View Full Version : With all the 'Gubmint' takeovers so prevalent...

Uncle Bill
08-28-2009, 09:18 AM
...in the main stream press, many of the 'minor' problems are being ignored; ergo my warnings about allowing some gun control nuts to slide something under the radar.

Equally important are the continuing fights to regain some our nations freedoms which have been taken away by the so-called 'conservationists'..
that deservedly fall under the heading of "environmental wackos". They were never content in correcting the pendulum, they had to swing it so far left, it's strangling society. When will we wake up and realize this nation is being raped by the 'Greens', tree huggers, and global warmists.

For those that don't take the time to make themselves aware of these problems, the time will soon become a "SHAZZAAAM" moment... an epiphany that will slap you along side your head. By then of course, you will have relinquished your freedoms to the whackos, and much like the healthcare fiasco in the forefront, once it's been enacted, you will have no way to "put the toothpaste back in the tube." It will be Humpty Dumpty time in the USA.

Here's one of those problems many of you will be forced to deal with in the near future.


Peak Oil: Supply Data Doesn't Lie
by Puru Saxena
Hong Kong, China

Despite the 'demand destruction' hype, it is interesting to note that during this severe global recession, worldwide oil usage has dropped by a minuscule 2.7%. So, what will happen when the world comes out of this recession? Who will rise up to the challenge and meet our insatiable thirst for energy? These are critical questions not many are willing to ask.

According to the US Department of Energy, liquid fuel demand in the developed nations peaked in August 2005 at 41.89 million barrels per day. Since then, it has plunged by 3.6 million barrels per day to 38.27 million barrels per day. However, you may want to note that despite these tough economic conditions, consumption has been extremely resilient in the emerging world. For instance, demand in the developing countries peaked in October 2008 at 46.33 million barrels per day and it is down by only 0.36 million barrels per day! I am amazed that the worst global recession in decades has barely managed to shrink energy demand in the developing world. Whilst this is wonderful news for the energy investor, it is a terrible sign for society.

At present, our world is using up roughly 84 million barrels of liquid fuels per day and for the moment at least, there is sufficient supply to meet demand (Figure 1). However, when economic activity picks up, it won't take much for demand to zip right past supply. Remember, it is much easier to increase usage, but it takes a long time to ramp up production. So, unless this is a permanent global recession (which I doubt), it is inevitable that the price of oil will go up significantly over the medium to long-term.

Figure 1: Supply and demand - balanced for now http://farm3.static.flickr.com/2569/3859068875_88c895eec5.jpg
Source: www.yardeni.com (http://www.yardeni.com)
On the supply side of the equation, let me be clear. If I was asked to pick the biggest threat to a sustainable economic recovery, Peak Oil would top that list. Remember, Peak Oil doesn't mean that we are running out of oil reserves, crude will be around for decades. However, 'Peak Oil' does imply that we are dangerously close to peak global oil production. 'Peak Oil' also means that rather than experiencing a burst in oil supplies as many expect, from here onwards, we will witness sharp declines in global flow rates. In a nutshell, the era of cheap energy is over and the price of crude oil will rocket higher over the coming decade. "...it is much easier to increase usage, but it takes a long time to ramp up production. So, unless this is a permanent global recession, it is inevitable that the price of oil will go up significantly over the medium to long-term."
Now, many skeptics will argue that if Peak Oil was real, the price of oil wouldn't have dropped to roughly US$30 per barrel in last autumn's stunning crash. Valid point; but let us not forget that the spectacular plunge occurred at a time when global economic activity virtually came to a standstill. Let us also keep in mind that last autumn's crash in asset prices was caused by a total freeze in credit and the associated asset liquidation. Whilst I agree that the final action in crude oil's parabolic blow-off last July smacked of speculation, I can assure you that speculation alone couldn't have created a multi-year boom whereby the price of crude oil went up by almost 1500%! As you can see from Figure 1 above, supply clearly fell short of demand between 2005 and 2008, and this is why we had a magnificent bull-market in crude oil.

Make no mistake, global demand for liquid fuels will rise again - and if my homework is correct, supply won't be able to keep up. If you ignore the noise and review hard data, you will observe that the vast majority of the world's most prolific oil provinces are now past peak production and in a state of permanent depletion. According to the BP Statistical Review of World Energy, out of the 54 oil producing nations and regions in the world, only 14 are still increasing production. Alarmingly, 30 oil producing nations and regions are definitely past their peak output and the remaining 10 appear to have modestly declining production rates. Put another way, when weighted by production, Peak Oil is already a grim reality in 61% of the oil producing world!

Still not convinced about Peak Oil? Then review Figure 2, which charts the expected combined flow rates for crude oil, lease condensates and Canadian Oil Sands. As you can see from the grey shaded area, production is about to decline by roughly 5 million barrels per day by 2012.

Figure 2: Has crude oil production peaked?
Source: The Oil Drum
Ironically, Figure 2 also plots the optimistic (almost laughable) forecast made by the International Energy Agency (IEA) in its "World Energy Outlook 2008". Interestingly, in last year's "World Energy Outlook", the IEA stated that in order to fulfill its optimistic projections, the world had to install 64 million barrels per day of new supply by 2030 or the equivalent of six times the Saudi Arabian output! Furthermore, the IEA declared that the energy industry had to invest hundreds of billions of dollars every year to achieve this favorable outcome.

Now, I can understand that the IEA is a government-funded agency so it has to paint a rosy picture, but it is ominous that the energy watchdog failed to mention where this surplus oil would come from!

Well, I guess you get the idea. Global crude oil production has probably peaked, new discoveries have dried up and there is a shortage of capital for investment purposes. Apart from these factors, if you believe the energy optimists, all is well in the energy industry and the price of oil is about to drop to zero!

After years of extensive research, I have no doubt in my mind that unless global demand stays weak forever, we will see supply shortages in the not too distant future. And before that occurs, the price of crude oil will stage an explosive rally. Accordingly, I suggest that all my readers allocate a large proportion of their investment portfolio to upstream energy companies and to businesses in the energy services sector.

Finally, in the energy complex, the price of natural gas is still scraping along its recent crash low and this is a fantastic long-term investment opportunity. As we approach winter in the Northern Hemisphere and heating demand picks up, we are likely to see a big rally in the price of natural gas. So, investors may want to allocate capital to this unbelievably inexpensive commodity.


Puru Saxena

Puru Saxena is the founder of Puru Saxena Wealth Management, his Hong Kong based firm which manages investment portfolios for individuals and corporate clients. He is a highly showcased investment manager and a regular guest on CNN, BBC World, CNBC, Bloomberg, NDTV and various radio programs.

Terry Britton
08-30-2009, 08:34 AM
I am not familiar with many of the energy companies outside of Cheveron, AMX, CLNE, and SU. I have been lookin more closely at the Exchange Traded Funds such as DIG and UNG.

DIG also has a mirror, DUG, that is a double short fund that goes up when the stocks in DIG goes down. Playing the DUG utilizing technicals can be very tricky, because I have seen both DIG and DUG go the opposite direction in which their technicals (MACD and Stochastic charts, http://www.rule1investor.com/). Be extremely cautios and don't lose $$$.

After doing extensive research to support a business plan to launch a medium size biofuel plant last year, we are heading for future energy problems as the graphs and data above point out. Alternantives (wind / bio) won't do much to help due to transportation costs to move the energy where it can be produced to population centers.

08-30-2009, 09:01 AM
Very interesting in light of the fact that just this week an article in the WSJ that Bio-fuels have totally tanked.....as well they should.

Biggest government scam in decades.

Terry Britton
08-30-2009, 02:47 PM
Biofuels tank because it cost more to make the fuel than they can sell it for. When I was looking at it, first generation technology ethanol was costing around $2.40 per gallon to produce, and it was selling at the pump at that price. I don't know how you can produce a biofuel at $2.40 a gallon, transport it to a population center for blending at a cost of $0.96 per gallon (quote I had from Western OK to Dallas which is much shorter than the demand in the NE), and expect to make a profit when it is selling for $1.83 per gallon.

The business case study I looked at would have used next generation technology which would have dropped the price of production to $1 per gallon, but transportation would still eat up too much revenue.

Problems with biofuels are mass production facilities close population centers, and transportation costs of the fuel, syn-gas for processing, or the biomass. It will be years before biofuels will be viable.

The most promising biofuels I see in the future may be converting coal to a liquid fuel such as ethanol or other burnable liquid similiar to gasoline through a bioprocess. We won't see these technologies coming out until we hit a real energy crisis.

Terry Britton
08-30-2009, 02:52 PM
What those graphs also don't show is that when global energy hits crisis levels, global food production will go down. You all as hunters should understand what happens when the food production goes below the level where it can support the population.

08-30-2009, 06:27 PM
We will never run out of oil! At least not in a physical sense. There will still be oil in the ground 10 years from now, and 50 years from now and 500 years from now. This will hold true no matter if you take a pessimistic or optimistic view about the amount of oil still available to be extracted. Let's suppose that the supply really is quite limited. What will happen as the supply starts to diminish? First we would expect to see some wells run dry and either be replaced with new wells that have higher associated costs or not be replaced at all. Either of these would cause the price at the pump to rise. When the price of gasoline rises, people naturally buy less of it; the amount of this reduction being determined by the amount of the price increase and the consumer's elasticity of demand for gasoline. This does not necessarily mean that people will drive less (though it is likely), it may mean that consumers trade in their SUVs for smaller cars, hybrid vehicles, or cars that run on alternative fuels. Each consumer will react to the price change differently, so we would expect to see everything from more people bicycling to work to used car lots full of Lincoln Navigators.

If we go back to Economics 101, this effect is clearly visible. The continual reduction of the supply of oil is represented by a series of small shifts of the supply curve to the left and an associated move along the demand curve. Since gasoline is a normal good, Economics 101 tells us that we will have a series of price increases and a series of reductions in the total amount of gasoline consumed. Eventually the price will reach a point where gasoline will become a niche good purchased by very few consumers, while other consumers will have found alternatives to gas. When this happens there will still be plenty of oil in the ground, but consumers will have found alternatives that make more economic sense to them, so there will be little, if any, demand for gasoline.

Terry Britton
08-30-2009, 10:53 PM
One thing about Next Gen Ethanol, if the owners of the IP would bundle it up into much smaller packages, I could run my truck for a year around town on the ethanol produced from one summer of burmuda grass clippings on 1 to two acres of yard. If everyone started producing the yards their houses sit on for personal use, it would make a big impact on price at the gas stations.