan 18
Carillion Goes Bust, as Government Refuses to Bailout PFI Contractors Debt and Pensions Liabilities - 15th Jan 18
What Really Happens in Iran?  - 15th Jan 18
Stock Market Near an Intermediate Top? - 15th Jan 18
The Key Economic Indicator You Should Watch in 2018 - 15th Jan 18
London Property Market Crash Looms As Prices Drop To 2 1/2 Year Low - 15th Jan 18
Some Fascinating Stock Market Fibonacci Relationships... - 15th Jan 18

Market Oracle FREE Newsletter

6 Critical Money Making Rules

Peak Oil - A Simple, Perfect Lie for Politicians

Commodities / Crude Oil Jun 09, 2013 - 09:03 AM GMT

By: DailyWealth

Commodities

Porter Stansberry writes: Peak Oil was a fantastic lie.

The idea was that our ability to discover and produce higher amounts of hydrocarbon-based energy had peaked and would be forever in decline. This "inevitable" decline in energy production would destroy the modern world, as all the luxuries and technologies that we enjoy today (such as cheap electricity and automobiles) rely on these fuels.

I believe historians will look back and marvel over how we could imagine the world would run out of oil... and the incredible mania that thinking produced in the oil markets in the mid-2000s.


And as I've said before, I believe having a correct understanding of these issues is critical... perhaps the single most important economic issue of the next several decades.

Peak Oil was a terrific lie because it enriched so many powerful constituencies.

Oil and gas promoters used the theory to scare the public into investing huge amounts of capital into oil and gas exploration. Globally, the oil and gas industry's annual capital investment budget soared, from a little more than $100 billion in 1999 to an all-time record $1 trillion in 2012.

The promoters' pitch was intoxicating. Their siren song was the idea of the last barrel in the world. What would the world's last barrel of oil be worth? After all, if supplies could never be increased, then the price of oil and gas would soon reach unimagined heights. All this speculation drove oil prices to more than $150 per barrel in the summer of 2008.

Peak Oil was such a simple lie, even politicians could understand it. It was perfect for them because Peak Oil was a problem with no possible solution. When something can't be fixed, politicians claim all sorts of powers to regulate the issue. That's when the real trouble started.

The idea that we were going to quickly run out of oil played into the same guilty narrative that many politicians were telling about global warming. Not only were hydrocarbons bad for the environment, consuming them was tantamount to impoverishing our children and dooming them to a future without affordable transportation and electricity.

These ideas were used as cudgels by politicians to discredit the oil and gas industry. They justified all kinds of massive and stupid government-led investments into supposed alternatives.

None of these alternatives had the capacity to replace our country's massive energy infrastructure (which is based almost completely on hydrocarbons). But that wasn't really the point. These huge public-sector investments mostly served to enrich politicians (like Al Gore) and their lobbyists and backers.

We estimate that to date, the government has spent, wasted, or simply lost roughly $500 billion on absurd energy investments. That's roughly twice as much as it lost on the housing bubble.

This has fueled a huge binge of crony capitalism. Just look at solar-energy company Solyndra... Here, the government lost half a billion dollars on one company. No one has gone to jail. No one has been kicked out of office. That's because the politicians weren't lining the pockets of their supporters, right? No, they nobly were trying to "solve" global warming... and forestall Peak Oil.

Sure.

The irony is... long before the shale oil and gas boom started... we had more than enough evidence to completely discredit Peak Oil.

The theory's main flaw is that it assumes our knowledge of oil and gas reserves is complete. The truth is plainly the opposite. For example, the U.S. Geological Survey estimated in 1994 that the recoverable amount of oil and gas in the North Dakota's Bakken shale formation totaled 151 million barrels.

Today, about 15 years later, producers in the Bakken are extracting 255 million barrels each year – about 100 million more barrels annually than were supposedly to be in the entire basin.

Harold Hamm, the CEO of the largest Bakken producer, Continental Resources, says the Bakken has at least 24 billion barrels of recoverable oil. His firm is currently producing more than 40 million barrels per year. If Hamm is right, the Bakken could be four times larger than the biggest oilfield ever discovered in the continental U.S. – H.L. Hunt's giant elephant field, known as East Texas.

Peak Oil's second main flaw is that it assumed recovery methods would forever be limited to extracting about 10% of the oil contained in a conventional reservoir. But as technology improves, most knowledgeable industry experts predict that ultimate recovery rates will exceed 40%. So even if we never discovered any additional oil reservoirs, we might still only be halfway toward Peak Oil.

Consider Denbury Resources, one of the best companies in the world at "renovating" existing oilfields by using new, advanced recovery methods. Denbury can take an old conventional oilfield and increase the average recovery rate from 10% to 25%.

Applying new technologies to existing oil reservoirs is a very good business, by the way. Denbury's shares have soared from around $0.50 in the late 1990s to more than $40 at the peak of oil prices in the summer of 2008. Clearly, if Peak Oil was real, Denbury's entire business model wouldn't have worked. Not only did it work, it worked incredibly well because Denbury's strategy eliminated the main capital risk of oil production – dry holes.

Here's the fascinating thing...

Enhanced production techniques were pioneered by the firm Kinder Morgan in the 1990s and then copied by dozens of companies, like Apache and Denbury, in the late 1990s and early 2000s. The actual results of these businesses made it clear that the assumptions of Peak Oil were simply wrong.

They weren't sometimes wrong... They were always wrong. They weren't merely wrong in theory... They were completely wrong in practice.

Regardless, the widespread belief in Peak Oil caused billions of dollars to flow toward oil and gas exploration and production companies. These companies, in turn, have used that capital to find and produce vastly more oil and gas than almost anyone thought was possible. That's how the free market works: Demand drives savings and investment, which increases supply... until prices fall.

Since hitting a bottom in mid-2005, total annual energy production in the U.S. has grown 10%... from 62.6 trillion cubic feet equivalent (tcfe) to more than 69 tcfe.

But this doesn't tell the real story.

Total energy production in the U.S. includes coal and petroleum from the North Slope of Alaska. When you look at only the lower 48 states and take out coal... you see the real trend.

Oil production in the lower 48 states is up a stunning 75% and dry gas production is up 35% over the past eight years.


These increases are on a scale we haven't seen in more than 50 years. They are huge increases in production that most people believed could never happen again.

These unprecedented increases have finally laid bare the self-serving lies of Peak Oil theorists.

Regards,

Porter Stansberry

http://www.dailywealth.com

The DailyWealth Investment Philosophy: In a nutshell, my investment philosophy is this: Buy things of extraordinary value at a time when nobody else wants them. Then sell when people are willing to pay any price. You see, at DailyWealth, we believe most investors take way too much risk. Our mission is to show you how to avoid risky investments, and how to avoid what the average investor is doing. I believe that you can make a lot of money – and do it safely – by simply doing the opposite of what is most popular.

Customer Service: 1-888-261-2693 – Copyright 2013 Stansberry & Associates Investment Research. All Rights Reserved. Protected by copyright laws of the United States and international treaties. This e-letter may only be used pursuant to the subscription agreement and any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), in whole or in part, is strictly prohibited without the express written permission of Stansberry & Associates Investment Research, LLC. 1217 Saint Paul Street, Baltimore MD 21202

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

Daily Wealth Archive

© 2005-2018 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules