Greg's Note: With oil prices still rising to astronomical levels, fingers are being pointed in every direction for something, or someone, to blame. There's no question that global oil production is falling, but there is also something else going on. David Galland from Casey Research points to exports and the effect they have on the global energy market. Why are oil producing countries importing oil? This is an overlooked aspect of Peak Oil and one that must be analyzed soon. What about the U.S? We have the ability to produce more oil yet we're still exporting the vast majority of what we use today? What should we do? Send your comments to greg@whiskeyandgunpowder.com Whiskey and Gunpowder Turning Off the Taps You don't have to have an awful lot of gray hair to remember the excitement around England's massive North Sea oil fields. While discovered in 1969, it wasn't until well into the 1980s, on the back of surging oil prices, that the fields came into full production. Turning up the taps, the United Kingdom (as well as Norway and Germany, who also have North Sea production) became a significant exporter of oil. But then, in 1999, something happened: the UK's North Sea production hit peak… that tipping point after which reservoirs go into decline, setting in motion both reduced production and progressively higher costs related to extracting the remaining oil. ~~~~~~~~~~~~~~Special~~~~~~~~~~~~~ USGS Recently Admitted, "It's the largest continuous oil accumulation the agency ever assessed" Today, just 470 miles from Helena, Montana, America 's greatest wealth boom is fast - and secretly - underway… In short, thanks to a unique technological breakthrough, a group of scientists just unlocked the largest oil deposit in U.S. history…503 billion barrels worth. And they can now extract it for just $16 a barrel. With oil breaking $125, news of this momentous discovery is already boiling over – at breakneck speeds. In fact, the three outfits leading the way each averaged 21% gains within the past 11 days. And they're just getting started. To find out how each one could triple your money – this year – click here for your free report. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ While the experience of North Sea oil production provides yet another useful example of the validity of the Peak Oil theory, what concerns us today is a critical but usually overlooked aspect of the discussion; exports. At the time that the North Sea peaked in 1999, the U.K. was exporting 1 million barrels of oil per day. By August 2004, it had become a net importer. What happened to cause the situation to turn around so quickly? To understand the importance of exports when discussing peak oil, ask yourself the question: "What's more important: the fact that global oil production is falling… or that the oil exporting nations are cutting off their exports?" While the two questions are clearly linked, it is the nuance of the export question that clearly matters the most. Especially if you live in a country such as the U.S., which currently imports about 70 percent of its oil. Which brings us to the Export Land Model (or, ELM as I will refer to it from here). The basic thesis expressed by students of the ELM is that, to fully appreciate the impact of peak oil, you cannot look only at the production declines so presciently anticipated by ML Hubbard in 1956. You also have to look at the rate of local consumption and the importance of that consumption on the ability of a country to export their oil. The ELM graph here looks at both sides of the equation, and the result as it applies to exports.
As you can see, for illustrative purposes the ELM assumes that, after a country's oil production hits peak it will decline at a rate 5 percent annually at the same time that local consumption increases by 2.5 percent. The red line then shows the impact those two metrics will have on the ability of the country to export its excess production. Using these assumptions, the ELM shows that exports reach zero in nine years. ~~~~~~~~~~~~~~Special~~~~~~~~~~~~~ Breaking News: Gold Will Reach over $2,000 Top analysts are projecting gold will more than double and hit $2,000+ in a commodities bull market. Learn how to make huge profits even if this bull market ends. But, be sure you get in before tomorrow… when the opportunity disappears forever. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ Real world data shows that the metrics used in the ELM are quite conservative. The chart below plots the hypothetical ELM against the actual data from the United Kingdom and Indonesia. While the ELM forecast hypothesizes nine years between peak to the end of exports, Indonesia's exports ceased seven years after peak, and the UK's exports stopped just six years after peak.
The important take away here is not that the UK and Indonesia are no longer receiving the oil export income of the good old days -- that is entirely a localized concern. Rather it is that the global market is now deprived of those exports; between UK and Indonesia alone, the change over the last decade alone amounts to a swing in the wrong direction of a total of 2 million barrels per day. And those are just two of a number of important countries that have swung from exporters to importers in recent years. China, for example, became a net exporter in 1993, the result of flattening production against skyrocketing consumption. Over the last decade alone, China's oil consumption has almost doubled, to about 8 million barrels a day, about half of which is now imported. So, again, while people tend to focus on production, they are overlooking the impact on exports forecasted by the ELM. In the case of China, they went from a net exporter in 1993 to importing 4 million barrels a day today… with those imports projected to rise another 50 percent over the next 10 years. This is what's creating so much international competition for the remaining supplies of oil. And why the trend for higher energy prices is so well entrenched. And if the ELM is right, things are about to get far worse… far sooner than many people expect. Regards, Endnote: The U.S. certainly has a trade deficit when it comes to oil. Most of what we use is imported from other oil producing countries while our domestic oil refineries cannot handle our current oil needs. But that doesn't have to be the case. In fact, a new discovery has been made that may actually put our current refineries out of business? Is this the solution? Maybe. Click here to learn more… |
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. |
