Peak Oil Loses Matt Simmons

Matt Simmons, the chief advocate of Peak Oil, died of an apparent heart attack last night.  The original theory was developed by M. Hubbert King.   Has the theory held up?

For some background on Peak Oil, it can be reviewed by clicking this recent piece:  http://markostake.blogspot.com/2010/05/peak-oil-update.html. 

Recent statistics from the International Energy Agency (IEA) bear out Hubbert's predictions.  Growth in worldwide oil demand has slowed but continues to grow.  Currently, the planet uses approximately 86 million barrels per day (mbd).  This is projected to grow to 88 mbd by late 2011.  Of course, an intensifying downturn in the global economy is likely to ensure that this forecast will not be met.

Peak Oil, however, refers to the production side.  It anticipates a growing shortage as existing oil fields commence an inevitable and accelerating decline, while the alternatives are still very slow in being developed.  According to the IEA, world production averaged 86.6 mbd in 2008 and fell to 85 mbd in 2009.  It has rebounded in 2010, but has fallen in the 2nd quarter.

OPEC, which produces just less than 40% of global supply, averaged 28.9 mbd in June, down by 65 kbd from May.  A lull in OPEC crude capacity expansion is expected between now and year-end 2011.  Non-OPEC supply is expected to rise by a modest 0.4 mbd in 2011 to 52.8 mbd, following a 0.8 mbd growth in 2010.  Increases from Brazil, global biofuels, Azerbaijan, Colombia, Ghana and Oman are expected to offset declines from Mexico and the North Sea during 2011.

The imminent "Double Dip" will undoubtedly have a major bearing on future production, especially if prices decline to possibly much lower levels in the intermediate term.

Peak Oil is significant for a variety of reasons.  For one, it undoubtedly was a major factor in the invasion of Iraq.  It has a bearing on future potential military actions against Iran.  Was there a connection to British Petroleum and the infamous oil spill and U.S. policy on offshore drilling?  They don't call it "Black Gold" for nothing.

Another "Windfall Profits Tax" seems a virtual certainty in light of the out-of-control budget deficit.  Our roads are paid for by Gasoline taxes.  Virtually every industry is affected by oil prices.  The automobile industry, the transportation industry, the mining industry and the military are all affected by oil.  So is foreign policy.  Global Warming?  Cap and Trade? Yeah, I'd say "Peak Oil" is important.

Unfortunately, profiting from a knowledge of "Peak Oil" is most difficult.  The chief beneficiaries, shareholders of ExxonMobil, Chevron, British Petroleum and Conoco-Phillips will not be allowed to enjoy the profits which are politically unpopular.  So, the only way to invest is in alternatives, or to own royalty trusts whose cash flows rise and fall with oil prices.  That is, assuming they will be exempted from future legislation.

The most viable response for the average American is conservation.  If one can afford a hybrid or install solar panels, great.  But, most people can't.  All most of us can do is turn down our thermostats and burn wood in the fireplace.  I hope I never see another line at the gasoline pump again.  But, unfortunately, I suspect that vestige of the 1970's will return.

Marko's Take