Gawd! We are running out of oil! Gold is the only safe haven!!greenspun.com : LUSENET : TB2K spinoff uncensored : One Thread |
Came across this doomer masterpiece today. Respectfully dedicated to the memory of Andy. And intended to shoot CPR's blood pressure up by six orders of magnitude....http://www.kitcomm.com/comments/gold/2000q3/2000_09/1000917.084435.sharefine.htm Date: Sun Sep 17 2000 08:44 sharefin (From the far side) ID#284255: Copyright ) 2000 sharefin/Kitco Inc. All rights reserved Black Blade
Prelude: "The Rise and Fall of Hydro-Carbon Man" I have been posting quite a bit for some time now about energy and the potential for severe problems that can result as we deplete our resources of cheap oil and our lack of preparation for increasing demand. I have prepared a small presentation that I hope ties it all together. Some of it is really back of the envelope stuff, but you should be able to grasp the ideas. I feel that we have been coming closer and closer to crunch time on the developing energy crisis. I have followed these events for the last couple of years and I think that we are beginning to see some telling events unfold. I also tie in some thoughts as to the historical ties with hard assets such as gold. This presentation is entitled "The Rise and Fall of Hydro-Carbon Man". I may take a short respite for a couple of days. I have some work to catch up on as well. Cheers! - Black Blade
---- "The Rise and Fall of Hydro-Carbon Man" HYDRO-CARBON MAN:
The modern industrial economy is dependent on cheap oil. Cheap oil has fueled the industrial age and has advanced modern man to what can best be described as Hydro-Carbon Man. Yes, there is evolution, as man evolved from the hunter-gather and agrarian society to the heavy industry of modern society. It was crude oil that gave rise to heavy industry, efficient mechanized transportation, increased out-put of goods and services, and has become vital for modern agriculture. But how long can Hydro-Carbon Man continue without cheap oil?
The question is not whether, but rather when, cheap world crude oil productivity will begin to decline bringing about the long awaited permanent oil shock. Demand for cheap oil continues to increase, all the while, the worlds population continues to grow. The real problem of course, is when the production of oil peaks while demand continues to increase and the worlds population continues to grow unabated. Emerging economies that are entering into the industrial age will also demand their share of oil. Oil was the principal fuel powering the Asian Tigers economic growth. A booming US economy continues to consume ever increasing amounts of oil.
It was the abundance of cheap oil gave rise to Hydro-Carbon Man . Oil and its refined products allowed Hydro-Carbon Man to expand his productivity several fold. Now Hydro-Carbon Mans existence is threatened by the limitations of cheap oil. Like drug addict who suddenly has to face a very high price for his fix, Hydro-Carbon Man is about to learn the realities of life without an abundance oil cheap oil. Oil is the primary energy source for the worlds economies and now we are faced with the limited ability to increase production and continue fueling future economic growth.
When the price of petroleum rose in the past it has had profound effects on the economy. Since oil is a vital commodity for everything from energy, to petrochemicals, to plastics, and to agriculture, it is perfectly understandable that high oil prices have resulted in economic recession. Gold and Silver prices generally increased in dollar terms as the effects of higher petroleum prices filter through the economy. Every postwar economic recession has been preceded by sudden oil price increases. In 1973 prices tripled in response to an Arab oil embargo as punishment for the western nations support of Israel during the 1973 Arab-Israeli conflict. In 1979, prices nearly doubled when the Shah was dethroned in Iran. The major economies went into a tail-spin and suffered through major recessions. These were only temporary disruptions to the economy. The coming oil crunch is not going to be so temporary. Gold and silver prices increased in the past as recession and inflation followed those oil shocks. Precious metals will rise in value in the coming oil shock as well. If we learn anything from our past, it should be that history does repeat time and again.
WORLD OIL SUPPLY:
The first thing that one must remember is that the problem is not how much oil is left, but rather how much oil is recoverable, and more importantly, how much is economically recoverable. Secondly, what is perhaps more important is what happens when production no longer increases or worse, tapers off, while demand increases. Thirdly, the question arises whether or not non-conventional oil, alternative energy sources, new technology, and energy conservation measures can make up for the dwindling conventional oil reserves.
How did we get to the point where we risk not being able to produce sufficient oil? The member nations of OPEC have attempted to act in concert to manipulate oil prices by setting production quotas that often resulted in both cheating by various members. Many countries and companies have grossly exaggerated the estimates of their petroleum reserves in order to get increased OPEC production quotas, to increase their stock prices, or to obtain more collateral for their loans. Another problem lies in the definition of reserves." Reserves are generally referred to as proven oil reserves that can be economically recovered using existing technology. However, many countries have played fast and loose with this definition. True that much of that oil does exist, but whether it is economically recoverable is debatable. Many simply do not understand the difference between resources ( petroleum known to exist ) and reserves ( economically recoverable petroleum ) . They are unaware of the limitations of cheaply produced petroleum and point to the vast deposits of non-conventional petroleum sources such as tar sands and oil shales without awareness that these are resources and not reserves. Without new improved technology or willingness to pay perhaps $60.00 or more per barrel of crude oil, these deposits are not likely to be extensively exploited.
Most of the worlds oil has been found. The so-called Super Giants ( extremely large oil fields ) have been found prior to 1973. None have been found since, and this includes the time period encompassing the early 1980s when crude hit all-time highs and new technology was developed. In fact, the discovery rate for Large Fields has declined. Perhaps as much as 90% of the worlds crude oil has been found. The amount of new discoveries in the world has dropped from a peak of 41 billion barrels in 1962 to an annual rate of 5 billion to 6 billion barrels a year now.
Predicting when oil production increases will peak and when the inevitable decline begins can be fairly accurately calculated. This mathematical model was first published in 1956 by M. King Hubbert, a Shell Oil geologist. He realized early on that the unrestricted extraction of oil from a region eventually reaches a maximum production level. He fitted a bell curve to production statistics and projected the point when production peaks would occur. He did this for US oil production in the lower 48 states and concluded that oil production would peak in 1969, give or take a year. US production actually peaked in 1970. Oil productions from other regions around the world have successfully followed the Hubbert Curve model. The analysis reveals that Norway and the U.K. have likely reached their production peaks. Mexicos largest oil field, offshore Cantarell, has a $10 billion nitrogen injection project about to be commissioned to re-pressurize the field to offset declining production. Venezuela is facing a similar situation as Mexico. The Persian Gulf states are expected to reach peak production between 2006 and 2009. Global peak production could be reached as early as 2002, then decline over the next 70 years. As oil stocks peak and eventually decline, prices will rise steeply. Provided that there isnt a global recession ( a more likely probability ) , then worldwide oil production should peak during the first decade of the 21st century.
What about undiscovered oil fields? There are very few geologically probable places that have not been actively explored. This includes extremely deep water and the polar regions. Since these areas are in remote and generally inaccessible regions, the costs alone would make any such oil fields uneconomic, if in fact they did exist. The problem is not so much that there is a shortage of reserves, but rather a shortage of production. For years energy companies have not invested in increasing their oil production capacity and refining capacity. In fact, in the US, no new refineries have been built since the 1970s due to EPA regulations and perceived liabilities.
WORLD DEMAND:
World demand for cheap oil is growing exponentially. The emerging economies of China, India, Southeast Asia, Latin America, and Africa are rapidly industrializing and becoming more important to the world economy. To fuel this industrialization, ever increasing amounts of oil must be found, produced, and refined. Increased oil production has come from existing wells that have been exploited for many decades. Many advances in technology has allowed man to squeeze ever more oil from these oil fields. Yet no significant new fields have been discovered for many years. The refining capacity for any new oil would be severely restricted as oil companies have not invested in any new refineries or infrastructure. Regulatory limitations and recent low prices have created an environment where oil companies do not want the added liabilities. Any additional demand will severely stress the already deteriorated and fragile oil production infrastructure. Production from untapped reserves are limited by the simple fact that it takes years to meet regulatory criteria, drill wells, to setup production and refining facilities. In the US much of the known reserves are off-limits in such areas as the Alaskan north slope, California coast, and Rocky Mountain Front.
Additional pressure on the worlds oil supply is coming from the emerging economies of Latin America, Africa, and Asia. The added economic and political tension will only increase as competition for oil intensifies. The third world economies such as China and India with over one third of the worlds population will require ever increasing energy as they become major suppliers of goods. The energy needs of China and India are projected to increase by at least 400% in the next decade.
All the while, the Middle Eastern nations of OPEC continue to gain greater share of the remaining global oil business in a politically unstable region of the world. Increasing prices could reduce demand, however, the world as we know it runs on oil. In truth Hydro-Carbon Man and his addiction to cheap oil is about to come to an end.
PRODUCTION CAPACITY:
The debate over whether or not there is plenty of cheap oil is a moot point when one considers that there is not enough refining capacity to produce from any increased oil production. The only country believed to have any excess production capacity is Saudi Arabia. Kuwait recently admitted that they are unable to meet their OPEC quota. This is a recipe for disaster.
CLASSIFICATIONS OF OIL:
There are generally two classifications of oil. These are Conventional Oil and Non-conventional Oil. Conventional Oil refers to oil that is easily economically recovered. Conventional oil is that which is found and produced today from large oil fields. Non-conventional Oil is that which is or can be produced from a variety of sources at higher oil prices.
CONVENTIONAL OIL:
Conventional oil sources are those that can and have been exploited easily and profitably. The largest oil fields were the easiest to find and exploit. The largest oil fields, so-called Super Giants were found early on as there were usually many clues as to the existence of a large pool of oil. Much of the time oil would even be found at the surface in what are called oil seeps. As the geology of these large oil fields was more fully understood over time, other surface expressions were useful in finding oil. The sheer size of these Super Giants ( basins or oil province ) were the easiest to find with any given technology. The exploration for oil improved with technological advances with the use of refraction seismic, analog reflection seismic, digital reflection seismic, 3-D digital reflection seismic, and electric well logs. Eventually as these oil fields were exploited and new ones were found, advances were made in drilling technologies as well such as horizontal drilling. The search for oil has advanced offshore and there too drilling technology has improved with the use of offshore drilling barges to deepwater drillships, jack-up drill-rigs, and semi-submersible rigs.
In all probability, all the major oil basins or provinces have been found and the world is in effect, truly running out of oil. At least out of easily exploited conventional oil. In fact, the peak year for oil discoveries in the US was in 1930, and the peak for worldwide oil discoveries was in 1962. Discovery rates have steadily fallen since. In fact, most increases in oil production since then have come from technological advances that were applied to already discovered oil fields. 3-D Seismic and horizontal drilling techniques improved oil recovery in known fields, but have not resulted in any significant discoveries of major fields.
NON-CONVENTIONAL OIL:
Much has been discussed about non-conventional oil sources and alternative energy sources. It is true that there is a substantial amount of non-conventional oil. The problem of course is that it is much more costly and much of this oil is not economically recoverable at current prices. The Oils Sands of Canadas Athabasca region may have as much as 300 to 600 billion barrels equivalent oil. The processing of tar sands ( effectively asphalt ) is difficult and the impurities creates a whole set of environmental problems as it is mined and therefore is likely to face a lot of political pressure. There are at least 2 major producers in the region: Syncrude ( a consortium of oil producers ) , and Suncor ( SU ) . The same problems arise from oil shales. The problems of course are the included heavy metals and sulfur content.
Some non-conventional oils are those that are not easily recoverable and also are difficult to process. An example is the massive deposit of heavy oil sludge such as that found in the Orinoco Belt. The Orinoco Oil Belt in Venezuela is thought to contain 1.2 trillion barrels of heavy oil sludge. The Orinoco Belt, or Faja of eastern Venezuela may become a major source of oil, yet this is a costly enterprise as this heavy sludge may not be easily recovered. This sludge has been described as having the consistency of peanut butter. The belt is a thick lattice of ancient river beds about 280 miles ( 450 kilometers ) long and 60 miles ( 100 kilometers ) wide. The heavy oil must be warm enough to be pumped and specialized horizontal drilling rigs are used. To keep this oil moving, solvents are used to dilute the oil before it cools and hardens. Obviously this will be not only costly to produce, but since it is still a heavy oil even after it is upgraded for shipment, the additional processing at the refinery will also be costly.
Other possibilities do exist. Liquid natural gases and condensates could be a source of fuel. Unfortunately, the need for clean burning fuel for the current generation of power plants for the worlds power grids mean that the competition for natural gas will become intense. The difficulties of liquefied natural gas ( LNG ) can be easily illustrated by a short case study of such a project in the small Arab country of Qatar on the western coast of the Arabian Gulf. Qatar has the third largest natural gas reserves in the world, and the countrys North Field is the worlds biggest source of non-associated natural gas ( that is natural gas not associated with oil ) . The field has reserves of more than 500 trillion cubic feet - 3 times greater than in the entire US. Qatar is developing the capacity to deliver almost 11 million metric tons of LNG annually for sale to power companies and other customers in a number of Asian and European countries, as well as the United States. Natural gas is piped from the field to a processing facility. It is at this processing facility where the natural gas is liquefied by chilling it to -260 degrees Fahrenheit and transporting it in newly designed tankers with nickel and steel membranes. Once these tankers reach their destination, the LNG is regasified and consumed as pipeline natural gas. Obviously this will help offset some of the coming oil crunch, but a lot more specialized tankers and a lot of infrastructure needs to be built.
The possibilities do exist for clean energy from nuclear power. However, nuclear power is politically incorrect and faces regulatory and political pressures that make it an economic uncertainty. The Three-Mile Island and Chernobyl nuclear power plant accidents are still fresh in most peoples memories. Nuclear power in some countries is still acceptable and may help relieve some of the pressure on limited oil reserves. Solar and wind power also face opposition as the infrastructure requires vast tracts of land and may impact on some wildlife. Solar and wind power are not likely to become widespread sources of power as they are climate dependent and it is not easy to store electrical power for use when needed. Another expensive possibility is the development of Biomass fuels such as ethanol. The problem of ethanol is that it requires much more energy to create than is ultimately obtained. Ethanol that is used in reformulated gasoline is only available because of government subsidies. Non-conventional natural gas will become increasingly important. Coalbed methane ( absorbed into coal molecular structure ) is produced from wells drilled into coal seams. NG from gas shales require fracturing and pending recent requests for environmental legislation in the US to restrict Hydro-fracturing, this resource may ultimately become unrecoverable. NG in Artic regions and deepwater are problematic at best. Hydrates ( methane ice-like solids ) in Artic and oceanic regions are presently unrecoverable and do not migrate into commercial traps.
There is another classification that fits under the heading of non-conventional oil and that is oil in the conventional oil regimes that require uneconomic measures for exploitation. This includes oil that is in small oil traps that is currently uneconomic at current prices. Such oil is found in mature oil fields, and requires that wells are drilled near existing primary wells to access these small pockets of oil. Also oil that requires extraordinary measures such as steam, water or gas injection to force oil to migrate to where it is economically recovered could be considered non-conventional oil.
NEW ECONOMY AND OLD ECONOMY:
The financial analysts, government parrots, and media drones continue to rant about the new economy and occasionally attempt to describe how oil is not very important in the worlds economies and therefore rising petroleum prices are threat. They even continue to ignore the importance of petroleum when calculating core inflation statistics for the Producer Price Index ( PPI ) and Consumer price Index ( CPI ) . They even use dishonest measures in these calculations by incorporating dubious valuations derived from Hedonic statistics. These fools overlook the big picture and the importance of petroleum in the economy ( New or Old ) . The claims are that Hydro-Carbon Man no longer needs oil because now he has communication through the internet and the invention of the computer. He can buy his toys through a computer and a phone line. If it was only that easy.
The Old and New economy debate can be misleading. The future economy is likely to blend traditional business ( Old Economy ) with new developments and inventions ( New Economy ) . The question is where does petroleum fit into this future economy? It is only obvious to even the most causal observer that energy and petrochemical use will grow several fold because they are so embedded in our economic life and power the engine of economic growth. The use of plastics ( derived from oil ) has increased and will continue to do so. The invention of the PC and development of the internet assures that electrical use will dramatically increase and thereby consume much more energy. Products purchased over the internet will be delivered by conventional means such as by courier ( i.e. United Parcel Service, Fed-Ex., Postal Service, etc. ) , consuming ever more energy rather than delivered to a central location where the consumer can retrieve several items at a time. As more people and countries join the new economy, ever more energy will be consumed.
The worlds population continues to grow and recently surpassed the 6 billion mark. Agriculture is stretching it's limits. Food is cheaply produced. Much of that cheap production is directly related to mechanized farming and the cheap production of petrochemicals such as fertilizers and pesticides. Without these petrochemicals, agricultural productivity would drastically decline. Approximately 90% of the energy in crop production is oil and natural gas. About a third of the energy is to reduce the labor input from 500 hours per acre to 4 hours per acre in grain production. About two-thirds of the energy is for production, of which about one-third is for fertilizers alone. Agricultural products are delivered to cities and remote areas by vehicles that run on oil.
POLITICAL STABILITY:
A major problem in many of the oil producing regions around the world is political stability. Saudi Arabia and Kuwait have many social problems. Social programs are dependent on oil. The only business in these countries is the business of oil. The threats of war and internal strife are always a concern. Iran and Iraq have been to war and both have ethnic derision from minorities such as the Kurds who desire their own homeland. Saudi and Kuwait have had their own difficulties with Iran during the so-called Desert Storm event, and both must keep a wary eye on Iran. Now Iraq accuses Kuwait of sniping its oil along the border and has threatened military action. The possibility always exists that another Arab-Israeli conflict could arise. There are numerous possible events that could disrupt oil supplies from the middle-east. As oil supply becomes tighter, we could expect the next president of the US go begging the Iraqis and Iranians for oil and better diplomatic relations. Israel could eventually find itself without a benefactor.
The oil producing regions of Africa and South America are also vulnerable. Angola and Nigeria have been through several civil wars, and the current governments are young and constantly under threat from renewed internal conflict. Venezuela has elected a socialist that has openly praised Fidel Castro of Cuba as a hero of the people, and has also instituted economic and political changes that could erupt into civil strife as well. Colombia has oil reserves, pipelines, and refineries that are under constant attack by revolutionaries ( bandits? ) . The tight supplies of oil could be disrupted at anytime and therefore the threat to the worlds economies from political instability is very real.
Russias oil producing region is near the Black and Caspian seas. There are claims on the oil from all the former Soviet Republics. Russia is in a bitter civil war with Chechnya. The Caspian Sea oil pipeline has been delayed for many years as these dispute continue. The US would like to have the pipeline pass through Chechnya which is one reason why the US is suddenly concerned with human rights issues in that region. Iran would rather the pipeline pass through its territory. The whole region is rife with conflict. The Armenians and Azerbaijanis also have had several armed conflicts as well. Of course Kazakhstan and Turkmenistan are no more stable and could erupt at anytime.
In the western nations, people who have become accustomed to a comfortable standard of living because of cheap energy will pay more rather tan to lower those standards. If they must lower their standard of living which they tend to view as more of a right, then the politicians and rulers will suffer the wrath of an angry populace. In such an environment, this could lead to war. Remember, the Desert Storm event was over oil, not because we had such a warm fuzzy feeling for the Amir of Kuwait and the royal family. The coming energy crisis is going to be more severe as it is based on the fundamental supply-demand equation rather than a temporary politically inspired supply disruption. This will create a run on hard assets such as Gold, Silver, and Platinum.
GOLD - OIL LINK: The coming oil price shock/oil crisis will make the last temporary oil price shocks look very mild in comparison. On January 21, 1980, the price of gold on the London fixing set a record at $850 an ounce. This ended an inflationary decade of oil price shocks, freezing of Irans assets and Soviet invasion of Afghanistan, which sent investors rushing for gold and silver. The average London price of gold for the year was $614.63 per ounce. Could it happen again? You bet it will. Gold has its own intrinsic value and several thousand years of history is not about to vaporize and disappear. As philosopher George Santayana stated, that those who forget history are condemned to repeat it.
Every postwar recession has been preceded by a rapidly rising price of oil. Gold prices lagged the price of rising oil, yet the price of gold eventually rose as well. The question one must ask: If oil is rising in price, the why is gold not rising as well?
When the price of oil had risen in the past due to OPEC oil supply disruptions, the price of gold responded with a price rise as well. In 1974 gold rose 20% in response to the Arab oil embargo, and in 1979 gold also rose over 125% in response to the overthrow of the Shah of Iran and subsequent Iranian revolution and hostage crisis. Oil and Gold have had roughly a 15 barrels of oil to 1 ounce of gold ratio. If this ratio were to be stable, then at todays $35.00/bbl, gold should be valued at $525.00/oz. If oil were to be priced at $50.00/bbl as some sources expect will likely happen, then gold should rise to $750.00/oz. Oil at an inflation adjusted value of $140.00/bbl that roughly matches its past record high, then gold should reach $2100/oz.
Another way to look at the oil-gold relationship is to compare pricing during the 1973 Arab oil embargo and into 1974. Oil rose in price from $2.00/bbl in 1971 to $10.00/bbl in 1974, or a 500% increase in price. Following the relationship of the oil-gold ratio, an increase of 300% in the price of oil ( similar to recent prices ) should yield a price of $962.50/oz. for gold. A similar increase in the price of oil as the 1973 500% increase in the price of oil should yield a price of $1375.00/oz gold ( based on a recent $275.00/oz gold and a projected $50.00/bbl oil ) . These back of the envelope calculations are based on the recent price of gold at $275.00/oz, which in my opinion is grossly undervalued, so it would appear upon closer examination that gold could and should increase much more in value. However one were to look at it, the oil:gold ratio appears to be out of balance and is due to readjust to the norm.
GOLD MANIPULATION:
Why is gold priced so low? If the some are correct in their assumptions that the Saudis and others in the Middle-eastern countries prefer payment in gold for oil, then they also have an interest in having a low gold price vs. a high oil price. This yields more gold per barrel of oil. This is unsustainable of course an eventually the lid will blow off unless some powerful forces cap the price of gold. The current gold prices are unsustainable in face of a growing energy crisis. As the price of oil continues to rise, the producers will not be very excited about receiving devalued dollars for their diminishing natural resource. The Central Bankers know that there is pressure on gold so there is a concerted effort to malign the perception of gold as portfolio insurance and as an investment. That is the reason for the Bank of England auctions, and the various other auctions that have come from European central banks and from the little CBs that can be leaned on to submit to their stronger cousins. This is only a temporary measure as it cannot continue indefinitely. There is not enough gold to continue with this charade forever. The longer it continues, the more explosive the rise in the price of gold. This is apparently the reason for the frantic efforts by so-called Gold Analysts at the major Bullion Banks who engage in hysterical effort to talk down gold prices and damage golds reputation as a hedge against inflation.
The situation is more dire as one recognizes that the LMBA and Bullion Bankers have loaned out millions of ounces at ridiculous interest rate to those who sell short gold and then invest the proceeds in the equities markets or in higher yielding government paper and scalp the spread. That gold is gone. The forward selling gold producers sell borrow gold, sell it, and usually use the proceed to advance their mining operations. Some miners, however, act as hedge funds and invest in higher yielding paper and they too scalp the spread. When these miners get in trouble and go bankrupt, the counter-party bank is on the hook. It is in the best interest of the LBMA and Bullion Bankers to maintain the illusion that gold is abundant and move the price lower in an effort to discourage gold investment. A sharp rise in gold prices would likely result in call requirements that could level many financial institutions and hedged miners.
Eventually, something has to give. As the price of oil continues to rise and the ripple effects work through the economy in the form of higher prices, that is inflation in spite of government manipulated gauges of inflation such as the US Consumer Price Indices ( CPI ) and Producer Price Indices ( PPI ) , the price of gold will explosively rise in value like a tidal wave as it is recognized as a hedge against inflation. The Federal Reserve Bank is trying to slow the economy with mild on-again and off-again interest rate hikes in an effort to engineer a soft-landing This is likely to fail since it has in the last 8 out of 10 times it was attempted. The odds are against it. It is a delicate balancing act between adjusting interest rates and money supply. Once inflation is truly felt, then people will run to hard assets. If oil rises to $50.00/bbl, then the government will have an extremely difficult time hiding and manipulating the inflation figures.
PRECIOUS METALS AND PREPARATION:
Physical precious metals is not an investment as much as insurance for the possibilities of economic disaster, natural disaster, or even temporary disruptions such as family tragedy, illness or unemployment. Many people prepared for possible disruptions to everyday life in advance to Y2K. fortunately there were few problems encountered during the transition from 1999 to 2000. Those who prepared for Y2K and remain so now are better positioned for the problems that can be encountered during the coming energy crisis. A prolonged recession should be expected. In a worse case scenario, hard assets such as gold, silver, and platinum bullion and coin will transfer wealth across any pending disaster. We have health insurance if we become ill or am injured, we have life insurance for our heirs should we pass away, we have insurance if we have an automobile accident, and we have home insurance in case our homes are damaged or destroyed. Does it not make sense to insure our investment portfolios as well?
Hard assets are king when all hell breaks loose. Is it any wonder then that George Soros buys vast tracts of land and in the Silver miner Apex Silver ( SIL ) , that Bill Gates purchases 10.3% of Pan American Silver ( PAAS ) , and that Warren Buffett purchases 137 million ounces of silver and keeps it offshore out of the grasp of a potentially hostile US Government? Does it not seem reasonable that one should follow the lead of those who are supposedly in the know? Why stop at hard assets? Have a storage program of food, water and necessities in storage in case of unemployment, natural disaster, or worse. Get out of debt as soon as possible. Get a well stocked first-aid locker. Get firearms and ammunition for hunting wild game. Maybe even a wood burning stove and plenty of fire wood. Disaster may not come, but many people tend to sleep better at night knowing that they have battened down the hatches so to speak. Think of the panic during the Cuban missile crisis as people rushed to the super markets and stripped the shelves bare. Why even when Johnny Carson on the Tonight Show a few years ago on US television joked about a toilet paper shortage, he unwittingly created a shortage as people rushed to get plenty of toilet paper. You see, anything can happen, but then I sleep very well at night.
CONCLUSION:
We have already learned the consequences of an oil crisis. In 1973 during the Arab oil embargo, the resulting higher costs were passed along to the consumer and the worlds economies were thrown into recession. Those of course were only temporary blips. The worlds economies are addicted to cheap oil. The new oil shock is coming and it is permanent. Hydro-Carbon man is going to suffer the effects of forced Hydro-Carbon withdrawal. Oil supplies from mature oil fields are diminishing and no new significant discoveries are being made to replace them. Current reserves have been inflated for political and economic reasons. Alternative and non-conventional energy sources are more costly and much are not likely to be recoverable. The discovery of new fields is not keeping up with current depletion rates. The crucial point however, is not when the world runs out of oil," but rather the half-way point when production no longer is increasing and when it begins to decline, and ever increasing demand for oil forces prices to rise dramatically. There is a finite amount of oil. As oil reserves are depleted there will be rampant inflation and irreparable damage to economic growth. It is possible that much of the non-conventional oil may be eventually recoverable with new technology, new refining methods could conceivably be developed, and reclassified as conventional oil. However, at current prices these non-conventional sources are not profitable. The current infrastructure and refinery capacity limits our ability to keep up with demand. The world is an unstable place and the inability to expand energy only makes the world more unstable. The ratio of the historical oil to gold relationship is severely out of balance and offers an unique opportunity in gold investments. Gold is about to reassert itself as a hedge against the coming inflationary pressures and world turmoil. Hydro-Carbon Man must adjust to his new environment of declining energy resources, higher energy costs, or go extinct.
RECOMMENDED READING:
Campbell, C.J., The Next Oil Price Shock: The Worlds Remaining Oil and Its Depletion, Energy Exploration and Exploitation, v. 13, no. 1, 1995, p. 36.
Campbell, C.J., The Coming Oil Crisis, Multi-Science Publishing Company & Petroconsultants, 1997.
Campbell, C.J., and Laherrere, J.H., The End of Cheap Oil, Scientific American, Mar. 1998.
Ivanhoe, L.F., Future World Oil Supplies: There is a Finite Limit, World Oil, Oct. 1995, pp. 77-88.
Ivanhoe, L.F., Updated Hubbert Curves Analyze World Oil Supply, World Oil, v. 217, no. 11, Nov. 1996, pp. 91-94.
Masters, C.D., et al., World Petroleum Assessment and Analysis, Proceedings of the 14th World Petroleum Congress, 1994, John Wiley & Sons, p. 537.
Simmons, M.R., An Energy White Paper, ( internet publication ) , http://www.worldoil.com/WO_RESEARCH/Research/whitepaper.pdf
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-- King of Spain (madrid@aol.cum), September 17, 2000
-- (hmm@hmm.hmm), September 17, 2000.