Permanent Oil Shock
In 1949, the then unknown geophysicist Dr. Hubbert made the startling prediction that the “oil age” would be short-lived. He was ridiculed in 1956 when he predicted that US oil production would peak in 1970 and decline thereafter.
No one is laughing now. His predication was dead-on. Today his “Hubbert Curve” shows the peak in world production to be around the years 2000-2010. In fact, if not for the OPEC monopoly the peak would have occurred in the mid 1990’s.
The peak in production is the point at which any resource becomes more valuable and expensive. Demand remains but supply falls off. Prices go through the roof. Those of you who were driving in the US in 1972-73 will vouch for the rapid changes that occurred across the board due to the decline of US oil output.
The optimum price for Saudi Arabian oil is US$25 per barrel. Currently it is at US$40 per barrel. This is 60% above the price at which alternative energy sources and alternative oil extraction methods become cost productive.
***It is in the deep.
The only oil left to find is underwater. In fact, the planet’s proven untapped deepwater oil reserves could more than triple in the next 20 years. According to experts, proven deepwater reserves could jump from the current 50 billion barrels to 114 billion barrels.
This is an ongoing trend. BP in its annual statistical review estimates total onshore and offshore oil reserves at 1,148 billion barrels at the end of 2003, up from 723 billion barrels 20 years ago.
Natural gas reserves were 1,105 billion barrels, up from 583 billion barrels at the end of 1983. That’s equivalent to the proven reserves in Iraq.
There are about 200 exploration wells a year being drilled in deep water, adding about five billion barrels of oil a year.
It may surprise you that leading deepwater company by values isn’t based in the US, Europe or even Russia. It’s in a turnaround South American economy that has fallen off Wall Street’s radar. But the real money will be made in small explorers and new technology companies that make working 3,000 feet underwater a profitable enterprise. I’ll tell you all about it in next month’s Red Zone.
Founder and Editor, The Red Zone