Peak Oil - further ruminations
Peak Oil has finally made it to US mainstream news. The New York Times has published an article titled “The Future of Oil” which although does not use the term “peak oil”, nevertheless calls out that oil supply is clearly overstretched. The columnist Krugman lent his weight with a broader swipe at industrial growth founded on cheap resources - “when an ever-growing world economy pushes up against the finite limits of a planet”.
Sadly, it has not yet made its impact on the political debate. Two of the three leading US presidential candidates are entertaining the thought suspending gasoline tax to provide relief for drivers - a short sighted effort which does nothing to address the root cause of the problem that oil production is now supply constrained. As all populist leaders, they must await a crisis before mustering the political will to act. The US would never have embarked on the Manhattan Project without Pearl Harbor.
On a personal level, I’ve ascended a little from the depths of despair. Declining oil production will be painful, but we are all in it together. If it’s painful for someone earning $100K/year in Silicon Valley, it must be much much worse for others in poorer places. It is no surprise that the food crisis of 2008 earned a special report in the Economist.
I spent the better part of the last four months rebalancing my investment portfolios. At least I have been forewarned (not by much). There are several resources out there that are useful for those who seek options and these are a few that I visit regularly:
- The Oil Drum. Unlike other peak oil websites, it does not focus purely on apocalyptic prophecies. It has a number of contributors who make some interesting observations about peak oil.
- Alternative Energy Stocks. Interesting ideas about possible suppliers of alternative energy.
- Energy Investment Strategies. A direct take on how to profit from the trends in energy production.
I have now placed a third of my portfolio in energy related stocks, with an emphasis to suppliers with sufficient reserves of oil, transportation alternatives and other energy suppliers.
Surprisingly, I expect a bubble around the oil prices driven by speculative interest. Broad admission of limited supplies will drive a gold rush to energy producers and costs of oil even higher. Already, there are calls on US government intervention, which will become a reality when gasoline prices reach $10/gallon.
My take is that $200/barrel is very likely by end of 2009, and even by end of 2008 if investors crowd into the market. What price would it force US consumers (and others elsewhere) to realize that behaviours need to be modified if we are to survive the next two decades?