Thursday, December 08, 2005

Oil supplies won't run out anytime soon, says group - Oil and Gas - Energy - Commodities

There are a few knowledgeable folks who say that there is plenty of oil around. These folks include the Saudi King, the Chairman of XOM and the folks who posted the linked story.

One can easily dismiss these folks on the grounds that they may be telling what they want to believe than what is real or they may be telling an outright lie. I believe they are telling the truth.

The problem is that I think in the long term. I dated the same girl for 5 years before I married her and have now been married 33 years. I still drive the van I purchased 12 years ago. It has 238,000 mile on it and runs good. I buy stocks with the expectation of holding for an average of 4 years or more.

I see plenty of energy available. Some of it will take a long time to develop. For me, the current question is not about how much oil there is. I believe that the earth, deep in its core, is making more oil every day. I am confident that we will conserve as necessary and produce as necessary to fulfill all our needs.

The current problem is a short term problem, maybe an intermediate term problem but not a long term problem. Yesterday, Devon Energy increased reported know reserves by 40 million barrels. This is a drop in the bucket but indicative of what has happened over the years.

The current scare talk will serve a good purpose. Lifestyles will change to meet the new reality. My wife and I are making plans to downsize. We no longer need 4 bedrooms and 4 and a half baths. Our new home will be within walking distance to the bank, YWCA, library and numerous restaurants and shops. With just two bedrooms and two baths, our energy needs will drop.

The earth is a carbon sink. More energy is being deposited by the sun each day than is being used each day. The US has added 80 million acres of trees since the 1920's. There is plenty of energy, but the easy to find sweet black gold has been found. We will drill deeper and spend money to process some ugly stuff but we will not run out of supply. Supplies will be tight for a while longer which will keep the price up.

The mistake is to assume that energy companies will go up in value strongly from here. Chances are, energy companies will only go up in value strongly if oil prices go up strongly from here. It can hardly happen. Sixty dollar oil is proving to be a "clearing" price. At a higher price, consumers cut back hard on their usage, substitutes are used and capital projects are started.

Malthusians convinced much of the world that food would run out a hundred years or more ago; people would starve to death. Ironically one of the other big problems we have in the states today is obesity. Energy and food are available. The current price of energy is going to increase production and slow the growth in consumption. I project oil to be lower in price a year from now and much lower three years from now. Mark it on your calendar.