Peak Oil

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	== Companies who stand to lose ==		== Companies who stand to lose ==
-	All companies issuing securities for investment stand to lose from the impact of Global Peak Oil. None are immune. The argument can be made that US based companies are at greatest risk due to the unfortunate fact that the US uses 25% of global daily oil production and therefore will be most severely impacted. Japan is another economy where energy to run the economy comes almost entirely from oil. The EU countries and it's companies are at extreme risk also.--[[User:PGSanalyst|PGSanalyst]] 16:50, January 27, 2009 (PST)	+	All companies issuing securities for investment stand to lose from the impact of Global Peak Oil. None are immune. The argument can be made that US based companies are at greatest risk due to the unfortunate fact that the US uses 25% of global daily oil production and therefore will be most severely impacted. Japan is another economy where energy to run the economy comes almost entirely from oil. The EU countries and it's companies are at extreme risk also.
	Companies most heavily involved in [[Transportation|transportation and shipping]] will be hit the hardest by peak oil. Though they will try to pass price increases on to customers, peak oil will likely hurt profits at major airlines, especially those with legacy fleets, such as [[United]] or [[British Airways]], as well as shipping companies, such as [[Federal Express]], who depend heavily on a fleet of trucks and airplanes. On the other hand railway companies might benefit because rail transportation is much more energy efficient than truck transportation and some transportation of goods might be moved to rails.		Companies most heavily involved in [[Transportation|transportation and shipping]] will be hit the hardest by peak oil. Though they will try to pass price increases on to customers, peak oil will likely hurt profits at major airlines, especially those with legacy fleets, such as [[United]] or [[British Airways]], as well as shipping companies, such as [[Federal Express]], who depend heavily on a fleet of trucks and airplanes. On the other hand railway companies might benefit because rail transportation is much more energy efficient than truck transportation and some transportation of goods might be moved to rails.

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Revision as of 13:45, August 6, 2009

Peak oil refers to the "peak" on the graph of global oil production. Oil must first be discovered, then produced, and will eventually be depleted. Peak Oil is not a theory. It is a fact. Oil has already peaked in the USA (in 1971) and more than 50 other oil producing countries. Oil has a finite supply, so, just the same as the production of any geological commodity, oil production will graphically (mathematically) "peak" and then irreversibly decline. Once the halfway point peak has been passed, production begins to fall and oil prices will rise and severely affect securities investments in all companies, regardless of what industry they are in.

The timing of the peak in global oil production is highly controversial because of the political and economic impacts expected from Peak Oil, particularly transportation fuels. Many analysts believe Peak Oil is imminent, even though estimates of the exact year of the peak vary widely from 2010 to 2050 or beyond. However, some analysts, such as Matthew Simmons, have concluded that global oil production has already peaked ^[1] and present credible evidence that it has.

“Peak oil” is a concept originally recognized and described by geologist Dr. M. King Hubbert (the peak in oil production curves is called Hubbert’s Peak) in 1955 that refers to the fact that the oil production curve, as the sum total of all individual oil wells, starting from zero, rises to a peak, and then declines until all oil resources are depleted. Hubbert's hypothesis initially was largely ignored by his peers in the scientific community and the energy industry at large. However, Hubbert was proven correct when US oil production actually did peak in 1971!!! Recent analysis(2005, 2006, 2007) of Saudi and all significant global oil production suggests that global oil production capacity has also peaked and will permanently decline. In fact, all four countries that were once the world's number one oil producing countries have peaked and are in permanent decline(Azerbaijan, USA, Venezuela, and Saudi Arabia).

Oil is essentially "captured sunshine." It took extremely long periods of time for the energy in sunshine to be converted by biological organisms into chemical energy, "cooked" into oil and then accumulated and preserved in significant quantities. The science of Petroleum Geology and the last 150 years of oil exploration has revealed that oil and natural gas is actually quite rare and large areas of Planet Ocean lack the geological conditions to hold oil, for example areas of volcanic rocks that are too newly formed.

The accumulation of oil in the world can be described as similar to an electrical capacitor slowly accumulating a charge. The production of oil is similar to a capacitor suddenly discharging it's charge. It took millions of years of sunshine to accumulate the oil. But in 150 years the oil industry has explored for and produced half the oil available in the world. Although the same geologic processes that created oil are still active, they are too slow to "charge the capacitor" fast enough to create commercially significant quantities of stored energy in the form of oil ever again.

Warnings about Peak Oil may be misunderstood as an argument that the world is "running out of oil (the sky is falling!). The problem is not that we are running out, there is plenty of oil left, approximately 1.0 Trillion barrels or so, the problem is inadequate production capacity. Worldwide demand simply due to population growth will fast outpace supply and this time, supply has not, and most likely will not, be replaced by new discoveries.

Analysis of all major world oil reservoir production data, analysis of geologic exploration data, recent oil price increases, political turbulence in the Middle East, and an increasing awareness of the impact we humans have on the environment have all fostered concerns that Peak Oil will have significant economic consequences including extreme devaluations in securities of companies whose price does not adequately reflect the balance sheet impact of things like increased transportation costs due to oil price hikes or devaluations caused by a Global Economic Collapse including a crash of the banking system.

Have we hit peak oil? Oil production has remained fairly flat since the end of 2005, at around 85 million barrels per day, as compared to, say, production of 80 million barrels per day in 2003. The chart demonstrates that oil production has flattened out. Whether this trend represents a temporary slowdown in the rate of increase of production and an associated "false summit," or the actual peak of oil production, is dependent upon the cumulative rates of production of the world's major oil producers but assuming similar relative ratios of production from country to country and similar rates of production in those countries, oil has peaked. On January 14, 2009 energy industry investment banker and analyst Matthew Simmons presented information that "hard data" now confirms that global oil production peaked in 2005.[1].

Regardless, with over one trillion barrels of oil reserves proven around the world, hitting peak oil would mean not that we are running out of oil, but rather that we cannot produce enough oil and therefore, cannot consume oil at the same rate. This will have drastic implications for major consumers of oil (of which the U.S. is the largest, US consumes about 25% of global daily supply), as well as for fast-growing emerging markets, such as China and India, who are rapidly increasing their oil consumption as they become wealthier (e.g., by buying and using more cars).

Drivers of peak oil

Mathematics/ Geology — The basic "driver" of the Peak Oil concept is the simple mathematical fact that with respect to the graph of the production of oil, "What goes up, must come down." The SHAPE of the Peak Oil graph merely reflects the reality of the discovery, production, peak and then exhaustion of the resource.--PGSanalyst 16:34, January 27, 2009 (PST)

The concept that oil production will rise to a "peak" and then decline reflects the basic mathematics of any finite resource. Any element, substance or geologically derived commodity is by definition finite in available amount. There is only a fixed amount of oil to find. Oil production MUST peak, and then decline.--PGSanalyst 16:34, January 27, 2009 (PST)

This explains why Peak Oil itself is not a "theory." It is a fact. The controversy in the discussion of Peak Oil is not about whether oil production will peak and then decline but instead involves the theory that was propounded by geologist M. King Hubbert, known as the Hubbert Peak Theory. Hubbert's theory was "proven" correct when US oil production peaked in 1971. The current global controversy involves the discussion and analysis of Hubbert's "prediction" that Global Oil Production would also "peak" and when. It is the global peak in oil production that threatens investments in any and all securities issued by companies that have failed to account for the impact of Peak Oil. Even if an imaginary company attempted to claim that their business plan was supported by 100% sustainable energy, it would still be impacted by Peak Oil because it would continue to exist in a marketplace where all the other companies are impacted by Peak Oil. --PGSanalyst 16:34, January 27, 2009 (PST)

Rate of oil consumption — To-date, the world has been able to consume oil as if it is a limitless resource. As concerns over peak oil grow, many countries (and companies) are taking measures to mitigate oil consumption. The U.S. has enacted a wide variety of oil-related regulations, including such measures as higher fuel efficiency standards. World net oil exports declined over 2% in the last year, however, for two reasons. First, production is getting more difficult, with many oil companies turning to high-cost, unconventional wells to keep production up (indeed, satellite images have shown more active drilling rigs in Saudi Arabia than ever, despite the fact that OPEC has kept output constant). At the same time, many of the oil producing nations, including those in OPEC, are developing economically, and have started to use their own oil.^[2] As more oil producing nations, which have been historically poor, begin to consume their own oil, oil exports will decrease.

Technology Impact on Reserves - Oil in the ground is known as Original Oil In Place (OOIP) and is not the same as reserves. Reserves means the percentage of the original oil that is technologically and economically feasible to produce. Technology improvements can help to produce a larger percentage of the OOIP.--PGSanalyst 05:10, March 15, 2009 (PDT)

Rate of new oil discoveries – Although the amount of oil in the ground is finite, we continue to develop new ways to find and extract this oil. As the price of oil rises, the economic incentive to develop new technologies and exploration methodologies increases. While it’s widely accepted that we will not make any major new oil discoveries, no more "super-giant" or "giant" fields are left to be discovered, technological improvements can increase to a small extent the rate that new oilfields are discovered. Unfortunately, the newly discovered fields will be smaller and mathematically they will Peak in production faster and then decline.--PGSanalyst 05:10, March 15, 2009 (PDT)

The Technology Myth - Modern society suffers from the myth that technology is constantly improving and will always lead to greater benefits. Unfortunately, the myth of technology improvements in the oil industry will not prevent Peak Oil. The greatest effect of improvements in oilfield technology in exploration and production techniques has been to create what is known in the industry as "superstraws," meaning that the improved technology just allowed us to suck the oil out faster and now we have less left. Therefore, somewhat counterintuitively, technology improvements have failed to push out the time when the world actually hits peak oil. The best example of this effect is the addition of Nitrogen injection to the Cantarell Field in Mexico that was overproduced and subsequently peaked in production in 2004 and is now in terminal decline.--PGSanalyst 05:10, March 15, 2009 (PDT)

Saudi Arabia – As the largest producer in the world (~10% of world production) and the major source of oil for the United States, Saudi Arabian oil production is a key determinant of whether we have hit peak oil. Currently, Saudi Arabia produces about 8.5 million barrels per day, down from a peak of 9.5 million barrels in 2006. With nearly a quarter of the world’s proven oil reserves, any fears Saudi Arabia has mis-estimated reserves or for some reason won’t be able to access these reserves will also drive fears that we have hit peak oil sooner than anticipated.

Inadequate Investment in Russian Oil Production Infrastructure due to the Global Economic Crisis - In recent years, Russia has been one of the only countries in the world with significant capacity to EXPORT energy. Russia's energy exports have softened the impact of the peaking (plateau-ing) of global oil production on many countries important to the securities industry including the USA and especially the EU. A consensus view has emerged that Russia is failing to adequately invest in oil infrastructure. This raises the likelihood that Russia in the medium term (5 to 15 years) will suffer significant drops in oil production capacity and therefore oil export capacity. This is an extreme risk for the EU in particular and the associated companies there issuing securities for investment.--PGSanalyst 16:34, January 27, 2009 (PST)

Mexican oil production Declines 9% year over year

May 23 (Bloomberg) -- Petroleos Mexicanos, the state-owned oil company, said April crude production fell the most in more than 12 years as output at its largest field declined faster than the company forecast. Crude oil production fell 13 percent to 2.767 million barrels a day in April, Mexico City-based Pemex, as the company is known, said today on its Web site. Output a year earlier was 3.182 million barrels a day. The decline was the largest since October 1995, when output fell 29 percent. Pemex Chief Executive Officer Jesus Reyes Heroles set a goal of producing 3.1 million barrels of crude a day in July of last year. The company has only met that goal once since it was set. Output has been on a decline since reaching a peak in December 2003. Since 1999, proved reserves have been more than halved to 14.7 billion barrels of crude oil equivalent. ``There is no clear sign that this decline is going to slow down, said David Shields, an independent energy analyst in Mexico City. `` I don't think there is any point in trying to forecast an annual average.

"Supplies not growing is still the main thing. OPEC can turn the tap but they cannot do it forever, and non-OPEC growth is not enough," said Tony Nunan, risk management executive at Tokyo-based Mitsubishi Corp. "Demand...is not falling as much as expected," he added. Oil production from countries outside OPEC is stagnating and forecast to remain below 50 million barrels per day this year, at 49.56 million bpd, lower than earlier forecast, a Reuters survey of 12 analysts showed on Thursday. The failure of non-OPEC producers to increase output significantly has helped drive oil prices up more than a third since the beginning of the year. It has also sent long-term prices even higher, at close to $150 a barrel, as concerns mount that supplies will not be enough to meet demand from developing countries in the future. OPEC Secretary-General Abdullah al-Badri on Thursday repeated the group's stance that it can do nothing to lower oil prices in a "crazy" market, blaming record prices on factors such as geopolitical tensions, speculation and the weak dollar. The cartel's view was shared by the chief executive of Royal Dutch Shell Plc. Jeroen van der Veer, who told Reuters Television that oil prices are rising due to market sentiment rather than a shortage of supply.

Companies who stand to benefit

Saudi Aramco has the largest proven oil reserves in the world, but, like many of the world's largest oil companies, it is government owned, so investors are left to choose from the other oil majors with control of large oil reserves. Royal Dutch Shell and Chevron are both attractive options.

Sasol, a South African company, was forced by the isolation imposed by apartheid to develop pioneering coal-to-liquid technology, and as a result, has a headstart on competitors in developing alternative technologies for oil production.

'Suncor Energy ( SU on Toronto and NYSE) 'a leading independent oil sands exploration company in Alberta, Canada, is one among many companies developing new technologies for discovery and production of oil, including oil sands and shale rock exploration.

Production in 2008 is at ( approx) 250,000 BOE scheduled to nearly double with production plans by 2012.

Oilexco ( OIL on London and Toronto ) a junior in the North Sea , production began in 2007 Joseph Schacter ( Maison Placements ) Raised his Forecast for Oilexco from $ 25 to $ 30

Based on 2008 production rising at year end to 45,000 BOE 2009 production at 65,000 BOE 2010 production at 100,000 BOE and this assumes no further discoveries until 2010.

Again Schacter's $30 target in twelve months is conservative measured against $ 80 as a long time average for the commodity price until 2010 and against potential discoveries by that time.

Companies who have already invested in oil-saving technologies will have a head start, and possibly a long-term competitive advantage, over their competitors, who will suffer from an increased cost base as oil prices rise. This advantage would be most notable in oil-intensive sectors such as transportation, where airlines with newer fleets using less oil per mile flown (such as JetBlue) or auto manufacturers with existing high fuel efficiency vehicles (such as Toyota, or the SmartCar, a division of Daimler Chrysler) will stand to benefit relative to their competitors.

Lastly, contractors to the oil industry, such as Halliburton and Schlumberger, as well as suppliers of equipment to the oil industry, such as Caterpillar, will benefit mightily from the inevitable boom of oil exploration activity that arises from fear of peak oil.

Companies who stand to lose

All companies issuing securities for investment stand to lose from the impact of Global Peak Oil. None are immune. The argument can be made that US based companies are at greatest risk due to the unfortunate fact that the US uses 25% of global daily oil production and therefore will be most severely impacted. Japan is another economy where energy to run the economy comes almost entirely from oil. The EU countries and it's companies are at extreme risk also.

Companies most heavily involved in transportation and shipping will be hit the hardest by peak oil. Though they will try to pass price increases on to customers, peak oil will likely hurt profits at major airlines, especially those with legacy fleets, such as United or British Airways, as well as shipping companies, such as Federal Express, who depend heavily on a fleet of trucks and airplanes. On the other hand railway companies might benefit because rail transportation is much more energy efficient than truck transportation and some transportation of goods might be moved to rails.

Auto-makers finding themselves behind the curve on fuel efficient technologies will also suffer. Though all auto-makers are scrambling to invest in such technologies, the U.S. based auto-makers such as General Motors or Ford Motor, whose profits are driven by SUVs and other large vehicles, are more likely to lag in these efforts.

Companies indirectly exposed to the transport industry will be hurt as well. These will include companies with the most global supply chains and those that depend heavily on shipping goods long-distances. For example, Wal-Mart depends on a large fleet of airplanes and trucks to deliver its goods around the world. Peak oil might require it to invest in more distribution centers, enabling shorter truck and airplane routes.

Consumer and retail companies more broadly would likely be damaged by peak oil. When forced to spend more on gasoline (in order to commute to work), the majority of consumers will tighten their belts elsewhere. Such belt-tightening will have the most serious impact on companies, such as Target, Home Depot or Loews, who serve middle-class America, though could also ultimately impact luxury consumption.

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