Posted on 01/27/2006 5:23:10 PM PST by LouAvul
DAVOS, Switzerland (FORTUNE) - Be afraid. Be very afraid.
That's the message from two of the world's most successful investors on the topic of high oil prices. One of them, Hermitage Capital's Bill Browder, has outlined six scenarios that could take oil up to a downright terrifying $262 a barrel.
The other, billionaire investor George Soros, wouldn't make any specific predictions about prices. But as a legendary commodities player, it's worth paying heed to the words of the man who once took on the Bank of England -- and won. "I'm very worried about the supply-demand balance, which is very tight," Soros says.
"U.S. power and influence has declined precipitously because of Iraq and the war on terror and that creates an incentive for anyone who wants to make trouble to go ahead and make it." As an example, Soros pointed to the regime in Iran, which is heading towards a confrontation with the West over its nuclear power program and doesn't show any signs of compromising. "Iran is on a collision course and I have a difficulty seeing how such a collision can be avoided," he says.
Another emboldened troublemaker is Russian president Vladimir Putin, Soros said, citing Putin's recent decision to briefly shut the supply of natural gas to Ukraine. The only bit of optimism Soros could offer was that the next 12 months would be most dangerous in terms of any price shocks, because beginning in 2007 he predicts new oil supplies will come online.
(Excerpt) Read more at money.cnn.com ...
thanks for letting us in on the fun!
"Peak Oil will be here soon and may be the defining event of a generation." "A generation? Try the human race! Cheap energy drives our world."
While the statement is true it's rather nonsensical to assume that the only possible cheap energy is oil ... Nuclear and coal-fired power plants are the cheapest form of power via electricity, for example.
" If peak oil is fact,"
... ahem, but its not a fact. Peak oil is a myth. Serious analysts of the oil situation estimate that another
30 years of increasing production is possible, just based on existing reserves and projections of conventional and unconventional oil production.
People are being misled because the low prices of the 1980s and 1990s caused oil exploration and discovery to taper off. Consequently production rates and discovery has not increased at the same pace as demand... Finally demand has caught up. Result? A big increase in exploration again, and we see large increases in production possible in future years. Two examples: Bongo field in Nigeria (200,000 barrels a day) and Caspian sea Azeri field (350,000 barrels a day) just started up in recent months. There are about 80 fields like that coming online in the next few years, created 10 million barrels a day of new supply between now and 2010.
We are not yet at peak oil, not according to oil experts at CERA.
The 'end of oil' has been predicted half a dozen times so far and have been wrong each time. The 'peak oil' hypers dont admit that just 10- years ago they were predicting the peak around 2000, at lower levels than the world currently produces.
Another point: THE WORLD IS AWASH IN OIL. 3 trillion barrels of reserves.
The reason oil is expensive vs previous years is not any phyiscal shortage, but fears of shortages in the future ... hence these scary scenarios.... well guess what, if California has a major earthquake, lettuce could be $26 a head, and
" we shouldn't drill or use domestic oil. Instead we should use up everyone else's resources, and save ours for the tough times."
Actually that thinking is economically unsound. The time value of money and resources is such that we are better off gaining the benefit of the resource now, then investing for a positive return in the savings generated by it.
Or to put it another way: We should have a program to gain full energy independence. Drill ANWR, drill offshore, build 400 nuclear power plants, extract shale oil, do synfuels. All of it. And do energy efficiency and conservation as well.
Then if and when global supplies decline, we will be immune to any impact. There is no point to wait for that and to stay dependent on foreign oil, because it is clear that oil dependence has a political cost above and beyond the economic one. And waiting for oil 'to run out' is pointless too, because we will never 'run out' of oil.
we liberated kuwait and iraq, and didn't take their oil fields. our moral compass will not allow us to start seizing fields and supressing general populations in these countries using our military.
O'Connor said earlier this year Shell hoped to have a commercially viable operation in the area by 2010."
My guess is that there is some potential for commercially viable oil shale production. The volume of hydrocarbons in oil shale is immense.
The questions are: (i) how much energy it will take to get it out?; and (ii) how fast can we start to produce millions of barrels per day?
I am somewhat optimistic about obtaining a reasonable net gain in energy from oil shale. Shell's in situ technique sounds interesting.
The tough nut to crack is whether unconventional sources and oil shale / tar sands in particular can meet rising oil demand and replace the natural decline that will follow peak oil.
I am not optimistic on this prospect. Drill where we can. Build nukes. Investigate solar and wind. Let high prices balance demand. Grit teeth. Pray.
If we're about to be extorted to the tune of $262pb, our "moral compass" will have to be adjusted.
Have you ANY idea what $262pb would do to the economies of the world?
"Peak Oil is for the most part nonsense."
"I know it's easy to toss around labels, but you should check out what Congressman Roscoe Bartlett has to say about Peak Oil. He is one of the most conservative and one of the most intelligent members of the House."
That doesn't change the fact that Peak Oil is for the most part nonsense. While you are looking for his comments, also look at CERA's testimony last December, the EIA and IEA long-range estimates and the accounting on reserves (ie 3 trillion barrels) ... *and* the history of Peak Oil hypers like Campbell and others, who predicted The Peak many years ago (viz Scientific American article of 1997, which has since been proven wrong by subsequent production history.)
There is geological validity to the Hubbert curve concept, but that's about all you can say positive about it. By failing to account for either economics or politics of oil, "Peak Oil" is a very poor predictor of oil production history. Actual nation by nation production histories do *not* follow a hubbert curve - and you can check most of them yourself - Russia, Iran, Iraq, Saudi Arabia, etc. There are a lot more factors than oil well geology that influence production rates, nationally as well as globally. An economist in fact debunked the "hubbert curve" as applied to American production history by showing the economic factors that influenced production, and getting far better match to actual production than the simplistic Hubbert curve.
The fact that oil is now well above its trend-line long term average price is reason enough to support higher production levels in future years. Capped wells from the 1980s get uncapped at the right price, and suddenly 'unconventional' oil gets produced at rates of conventional oil. Pricing works. Supply And Demand - not just a good idea ... It's the Law!
Yep. It takes more energy to split water than is released from the comustion of hydrogen. It is like taking electricity to MAKE electricity. It just does not work.
Its best to think of hydrogen as a battery
"The true supply is inexhaustible"
"Have the laws of physics been repealed? Nothing is infinite."
it's not a matter of physics, but a matter of *economics*. It's true. In an economic sense, WE WILL NEVER RUN OUT OF OIL. WE WILL NEVER RUN OUT OF (insert resource here). This is how economics works.
As a resource becomes scarcer, it becomes more expensive and/or alternatives come on board to replace it.
Most of the Peak Oil hypers are geologists or people who check their economic common-sense at the door. Economically, resources are more fungible and inexaustible than a rigid phyical view might think.
You *DO* know, I hope you understand, that when we drill for oil and extract it from underground, we do *NOT* extract 100% of the 'resource in place'. In the past, only 10-20% of 'oil-in-place' could be extracted. Then we came up with secondary recorvery methods that increased that ratio, so today we are closer to 40% or more.
A lot of times water is used. Matt Simmons has made a big deal about the Saudis using water, but he really shouldn't, that is standard practice for keep well pressure and pumping rates up.
Well, now some brilliant folks have gone and done CO2 recovery methods that boost the recovery ratio up over 60%.
That still leaves a *lot* of oil underground, in a very real geological sense - available but harder and harder to reach.
Nope, we will never get it all nor need it all.
It is true that the supply of *cheap* oil is limited.
Middle east oil is cheap and easy to pump. There are perhaps 200 billion barrels to 400 billion barrels of oil that could be pumped for under $3 a barrel. At some point, that will go away. But that still leave 3,000 billion barrels that could economically recoverable at under $30 a barrel or less.
So talking about running out is absurd. The ONLY question is "What is the price of that product?" and concurrent to that, what is the level of production (demand and supply balance) at that price.
For example, oil at $262/barrel for more than a short period of time is utterly absurd, as every other form of energy, from coal synfuels to bio-deisel to ethanol to electrical power would be cheaper than oil. So there would be economic dislocation, but we would *NOT* have that price sustained.
Even at $60 a barrel, it is likely that substitution effects and incentives to drill for more oil are such that supply will increase more than demand. ...
"Just takes more drilling and deeper drilling."
I don't think that is the case.
"If you are correct, why did oil production peak in the US in the 1970s?"
In what sense did oil production peak in the US in the 1970s? Alaska didnt peak then. the Gulf didnt peak then.
A good culprit IS SIMPLY THAT A COMBINATION OF LOW PRICES IN THE 1980s AND 1990s AND RESTRICTIONS ON DRILLING PREVENTED THE US FROM USING MORE OF OUR RESOURCES.
Govt lands were off limits, off shore was made offlimits, ANWR off limits. If we opened up ANWR, offshore california, govt lands, and changed some of the rules for how drilling is done and accounted for ... you betcha we could have higher production than today!
US production peaked in part for political and economic reasons (due to oil price controls, and then price collapse of the mid-1980s).
"If it's just a matter of using a better drill bit, or more power to drive the bit, then production would have not peaked in all the places that it already has."
Question: did Iraq peak in the 1970s? Was it due to geology?
What about USSR... they had a peak that fell in the 1980s and 1990s. According to you, once you are past your peak - that's it ... SO HOW COME RUSSIA IS NOW INCREASING PRODUCTION TO ITS HIGHEST LEVELS EVER?!?!
"Supply isn't being "held back". They can't keep up with the demand from China"
Ummm, not really. China's demand increase in 2006 is about 400,000 barrels, not that great, and supply increases are higher than demand increases for 2006.
... and CERA's recent record is perfect? BTW, where are these three trillion barrels supposed to be? How many Saudi Arabias is that?
"forgot about asteroids plowing into the Earth, Super Novas, Aliens attacking....Have I left anything out?"
How about this frightening scenario ...
Leftwing Moonbat becomes US President. Iran takes US hostages and boycotts their oil, Communists take over a central American country, Asian Muslim country is invaded by a competing superpower, a war starts in the middle east ...
oh wait, that *happened*. (Thank you Jimmah)
(Another point - despite all that happening in 1979 and 1980, the price of oil hit around $70-80 in today's terms ... so predictions of prices way beyond that are imho just scaremongering nonsense.)
>>also look at CERA's testimony last December
I assume you are refering to Esser's testimony before the Congressional subcommittee. If you listen to the testimony given
http://media.globalpublicmedia.com/RAM/2005/12/HouseEnergyCommitee.20051207.ram
then during the question and answer session, round about
01:44:27 Mr. Esser is asked some questions and he explains that:
A: CERA's "undulating plateau" will be characterized by escalating prices (a dramatic rise in prices)
B: CERA has little confidence in their estimates beyond 10 years due to the nature of projects
He says that at some time "we will be surprised"
Microsoft makes 33% or so. If big oil is so powerful, how do you explain the 20 year bear market from 1980 to 2000?
Conclusion...Abiotic oil is a more reasonable theory than dino oil
I don't claim to know how it got. However, the idea that it is going to magicially refill itself is pure absurdity.
If abiotic oil was for real (with a reasonable replinishment time) where are the companies that are doing this? Why aren't the proponents of abiotic oil out there finding the oil instead of writing papers about it?
now, now...
I can always drive 55 or slower.
"..In 1922, The Arabs...Offered to sell their oil rights to the U.S.A....Too bad, we didn't take them up on it."
They would nationalize them any way.
ROFL! I'm not sure I should, but I'll admit it anyhow. I've done a few of the things on your list, but I won't say which ones. ;)
"So what. I hope it hits 5 bucks a gallon this summer."
Long XOM. Easy hedge.
yeah, what has happened to ANWAR???????????
Are we drilling yet??????????
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