Wednesday, November 12, 2008 2 comments ++[ CLICK TO COMMENT ]++

Peak Oil Theory Is Slowly Losing Support

MarketWatch reports how IEA doesn't see peak oil any time soon and in fact thinks under-investment is a bigger problem:

The International Energy Agency on Wednesday dismissed fears about peak oil, but the group said under-investment could lead to production troubles.
The IEA published the full report on its world energy outlook after releasing a summary last week.

"Although global oil production is not expected to peak before 2030, conventional crude-oil production is projected to level off toward the end of the projection period," it said.

Canadian oil sands, extra heavy oil, gas-to-liquids and coal-to-liquids will have to make up the difference.

But it warned that OPEC countries will need to step up their investment campaign.

Some 64 million barrels of oil equivalent a day of additional gross capacity, the equivalent of six times the amount Saudi Arabia produces today, must be brought on stream from 2007 to 2030, with about half needed by 2015.

Now, IEA, like anyone else including me, cannot predict the future. It is also, like most analysts, trend-following. However, their suggestion that oil won't peak until 2030 is another strong argument against peak oil. In fact the fact that they are saying under-investment could be an issue completely dismisses the peak oil theory. They are essentially saying that, not only will there be too much oil, no one is willing to spend money to extract that. This thinking is completely opposite the peak oil theory, which suggests that oil will run out.

As for the concern about not enough spending on E&P, I don't think it will be a big deal. If there is demand, prices will rise and companies will spend money on E&P. After all, the oil companies' bread & butter is selling oil. They would go bankrupt if they don't sell oil (either by extracting from their reserves or finding more.) The only thing we need is for the government to stay away in both directions: either putting a floor or attempting to put a ceiling.

None of this means that oil&gas investments are a bad idea. Rather, all it means is that making a bet on the macro case of peak oil might be somewhat flaky.


2 Response to Peak Oil Theory Is Slowly Losing Support

November 12, 2008 at 2:42 PM

Boy do I regret never doing that oil short I contemplated...

November 12, 2008 at 3:15 PM

Yeah but that's speaking in hindsight. I can't speak for yourself (you are probably more skilled than me ) but I turned bearish on oil an year ago. I thought oil was too high when it was something like $80 and thought it was crazy at $100. Well, $140 looks crazy but it could have easily gone up further.

The best short would have been the bulk shipping companies (like DRYS). Amazing how much they have fallen...

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