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Can peak oil make you rich? Does it matter?

There is no shortage of financial newsletters, blogs, and websites that will tell you quite confidently that we are closing in on world peak oil production and that you can make a lot of money with the right investments. (For a sampling, try this promo for a newsletter called Outstanding Investments, blogs such as The Real Deal and New Era Investor, and websites such as Resource Investor and 321energy.) What this tells me is that these investment-oriented commentators don't quite grasp the issue. The question isn't whether you can make money on peak oil. Somebody will. The question is whether doing so will matter.

No doubt a few market participants will make great fortunes in the ongoing energy bull market. That this particular bull market may or may not be the result of an imminent peak in world oil production doesn't really matter to an investor. Other factors may be sufficient to spawn new speculative fortunes in energy including previous low investment resulting in infrastructure and personnel limitations; war and the threat of war in the Middle East; skyrocketing demand, especially in Asia; and regional natural gas shortages.

Investment advice on peak oil, however, is lost on most of the people in the world because they simply do not have the savings to invest or lack the skills to do so even if they do have the money. For the remaining few, the answer to whether such investing actually matters depends on the time frame. In the short term the answer is probably yes. In the long term, the answer is more than likely to be, "Not as much as many people think."

In the short term climbing energy prices will undermine the standard of living for all the world's energy consumers. A small group who work for energy producing companies and countries will prosper, and shareholders in energy companies are likely to prosper as well. So, from this perspective it may make sense to hedge one's bets by investing some money in the energy markets.

But, peak oil is probably not going to be a one-way street to financial heaven. One of the effects of high energy prices is to depress economic activity. If high prices bring on a recession or even worse, an economic depression, energy prices will fall along with all other prices--maybe not as far, but far enough to put a big dent in any investing profits. The other thing to remember is that investing is a social phenomenon. If everybody who invests "knows" that energy is the place to be, the market is probably topping. The point is that by definition not everyone will reap big profits in the emerging energy bull market. It takes latecomers to make such investing pan out for those who got in early.

Oddly, sites promoting peak oil money-making ideas seem to be assuming that we will somehow return to a business-as-usual world in which lucky investors can spend their new fortunes. But, in the long term, peak oil means we will never go back to business as usual.

Perhaps the world will move on to a miraculous new energy source making any investments in the fossil fuel industry ultimately a big loser. Perhaps the world will be faced with ever decreasing supplies of energy which will result in a chaotic and highly destructive descent into a low-energy society that gives new meaning to the word "post-industrial." Perhaps money and credit as we know it will cease to exist, and life will become intensely local. In such a world the financial riches of a networked, global economy won't have any meaning. Beyond this is the question of timing. Either the optimistic or the pessimistic scenario might unfold quickly or take decades to reach a conclusion.

Given the uncertainties, perhaps the most important investments that any of us can make are in helping to prepare our families, friends and communities for the energy challenges ahead. This might mean spending some of our own treasure for the public good. In this way, at least in the short-term, peak oil investing can provide a benefit, not just to the individuals who do it, but also to the communities in which they live.

If those who profit from rising energy prices come truly to understand our energy predicament, they can help communicate it to others and assist in preparing our communities. But the peak oil investor who succeeds at making money, while failing to grasp the gravity of our situation, may find that his or her new fortune means nothing to a community that has been forced by circumstances to move quickly beyond a world governed by Wall Street wizards and international finance. In such a world, even if you manage to hold on to your investment winnings, from that point onward what you can do will be far more important than what you are worth.

Editorial Notes: UPDATE: Roland Watson has thoughtful reply at New Era Investor. -BA

What do you think? Leave a comment below.

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