Greg's Note: A few weeks ago, David Galland from Casey Research introduced you to the work of Jeffrey Brown and the Export Land Model. After interviewing Dr. Brown, Galland returns with a very interesting comparison to make when looking at today's oil export markets. A country can only export so much oil before it will become concerned about its own dwindling supplies. At that point, export markets begin to take a much different look. Send your thoughts on the subject to greg@whiskeyandgunpowder.com. Whiskey & Gunpowder
For a useful way to think about energy exports and prices, Dallas based geologist Jeffrey Brown points to the current situation with global rice supplies. Brown among others worked on the Export Land Model (ELM), a model that reflects the decline in oil exports as a result of Peak Oil. As long as there are abundant local supplies of rice, countries are happy, eager in fact, to export excess production in order to generate foreign exchange. But as soon as local consumption exceeds locally available production, then all hell breaks loose and the next thing you know countries are banning exports, a move that has already been undertaken by Vietnam and a number of other countries. In that scenario, price eventually no longer becomes a factor in the availability of the commodity. Vietnam, for example, is not going to let its people starve just because higher global prices would allow it to earn an extra $10 a bag of rice. ~~~~~~~~~~~~Special~~~~~~~~~~~~ How Much Oil Is There Really? We've heard some whoppers before, but this one might take the cake. We've been told by oil producing countries in the Middle East so pretty gaudy numbers when it comes to oil production. But what if those countries can't produce that much oil? Well the answer is shocking and should alarm every investor out there. Click here to find out for yourself… ~~~~~~~~~~~~~~~~~~~~~~~~~~~ And so in the face of the prospect of any serious shortage of an important resource — energy being maybe the most important — export markets freeze up and the price begins to be set at the margin, literally based on a global competition for the dwindling supplies that manage to leak out around the edges. "People are crazy not to be focusing on the oil export situation," Dr. Brown told me. Of course, the question of energy alternatives is a big topic and one which needs a far more extensive discussion than space allows for here. Will viable alternatives be developed to help mitigate a domino collapse of oil exports? Absolutely. Of those alternatives, nuclear, solar and heavy oil seem to hold the greatest promise. But the sheer scope of the problem — with the world now consuming the energy equivalent of one billion barrels of oil every five days — assures that we are probably decades away from a real solution. In the words of Jeffrey Brown… "If you look at the situation in terms of presidential terms, looking at fossil fuels plus nuclear the world burned through the equivalent of 10 percent of all oil ever consumed in Bush's first four-year term. And, in our model, we're going to burn 10 percent of all remaining conventional crude in the second four years of Bush's term. "That is the equivalent of around 25 billion barrels a year. So that's 100 billion barrels every four years, and we've burned 1,000 billion barrels. It gets interesting when you consider that current estimates are that we've only got 1,000 billion barrels of conventional crude remaining. I think with natural gas liquids, we've got a little bit more. But of the conventional crude oil, we've got 1,000 billion remaining. Which then begs the question, how fast can we bring on the tar sands and everything else?" Grasping for straws, I asked Jeff about an article I had read recently about the Bakken oil shale reserves around North Dakota. "They're talking about somewhere between 200 billion and 500 billion barrels in situ, but the USGS recently came out with a mean estimate of between 2.5 and 4.4 billion barrels recoverable, as an outer limit," he replied, before continuing. "In 1966, they said, if Lower 48 ultimately recoverable is 150 billion barrels, then the U.S. would peak in 1966. If the recoverable oil from the Lower 48 ultimately came in at 200 billion barrels, then the U.S. peak would come in 1971. The higher-end estimate probably turned out to more accurate, and the U.S. peaked in 1970. But the point is this; a one-third increase of estimated ultimate recoverable — a total increase of 50 billion barrels — postponed the peak by all of five years." The trend for sustained higher energy prices appears solidly in motion. If Brown and the ELM are correct, energy prices will double then double again. ~~~~~~~~~~~~Special~~~~~~~~~~~~ Price for Your All-Access Pass Has Been Slashed For the first time ever, we've cut the price for your all access pass to Agora Financial's top performing financial services. This is the lowest price ever offered, and we may never do this again. For full details on the most affordable Agora Financial membership ever, click here… ~~~~~~~~~~~~~~~~~~~~~~~~~~~ Even if he is wrong and prices don't rise geometrically, the global dogfight to replace declining supplies — decidedly exacerbated by the loss of Mexican and maybe Russian exports in the near future — is going to get ugly and expensive. So, what's the investment angle? Paradoxically, the larger energy companies are probably a bad bet, because they are forced to replace their depleting reserves, which is getting harder and more expensive to do with each passing day. It is our contention that, because the solutions to the world's energy problems are going to involve a variety of energy sources and technologies, you have to build a portfolio that is equally varied. That assures you are well positioned to profit from the broader trend, while avoiding the risks of being overly exposed to a single sector. (As an example, solar has had a great run, but most solar plays are now overvalued). The good news is that there are no shortage of high quality energy-related investments available…in coal, heavy oil, LNG, photovoltaics, natural gas consolidators, "run of river" hydroelectric, uranium and small to mid-cap oil companies with the potential for significant near-term gains in reserves or production. In the final analysis, it comes down to two choices; you can either suffer the consequences of persistent higher energy prices, or use the work Jeffrey Brown has done with the Export Land Model as an early warning and get positioned to profit. The decision is yours, but don't wait long to make it. Regards, Greg's Endnote: One of the biggest problems when it comes to oil exportation is the refining process. Our current refining capabilities cannot handle the amount of oil needed by the U.S. That means that even if we could produce the amount of oil needed, we wouldn't be able to refine it ourselves. To help solve this problem, a new breakthrough technology has been developed that could revolutionize the refining process as we know it. Click here for the exciting details… |
Whiskey & Gunpowder Special Reports New "Backlash" Set to Rocket Oil Past $150...and Send Gas Soaring to Over $6 per Gallon The 10 Shocking Reasons for China's Pollution Problem Geothermal Energy: Investment in the Future Here's One Coal Stock That's Set to Skyrocket Investing in Exchange Traded Funds The Real Story Behind the True Gold Bull Market If someone forwarded you this copy, please look here to start your own subscription. Wanna let us know what you thought of today's issue? Now you can... click on this link. Whiskey & Gunpowder is a free e-mail service brought to you by a team of rebellious brigands. If you have not already done so, please click here to confirm your subscription. This will help us ensure you get every Whiskey & Gunpowder without interruption. Are you having trouble receiving your Whiskey & Gunpowder? You can ensure its arrival in your mailbox here. Please note: we sent this e-mail to lemmetry@gmail.com because you subscribed to this service. To end your Whiskey & Gunpowder e-mail subscription, click here. Nothing in this e-mail should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investment advice.We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication or 72 hours after the mailing of a printed-only publication prior to following an initial recommendation. Any investments recommended in this letter should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company. © 2008 Agora Financial, LLC. All Rights Reserved. Protected by copyright laws of the United States and international treaties. This newsletter 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 Agora Financial, LLC. 808 Saint Paul Street, Baltimore MD 21202. |
