Peak Oil- what it is and how it will impact your life

ANyone see that CNN special last night? "We were Warned" or something like that.
I recorded it and went to make some copies onDVD today and erased it...

 

$2.519 for 87 octane today. My raise this year won't cover a year of that.

 

We went from $2.30 to $2.60 in a week.

 

I fundamentally believe that peak oil has or will occur soon, but I also believe technology will overcome the astronomically increased price of production. Continued use of fossil fuels cannot be stopped, but the mix can be altered, and the demand for a given form be forced down to an equilibrium with the other sources in the mix. Simple economics will do that for us; when the price of oil sourced energy rises high enough to make other sources competitive, demand for the other sources will rise (and actually reduce the cost of the alternates as supply scales up.) Plentiful oil has held developement of alternates in check, it simply isn't worth the money and time.

There will be peak coal, too, in say 300 years.

There will be no peak nuclear, because we have the technology NOW to produce more nuclear fuel than we "burn" up. Yes, the uranium supply is finite. Yes there may be a peak uranium, but the ability to irradiate other materials and turn them into fissle stock is a known quantity. (FWIW, the French routinely do it in their commercial plants.) Not cheap, either, but fissile matrerials are a product of some reactions, and the process can be enhanced easily in commercial reactors. We have the physics, we have the engineering all in place. But NOT the politics, the economics has not overcome that roadblock. And, as usual, we will be taking a dump in our own mess kits if we are not careful. (Speaking here of nuclear wastes.)

Mauldin comes to some right conclusions, but his logic is flawed when he says that increased demand will cause price to drop. The end result is pretty close to the same when correct logic is applied, but his essay has some smoke and mirrors in it. Either that, or he is wearing a tin hat. Maybe both. In any case, his blind faith in technological discoveries is touching, but true enough.

Kunsler is a doom saying hand wringing sky is falling prophet that refuses to reconcile simple economics when he stirs things up. His forecasts are (perhaps) accurate based on a set of questionable precepts, and he does not allow for diligent research and the occasional bit of serendipity. Mauldin does, and sees things in development that may or may not hold the keys to future energy supplies. It isn't magic, this business of research, a lot of paths go nowhere before finding the the one that works. Vulcanization of rubber is one that was accidental, so was the discovery of x-rays, and where would we be without them as starting points for more research? Without good tires, without MRI machines, I'd say, though chances are both would have been discovered sooner than later anyhow. The transistor was not an accident, it was the result of long hard hours in the lab, as are most of the things we take for granted. Fuel cells are in their infancy, and the R&D continues.

So much for a Sunday morning essay.

 

There has been quite a lot of activity in the "Peak Oil" world since I last posted here. This article is old news now. Other countries have been showing similar down trends in production.

There has been in the last year a frenzy of mergers and buy outs of oil and gas producers. These companies are scrambling to maintain thier production levels.A lot of the big international companies are buying back into the domestic market.

A couple of observations;

1) It is amusing to me to see these news commentators reporting how the price of oil is dropping and how it is great news. We are down to $65 a barrel and around $2.65 a gallon for gas. This time last year it was dire news that oil had topped $50 a barrel and gas had gone up to over $2 a gallon.

2) The news of this "major" find in the Gulf Of Mexico has made banner headlines and according to the talking heads is going to reduce our dependence on foriegn oil by half. While it is a significant find you have to look at the big picture. We have known for years that there is significant oil deposits in the deep gulf. But, until the recent rise in oil prices it hasn't been economically feasable to drill for it. And it won't be feasable to produce unless the price stays up or goes higher.

It is the same thing as the "Oil Sands" in Canada, or the "Oil Shale" in the rocky Mountains. It is there, and there is lots of it. But, it is there because it has not been profitable to produce it. Not untill Oil topped $50 a barrel has any of these resources even been considered. And the last two are still not profitable at $50 a barrel. Oil prices and ergo gasoline prices will have to go up much higher to make these sources anywhere near to being an economically feasable endeavor.

Always remember this, We are not running out of oil, we are running out of cheap oil.There is a lot of oil reserves left in the world, but, it is increasingly harder to reach and of a much lesser quality thus more expensive to obtain and to produce.

As a side note, I have been getting a lot of responses from folks who say "I remember you telling me about this oil stuff a couple of years ago". They are seeing a lot of the things that I and others have been warning about for years and they are finally starting to take notice.
They are not falling for the "It's a temporary spike, and things will get back to normal" line. Everyone is wanting to know "What's next?". I will comment on that later, but to sum it up; Remember these days, because in a few years we will be looking back fondly on the $2.65 a gallon days.
MM

 

I just came across this article.

Sept. 9, 2006, 6:48PM
Oil find unlikely to bring back cheap gasoline

Recent test shows big potential in Gulf of Mexico, but demand is growing strongly

By TOM FOWLER
Copyright 2006 Houston Chronicle
News of a successful test in a potentially huge oil field in the Gulf of Mexico last week may have led some Americans to stop planning for hybrids and go back to dreaming about owning gas guzzlers.

Chevron and Devon Energy's success with the Jack 2 project some 270 miles offshore and five miles below sea level has been heralded as confirmation that the U.S. can continue to count on the Gulf of Mexico as a key source of energy.​

​

"Biggest find in a generation," touted one news headline. "Oil relief in sight?" another asked, while another predicted "Huge supply has potential to cut prices years from now."

While validating the big discovery may bolster the view of the oil-supply optimists, even they don't predict a return to the days of cheap gasoline in a world where demand is growing so strongly.

That includes Peter Jackson, co-author of a recent Cambridge Energy Research Associates report that predicts worldwide oil production capacity could grow as much as 25 percent in the next decade.

He isn't letting his belief in plentiful future oil supplies change his auto purchase plans.
"The next time I change my car, I will get one that's double the fuel-efficiency," he said.

Last week Chevron and Devon Energy made public the results of an oil flow test conducted recently in an area that has long been suspected of holding good oil and gas reserves.

The region, in more than 5,000 feet of water and another 21,000 feet below the bottom of the sea, is an extension of the Wilcox formation that has been productive onshore in Texas and Louisiana. But no one knew if this deep-water region had the same potential.

Once the companies proved that oil could flow at reasonably strong rates at such depths, it was seen as a green light by many companies with plans for similar deep-water projects.

"I can't think of another play, particularly in North America, that has had this kind of scenario," with all the industry interest, said Steve Hadden, senior vice president of exploration and production at Devon Energy.


'Just Drill Deeper'

BusinessWeek concluded last week the successful test meant there was "Plenty of Oil — Just Drill Deeper," and the commentary said consumers could " ... tune out all the scare talk about peak oil for a while," referring to the idea that one day soon worldwide oil production will begin to decline.

But the project, which the companies predict could match the U.S.'s largest oil field, in Prudhoe Bay, Alaska, will not counter the country's growing dependence on imported energy, say many other observers.

"It strikes me that these announcements can be dangerous if they give people the idea that there is not a problem," said Kjell Aleklett, a professor at Uppsala University in Sweden and president of the Association for the Study of Peak Oil and Gas.
Large discoveries, like Jack 2, represent about half of the world's oil reserves, but they are becoming increasingly rare, notes Paul Mann, a professor at the University of Texas' Institute for Geophysics.

Using data dating to the 1860s, Mann and a number of colleagues have concluded that worldwide discoveries of oil and gas fields larger than 500 million barrels of oil equivalent peaked in the 1970s at 220 finds.

Giant discoveries fell to 95 in the 1980s and 96 in the 1990s. They are expected to climb in this decade to about 109 because of increased exploration and production of nontraditional oil and gas reserves.

"Despite the technological improvements, they are simply finding fewer giants," Mann said. "Some may say they just haven't looked hard enough yet, but I think it's hard to argue with those curves."

 

I have been watching the news tonight and they have been reporting a statement made by the CEO of Saudi Aramco Oil Company.He says that we have only used 18% of the worlds oil supply and we have enough oil to last another 140 years.

I'll comment on the credibility of this guy later,but first let just assume that he is correct.

There is enough oil to last for 140 years at our present consumption rate. About 85 million barrels a day.But wait, experts say that oil consumption is rising faster than ever before. They predict that it will double by the end of the next decade. And double every decade after that. And many think that this is a very conservative prediction.

So if we have enough to last 140 years at our current rate of consumption then by 2020 we would have only 70 years left and by 2030 only 35 years left and by 2040 only 17.5 years and bone dry before 2050.So really he is saying that we will be completely out of oil in about 40+ years.Not such a good thing after all.

But who is he? He is the head of the largest oil company in the world. The oil company that is completely controled by the royal family of Saudi Arabia. The profits of which are the only thing that is keeping them in from being overthrown. The oil company that refuses to allow any independent review of thier claimed "Proven Reserves" of oil.

I don't want to sound racist here but I have years of personal experience in this part of the world and I know how the Arab mindset works. Remember the Iraqi guy on CNN saying "There are no american forces in Baghdad" as the tanks were rolling in behind him? How about the national holiday in Egypt celebrating thier great victory in the war with Isreal. Or Saddam Hussien celebrating his victory over the US in the first Gulf war.

So when I hear a Saudi saying that there is no such thing as oil depletion, I don't put much stock in it. And I certainly wouldn't consider it news worthy. Especially when I keep tabs on whats happening there and know that thier rig count has gone from less than 20 when I was there in the 90s to over 100 today and they want to have as many as 150 rigs drilling there by the end of this year. The wells that were free flowing in the 90s are now having to be forced to flow by injecting water and gas into the resevoirs.
But there is no problem, what problem? I don't see no problem.

 

This is copyied from an article on the first page of this thread. I posted this last year and it quotes and article from 2002. We have seen a lot of this prediction come to be this year.


Omens
How will we know when the oil decline bites. People have made various predictions. The first is from the ASPO Newsletter of March 2002 (the ‘Nemesis Report’).

Initially it will be denied. There will be much lying and obfuscation. Then prices will rise and demand will fall. The rich will outbid the poor for available supplies. The system will initially appear to rebalance. (this is happening now,but is only a temporary respiteMM)The dash for gas will become more frenzied. People will realise nuclear power stations take up to ten years to build. People will also realise wind, waves, solar and other renewables are all pretty marginal and take a lot of energy to construct. There will be a dash for more fuel-efficient vehicles and equipment. (large suv's and gas guzlers are having the worst drop in sales in years)The poor will not be able to afford the investment or the fuel.

Exploration and exploitation of oil and gas will become completely frenzied. (the oil industry is drilling and producing oil at a pace that I haven't seen in my 30 year career MM)More and more countries will decide to reserve oil and later gas supplies for their own people.(Venzuela is the first,but not the last MM) Air quality will be ignored as coal production and consumption expand once more. Once the decline really gets under way, liquids production will fall relentlessly by 5%/year. Energy prices will rise remorselessly. Inflation will become endemic. Resource conflicts will break out.

 

http://www.oilempire.us/

 

That's a good sight. I would also recommend;

http://www.lifeaftertheoilcrash.com

http://www.fromthewilderness.com

http://www.survivingpeakoil.com

http://www.theoildrum.com

 

Many of us in the industry were taking this news with a grain of salt.It was obviously being hyped by the media.This article explains it very well. MM







The Peak Oil Crisis: Hyping Jack No. 2


By Tom Whipple

Thursday, 14 September 2006


The story broke the morning after Labor Day, when the Wall Street Journal ran a front-page piece reporting that Chevron along with two partners had announced the results of a major oil production test in the Gulf of Mexico. The partners Chevron, Statoil, and Devon Energy ran the test on a well known as Jack No. 2 that was drilled last year in the Lower Tertiary zone of the Gulf of Mexico. This zone is about 80 miles wide, 300 miles long and is located about 175 miles off shore. The well was unusual in that it went to a depth of 28,000 feet and the drilling began under 7,000 feet of water.

Released details of the test noted that a number of technical breakthroughs had been achieved. By using the latest technology, Chevron was able to discern and drill into promising geological structures that had previously been hidden below a layer of sound-absorbing silt. The test, which achieved flow rates of 6,000 barrels per day (b/d), established that oil could be extracted at acceptable rates from very deep deposits. It also set several records for extracting oil under conditions of extreme pressures and temperatures.

Although no formal estimate as to the size of this particular find was announced, background briefers spoke of the possibility that the zone could contain from 3 to 15 billion barrels of oil in scattered deposits. If this speculation were to prove true, it would put the Lower Tertiary in a class with Alaska’s Prudhoe Bay and increase domestic US oil reserves by 50 percent.

The news of this great "discovery" naturally was replayed by nearly every newspaper and TV network in the country. Katie Couric ran a segment about the discovery on her first evening news show. Most reporting emphasized the possibility that the US might have found another 15 billion barrels of oil in its own backyard, but tempered the jubilation with the news that the find would have no immediate impact on gasoline prices.

A few, mostly financial journalists, took the announcement as an opportunity to disparage the idea of imminent peak oil. These writers are aware that should world oil production go into decline within the next decade the world’s economy would be in a lot of trouble, not to mention the credibility of those who make a living by forecasting decades of growth ahead. Therefore, they eagerly accepted the dubious premise that this one test proves that plenty of oil can be found by drilling deeper so long as oil prices remain high enough to support the costs of ultra-deep oil production; advanced technology is used to the fullest; and environmental restrictions are lifted. Several pronounced peak oil a dead issue.

As the week wore on however, knowledgeable geologists and petroleum engineers began to question all the euphoria. First they noted that the Jack No. 2 test was not conducted on a single oil field that might contain 15 billion barrels oil. Rather, it was one test of a well in a zone that extends for hundreds of miles under the Gulf of Mexico. Whatever producible oil the zone contains will likely be found in numerous smaller deposits.

A number of wells have already been sunk in the Lower Tertiary. Some were dry holes and a few struck oil bearing rock, which may have the potential to produce oil profitably. So far, only a handful of these exploratory wells have struck deposits of light oil, which may be possible to produce. Others have struck thicker oils that may be impossible to extract from extreme depths at acceptable rates.

What seems to be turning up in the deeper waters of the Gulf are a series of smaller oil fields — some of which may someday be profitable to produce and some of which probably won’t. Extrapolating this situation to a major new discovery that will delay the onset of peak oil is clearly a reach.

To extract oil from 20,000 feet below the surface, where the pressures run to 20,000 pounds per square inch (psi) and the temperature of the oil is in the order of 200 degrees centigrade, is going to be a major technical challenge. Wells drilled to these depths will cost in the range of $100 million each. To drill and set in place the production equipment for one of these fields may cost on the order of $1.5 billion, or more, as the cost of oil production equipment is inflating rapidly.

Add to this the problem of what to do with very hot oil and the associated natural gas as it comes flowing to the top of a well 7,000 feet under the Gulf and 175 miles from shore. The decision to attempt production from these ultra-deep fields will not be taken lightly by the oil companies involved.

Although there are no geopolitical problems or nationalistic governments involved in producing oil from the Gulf of Mexico, the fields are right in its center — out where the Category 4 and 5 hurricanes really get wound up. On top of this there are questions of how much oil can be extracted from an ultra-deep field with extreme pressures. Although the recent test produced 6,000 barrels a day, for a month, a knowledgeable old geologist opined that he would like to see a test run for a year or more before committing billions to a whole new regime of oil production.

Assuming that producing oil from the Lower Tertiary turns out to be economically and technically feasible, will new production from the region have anything to do with delaying peak oil? The answer is an emphatic NO.

Knowledgeable observers who have commented on the issue agree that even if all goes well, it is unlikely that more than 300-500,000 b/d of production could come into production from all the possible fields in the Lower Tertiary over the next five to seven years. In the meantime, the world will have burned another 150 to 200 billion barrels of oil and US production from existing fields will decline from the current 5 million b/d to somewhere around 4 million b/d.

This suggests that it will take some spectacular and unlikely gains from new production to offset the natural decline currently underway in the US. Of still greater concern is production from Mexico’s giant 2 million b/d Cantarell oilfield, most of which is exported to the US. Creditable reports suggest that Cantarell is entering very rapid depletion and may be producing at a fraction of its current level five years from now. It would be virtually impossible for this level of new production from the Lower Tertiary to come online in the next five years.

So long as the world continues to consume some 31 billion barrels of oil a year, there is still nothing in sight that can forestall imminent peak oil.

 

This is an old article, 2003, but it is very good at explaining the rise in world demand. And especially how China has affected it. It is from an investment firm who specialises in trading in oil. Wish I had found this when it first came out. Might be driving that Escalade now. MM


[SIZE=+1]How Surging Oil Demand Will Change Your World Forever [/SIZE]
By Roger L. Cory

The world is sprinting to keep pace with its demand for oil. Ten years ago—
even five years ago—this was not true. But today major oil producers report
they are sucking out of the ground every drop of oil they can and rushing it
to market as soon as they can, yet prices remain well above historic norms.

Why? Could it be that there are deep, structural changes afoot throughout the
world economy driving energy prices higher across the board?

We believe there are, and that you need to know what they are and how they
will impact your net worth in the next year, five and ten years, and beyond.

You may have already read my accompanying article on the Peak Oil
phenomenon, "Man's Quest for Crude: Here Comes the Hard Part." If you
haven't yet read it I urge you download it now from this site and read it first.
Peak Oil is by far the most important energy-related story of this century and
no investor should remain in the dark about it.

But the soon-to-come peak in world oil production is only half of the story:
the supply half. The other half of the story is demand. Obviously, peaking
world oil production is less of a problem if demand is peaking as well. But it
isn't. Far from it, demand is surging, and from corners of the globe which
previously never imported a drop of oil.

The world oil market is becoming overwhelmed with demand from formerly
moribund third-world economies which are leaping up to first-world status
in a single generation. This sea change in the world economy is the most
significant economic development in our lifetimes, and it will profoundly
affect the world, and thus, your investment portfolio.

They only question is whether these massive changes will affect you
negatively or positively. And of course, only you can make that choice. But
first you'll have to educate yourself as to what is happening and why, and
why we are far closer to the beginning of this "megatrend" then the end.

The World's Addiction to Oil Intensifies

Just 15 years ago, nearly a third of the world's population was trapped in
totalitarian systems which offered almost no economic freedom or
opportunity.

Most citizens of these benighted, depressed nations were not free to start
businesses, to trade, to earn a significant income or better their material
lives. They lived a Spartan, hand-to-mouth existence, according to the
dictates of the State.

Then two political earthquakes rocked Europe and Asia, more or less at the
same time. First, China embraced its own brand of free-market economics.
Then the communist regime of the Soviet Union and its European satellites
evaporated.

The shockwaves from these twin earthquakes are just beginning to be fully
felt, and its epicenter is the world oil market.

The new participation of the former "second-world" communist nations in
"first world" international trade, along with the economic awakening of
India, has introduced over two billion new consumers and producers to the
world economy—all within the span of a teenager's lifetime.

Where rice paddies and desolate, empty plains once stood, thousands of
massive factories have risen, manufacturing everything from toys to
computers to clothing. Many thousands more are being built now.

Question: How are all those new factories being powered? And how will
their millions of tons of products be transported, and where?

We know the answer. It's all being made possible by oil. We'll look closely
at China later, but consider for the moment that because that nation doesn't
produce nearly enough electricity to meet its new needs, many of its
factories are powered by massive on-site generators. Diesel generators.

And after products from these factories are assembled, who buys them?
Wholesalers, who sell to distributors, who sell to retailers, who sell to
consumers. Eight thousand miles away.

How do they get there? By diesel trains, diesel trucks, and diesel-powered
container ships.

Simply put, the new world economy is greased, paved, constructed and
powered by fossil fuels. So it shouldn't surprise us that:

• According to the International Energy Agency, 2004 world oil demand is
  increasing by a higher rate than any year since 1988;
• The world is now burning a record 80 million barrels of crude oil every day;
  almost 30 billion barrels just this year. To put this in perspective, in 2004 we
  will burn nearly eight billion barrels more oil than the entire U.S. proven oil reserve;
• The Energy Information Administration projects that, if current trends continue,
  by 2025 worldwide oil demand will exceed 120 million barrels per day, from a
  world oil production system which is, according to many experts, in the process of
  peaking.

Why is this happening? Aren't home appliances and electronics and
machines becoming more energy-efficient? Why is world oil demand growth
so far outpacing its population growth?

Energy Is Prosperity

To begin to answer that question we need look no further than our own
shores. America is the undisputed king of energy consumption. We are home
to less than five percent of the world's population, yet we consume about 25
percent of the world's total produced energy. Is that because we are a bad or
particularly wasteful people? No. It is because we are a particularly
prosperous people.

Wealth creation and energy usage are two sides of the same coin. In the
modern world you cannot have one without the other; energy is, well, the
energy modern economies use to create products of value for consumers to
buy. No energy, no wealth. It's that simple.

Paul Roberts, in his excellent work The End of Oil explains:

"Every act of economic activity is also an act of energy
consumption. The hamburger I order from the takeout window
is the ultimate, concrete form of demand in a cascade of
individual energy decisions and transactions and uses: from the
diesel in the tractor that tilled the feed grain to the electricity
that powered the lights in the slaughterhouse to the gas that
fired the restaurant grill (and this calculation, of course, does
not include French fries)…

Historically, the more economically active we humans have
been, the more energy we have used to create it with. It is an
endless cycle: more wealth leads to more purchases; more
purchases increase demand for products, which in turn calls for
more factories, more raw materials, and more trips by truck and
train from factory to warehouse and from warehouse to the
Wal-Mart and the Pottery Barn. The entire global economy is
like a huge machine, steadily converting energy into wealth.

One can trace a country's material advancement by its growing
appetite for energy, and by its success at feeding that appetite.
The richest nations use great quantities of energy and do so
with stunning sophistication and starling obliviousness: beyond
occasional complaints about gasoline prices or the electric bill,
the vast majority of Americans and Europeans are no more
aware of using energy than they are of breathing air."

That's America. Rich and energy-hungry. But see, in a modern economy, to
be rich is to be energy hungry. You can't be one without being the other.
Commentators sometimes opine in newspapers and political talk shows that
Americans use too much of the world's oil; to them we are oil gluttons, and
we need to have our wrists slapped for what they believe is our selfishness
and greed.

They are right, America is one big oil sponge; the numbers prove it. But they
are wrong to think we can change our relationship to energy without at the
same time changing our relationship to the notion of prosperity itself. That
is, America—or any wealthy, developed nation—can only significantly
reduce its energy consumption by significantly reducing its level of
prosperity. What politician do you know will be urging that upon his
constituents any time soon?

If you still doubt that energy and prosperity are inexorably linked, consider
this fact: the four most prosperous nations in the world—the U.S., Japan,

Germany and South Korea—have the four highest rates of per capita energy
usage. This can't be mere coincidence.

And where these great economic powers are, developing nations like China
and India want to be. So for us to understand where the rest of the world is
going to be heading the next two decades, we only need look at where we
are now, and how our own people aspire to live.

The American Dream Redefined (Again)

Definitions of what it means to "prosper" change over time. One hundred
years ago, a family with gas lighting in their home was considered
prosperous. Fifty years later, a family with a small black-and-white
television was considered prosperous. Today, even the poorest Americans
have far surpassed these former definitions of "prosperity."

So what does it mean to prosper in America today? Let's look at just two
consumer choices, which happen to be the most important purchases for
most households: homes and cars.

Exactly what constitutes a "nice home" has been expanding relentlessly over
the past 25 years or so. While new homes are undeniably more energy-
efficient per square foot than homes of a generation ago, there are more
square feet in the average home than there was a generation ago. In 1970 the
average size of a new single-family home in the U.S was 1,500 square feet.
Today it is over 2,200 square feet—a 50 percent increase in living space.

The latest trend in home development—the mini-mansion—is the
quintessence of this trend. Homes are built to their legal maximum per lot
size, with bathrooms the size of what bedrooms used to be. Vaulted ceilings
require much more air space to be heated. Jacuzzi tubs, gourmet kitchens
with high-btu professional ranges and oversized Sub-zero refrigerators, and
massive, floor-to-ceiling, heat-dissipating windows come standard. And of
course, each model includes a three-car garage.

And increasingly, what prospering Americans are rolling into those garages
are light-duty trucks and large SUVs, which have been promoted by
Detroit's automakers precisely because they are excluded from federal fuel-
efficiency standards. SUVs and light trucks now account for half of all new
vehicle sales in the U.S.

Naturally, these hulking vehicles, some of which are 6000 pounds or greater
in weight—roughly three times that of an economy car—sometimes achieve
real-world gas mileage no higher than the high single digits.

The U.S. government reports that the average fuel economy of light-duty
vehicles (including cars, SUVs, and minivans) is six percent better than it
was in 1987. At the same time, however, average horsepower has increased
76 percent, and average vehicle weight is up 26 percent. If horsepower and
weight had not increased, light-duty vehicles would consume 58 percent less
fuel today, not merely six percent less.

What's more, the tract developments their owners live in are located further
and further from the cities where they work; average commutes have
steadily risen for the past two generations, and along with it, the average
number of driving miles per person per year.

Have you noticed? All of these consumer choices, choices that issue forth
from an ever-increasing prosperity, require just one thing (besides money) to
make them possible: energy. Electricity to power the home (usually
generated through the burning of fossil fuels), heating oil or natural gas to
heat the home, gasoline to power the SUV ever more miles per year.

Perhaps these trends in American consumption explain why, even with a
contracting economy in 2001-2003, U.S. oil demand increased three percent
each of those three years. Even recessions can no longer be counted on to
reduce our thirst for oil!

More important to this discussion, however, is what these rising expectations
among American consumers mean for the developing world. Is the desire for
more electronic gadgets, larger-capacity home appliances and bigger homes
and cars only an American phenomenon? Or is it somehow hardwired into
the circuits of consumers in a modern developing economy? For the answer
to that question, there is no better place to look than China.

Napoleon Didn't Know How Right He Was

After a lifetime of surveying the world scene (and conquering much of it),
Napoleon Bonaparte observed, "When China awakens, she will shake the
world."

China is not only awake, she is roaring. And the world, especially the world
oil market, is indeed shaking.

"China is having an incredible influence on energy flows, not just in Asia
but on a worldwide basis, said Peter Davies recently, British Petroleum's
chief economist. "The whole center of gravity of the world energy market is
changing."

In China we have a truly remarkable story of our times. Imagine, a nation of
famously shrewd people, who comprise roughly one-fifth of the world's
total population, all trying to get rich, all at once. When something like that
happens, these are the kinds of things you see:

• China's real gross domestic product (GDP) grew at a rate of 9 percent
  in 2003, on top of 8.0 percent growth in 2002, according to the Energy
  Information Agency.
• China's real GDP growth is forecast to reach just shy of 10 percent for
  2004, a record pace for a major economy.
• China's exports increased by over one-third in 2003 alone.
• According to its State Statistical Bureau, Chinese factories are producing
  19 percent more goods than last year.
• Exxon/Mobil economists project that the world economy will grow an
  average of 2.8 percent a year through 2020, but China will more than
  double that growth every year.

We could go on and on like this; the numbers are simply astounding. It is as
if the entire country of China is working three shifts a day in a nationwide
effort to slingshot a feudal, almost medieval system into a modern First
World economy.

Now, we know the Chinese are not working this hard out of altruism. Their
motivation is simple: they want the same stuff you have.

In 1985, seven percent of all Chinese homes had refrigerators. Today, 75
percent do. In that same time period, television ownership rose from 17
percent to 86 percent. Fifty times more homes are cooled by air conditioners
than was the case twenty years ago.

Is it any wonder the Chinese government estimates the nation needs to build
sixty electric plants every year for the next ten years, just to keep up with the
demand?

But all the electricity in China won't power the granddaddy of consumer
goodies: the automobile. China is falling in love with the automobile. What
the 1920's were to America, this decade is for China. Everyone wants a car.
And more and more Chinese are realizing their lifelong dream of owning
one.

Have you ever attended an auto show? Have you ever met anyone who has
attended an auto show? Do you even know when they are held, and where?

The Chinese know. Over half a million of them crowded into the most recent
Beijing International Auto Show. The throngs were so massive,
eyewitnesses report that during peak times attendees were swept along in
waves, unable to control their individual movements.

In 1984, the first private vehicle rolled tentatively into the heart of Beijing,
parting a sea of bicycles in its path. Today, five concentric beltways encircle
the city, yet a 15-minute drive will often take an hour or more. Beijing now
boasts over 1.5 million car owners.

None of this has occurred by accident. The Chinese government planned it
all along; or at least since the mid-1980's. That was the time when China
decided to revive itself economically. And it realized the nation couldn't
become a real modern economy without cars to buy, and cars to build.

So they proclaimed auto manufacturing a "pillar" industry, and set a very
ambitious production target of one million vehicles per year by year 2000.
They were off by two years; Chinese automakers didn't hit the one million
mark until 2002, with sales growing by 20 percent per year.

Yet for all this growth, fewer than eight in a thousand own a car today. But a
third of urban Chinese own driver's licenses, and three-quarters report they
plan to buy a car in the next five years.

General Motors, which has invested heavily in joint Chinese ventures,
estimates that by the end of this decade China will buy one out of every five
cars built worldwide—twice that of the U.S. This has led some researchers
to predict that, at current growth rates, by 2015 China could be fueling as
many as 100 million private vehicles.

But how? Where is all the gasoline to power all these cars going to come
from? Why, from oil, of course. Where will the oil come from? We'll get to
that in a second, but one thing is certain: it won't be coming from China.

China's oil production system has been stuck at 3.5 million barrels per day
for years. Despite billions of dollars invested in exploration and
development, Chinese oil production seems to have reached a peak, and is
showing signs of decline.

The demand and production lines crossed in 1993; for the first time,
domestic demand outstripped domestic production, and China became an oil
importer. It's been importing more oil every year, to the point that now,
China imports nearly twice the amount of oil it produces, placing
unprecedented pressure on world prices.

That's why in 2003, China surpassed Japan as the second-largest world
petroleum user, with a total demand of over 5.5 billion barrels a day—just
behind the U.S.

Now, let's put China's oil demand growth into perspective. At present rates
of growth, by the end of this decade China will be consuming more than
nine million barrels of oil a day, exceeding the entire oil output of Saudi
Arabia, the world's largest producer.

To put this into further perspective, let's compare mainland China with its
nearby cousin, Taiwan. The two are similar in almost every way, except
Taiwan got a long head start over mainland China in the industrialization
game. Today, China consumes about 1.5 barrels of oil per person per year;
Taiwan, 12.5 barrels.

Now, suppose China just reaches half of Taiwan's level of consumption.
That would mean a total demand of about 20 million barrels of oil per day—
twice Saudi Arabia's daily output. Should China someday equal Taiwan's
per capita usage, they would require the entire oil output of five Saudi
Arabias.

Just for laughs, let's ask, what if China reaches its goal of attaining
American standards of wealth? China would gulp down the total daily oil
output of ten Saudi Arabias.

And we haven't even begun to talk about India, which is tracking just behind
China in oil demand growth, along with the other "Asian tiger" nations.
Simply put, worldwide oil demand growth is skyrocketing, and worldwide
oil production will be lucky to finish the year flat. No expert foresees these
massive, historic trends reversing themselves any time soon.

Given these facts, can you see any scenario in the years ahead which would
not lead to dramatically higher oil demand, and thus, dramatically higher oil
prices?

Most importantly, as an investor, can you see any scenario where oil would
not be a very smart commodity to own and produce in the years ahead?

Crude Oil: Your Dinner is Soaking in it!

Earlier we talked about America's disproportionate consumption of oil
relative to our population. As we said, that is very much a function of our
prosperity.

But there's another reason why we use so much of the world's oil: we feed
so many of the world's people.

America is the world's pantry of last resort. We're the place other nations go
when they can't grow enough grain or other foodstuffs to feed their people.
We are by far the world's largest food commodity exporter and have been
for many years.

Now, if you're over the age of 35 you probably remember hearing from your
mother at dinnertime, "Clean your plate, there are children starving in (name
your country—India, China…)"

Have you noticed? Moms don't say that to their kids today. Why? Simply
because it isn't true anymore; children around the world eat far better than
they did years ago. There are starving and hungry children, of course—
millions of them—but they aren't starving because there's not enough food
to go around; in most cases they're starving because their corrupt
governments are stealing it as it comes into the country.

You may be aware that there has been a dramatic increase in food
production over the past 40 years, even though less farmland is cultivated
than ever before. How is this possible? By a dramatic increase in yields per
acre planted. How has that been made possible? You guessed it: fossil fuels.

Welcome to the Green Revolution.

The so-called Green Revolution is really a transformation of agriculture
from a chance endeavor dependent upon the vicissitudes of rain, insects and
disease, to a mechanized industry where every possible variable is controlled
and managed by biotechnology and chemical science.

And, measured by sheer volume of output, a great success it has been. Total
world grain production has increased 250 percent in the last 35 years.
Though much of those gains have come from new hybrid plant varieties,
credit is equally shared by agriculture's dramatic increase in natural gas
usage (for fertilizer) and oil usage (for pesticides and machinery).

The Green Revolution increased energy flow to agriculture by an average of
50 times traditional agriculture. To give you some kind of idea how much
fuel we are talking about:

• Agriculture accounts for 17 percent of all the energy used in the U.S.
• 400 gallons of oil equivalents are expended annually to feed each American.
• A pound of beef requires three-quarters of a gallon of oil to produce; a single
  steer requires almost 300 gallons.
• Each acre of land requires an average of 6.4 barrels of oil to cultivate.

As a result, the energy equivalent of 96 billion barrels of oil is consumed in the growing of our food, every year.
Simply put, these historic yields in food production have come at a price.
That price is the consumption of vastly larger amounts of oil to feed a
rapidly growing world.

So, here's the question we need to ask ourselves: If oil demand, and thus
prices, were to go down, who would volunteer to stop eating? For oil
consumption in agriculture to drop, food production must drop, which means
someone, somewhere is going to have to stop eating, or start eating a lot less
than they are now. Not many people are going to do this voluntarily.

Which means, then, that ever-higher oil consumption is virtually guaranteed,
if no other reason than that the population of the world keeps growing and
ever-more amounts of petroleum are needed to feed them.

As investors, we are rarely afforded the opportunity to speculate on
something so certain as population growth and human hunger. But oil, as
we've seen, lies at the intersection of these global realities, and as such will
remain a commodity in the highest demand.

Oil: The Commodity of the 21st Century.

We hope that the preceding discussion has shed new light on why we all
keep reading and hearing about higher oil prices in the news. Oil is trending
higher for a reason. Or, actually, several reasons.

As an investor, I suggest you ask yourself: Are those reasons likely to recede
any time in the foreseeable future? Is there any scenario you can imagine
which would stop the Chinese and India economic juggernaut in its tracks?
Any scenario you can imagine that would lead Americans to want smaller
houses? Any scenario you can imagine that would lead people around the
world to eat less?

If not, then you've come to the right place. At Mammoth Resource Partners,
we've dedicated ourselves completely to helping investors appreciate the full
scope of oil's potential as an investment. We are convinced that oil is the
commodity of the 21st Century, and we want you to be fully informed of the
major trends world oil prices which will so greatly impact your life, and
your investment portfolio—for good or ill.

That's why we're always here to answer your questions about Peak Oil,
terrorism & oil, or world oil demand. We welcome your questions, your
concerns, your insights. And we wish you every success as you explore the
exciting potential of investing at the dawn of the Century of Oil.
<HR id=HRRule1 align=center width="90%" SIZE=2>

 

December 15th 2005

A leading Geologist and Peak Oil proponent, Kenneth Deffeyes, predicted in 2003 that world oil production would peak on November 25th 2005. It seems he may have not missed it by much.

The production reports are in for last year and many experts are saying that December 15th, 2005 was the day that world oil production peaked.
Peak oil can only be seen in hindsight. Until production figures are evaluated and plotted can you say for sure that a field or region is in decline.

M. King Hubbert predicted that national production in the USA would peak in 1970. Scoffers were laughing when the figures for 1971 came in. They showed that the production for that year had set a record.
But the laughing soon stopped. That was the year that USA domestic oil production peaked. We have never produced as much again. And have been in a steady decline ever since.

2000 was a record year for global production. But it remained flat for the next two years. Then in 2003 just barely surpassed 2000 by 1/2 of 1 percent. 2005 hit the highest peak that we have seen and 2006 is in steep decline. 2007 figures will confirm it. If we continue in the current steep slope, then it will be official.

December 15th, 2005, a day that will live in infamy?