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Warren Buffett on Net Energy and Peak Oil (YouTube)
A segment with Warren Buffett on CNBC last night with a mention of oil depletion, Malthus, “a tough time,” “the point of no return,” and resource scarcity. Good piece (give it about 30 seconds to get there).
Big Gav has a transcription. An excerpt:
BUFFETT: … we have been sticking straws in the ground now since, what, Titusville in 1850-something with Colonel Drake. And we have–we have–we have found a lot of the oil that’s to be found. And if we’re going to produce–or use 85 million barrels a day now and the rest of the world probably is going to increase its demand in the–in the–in the next five or 10 years, we’re going to have–we’re going to have a tough time maintaining production that satisfies those at this price, even. So I think something like oil, six and a half million humans–or six and a half billion humans are going to use a lot more oil than a lot fewer used 20 years ago or 30 years ago.
… So land can get more productive. But oil is finite. There’s actually some school that says it isn’t, but I think it’s pretty finite. And, you know, we have 500,000 producing oil wells in the United States. The average production is 11 barrels a day. Five hundred thousand times we’ve actually hit. But if you look at our production vs. 30 years ago, it’s way down. And most, you know, most fields are depleting at a pretty good rate. And with demand–if demand grows a million or a million and a half barrels a day from year to year and the present fields deplete and we don’t find the elephants in the future…
(3 March 2008)
UPDATE (March 5): Warren Buffet is the richest person on the planet, according to Forbes.
Falling Dollar Pushes Oil Prices Up, Weakening Economy (text, audio, video)
Online Newshou
As the value of the dollar falls, the price of imported oil rises, which impacts costs from the gas pump to the grocery store. A reporter from the Wall Street Journal [Neil King] examines the current state of oil prices.
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… To understand what’s happening, we turn to Neil King of the Wall Street Journal.
And, Neil, what’s been driving oil higher for the last year, but especially in these last of couple of months?
NEIL KING, Wall Street Journal: It’s a big question, and there’s a lot of mystery around it. I can tick off a few things; none of them will get to the total bottom of it.
But one is the dollar itself. The dollar goes down; oil prices go up. Oil is denominated in dollars.
There’s the weakness of the U.S. economy and the desire for a lot of investors to find refuge in other places, so they’ve been moving into the oil.
They’ve also been moving in huge ways into other commodities. Commodities of all kinds are setting record highs, obviously gold, silver, platinum, even wheat, corn, even coal, which is rather extraordinary.
And, lastly, I would point to the concerns out there that are really growing about whether we’re going to have proper supplies five, six years down the road. Will oil supplies continue to be able to meet demand? Or will there be a moment when demand might possibly exceed supply?
And this particular concern, which is a sort of peak-oil concern that some people are raising, is filtering into OPEC. The oil minister of Saudi Arabia yesterday was saying that this particular pessimism, which he calls “unfounded,” is one of the reasons that’s really driving oil up, as investors think, “Wow, this is a commodity that may become increasingly scarce down the road.”
… NEIL KING: Well, I mean, the biggest winners by far are obviously the oil-producing countries who are having massive windfalls as a result of this. The Kuwaitis have just announced that they’re doubling — their budget forecast is going to be twice what they thought it was going to be for this year.
And the losers are easy to point to, obviously, the developing countries, for whom energy is already very expensive, gets a lot more so, drivers in the American Midwest that work minimum-wage jobs, that kind of thing.
I would point — I think, in some ways, that in the long term the American public might even be a winner in a way, because this is a kind of a wake-up moment now that is obviously really stirred the debate to think about alternatives.
Are we driving too much? What should other alternative forms of fuel be? And I think that we’
(4 March 2008)
Neil King – another peak-oil-aware journalist. Recent article: In a World Short
Of Oil, Provisions Must Be Made (portrait of a peak oil activist).
Peak Oil is a Cost Issue
Jim Kingsdale, Seeking Alpha
Underlying nearly all discussions of the oil price is a standard economic concept: supply and demand. It seems so elementary that there is no doubt of it. It says that demand has been growing more rapidly than supply recently and that at some point the world will reach Peak Oil and the price will zoom northwards.
But the reality is more complex. Peak oil is not just a point in time or even a plateau when oil supply becomes unable to expand to meet demand. We need a more nuanced model for oil prices that includes several other factors.
First, there is the role of speculators. OPEC officials often say the locals in New York are the culprits responsible for higher oil prices, an idea that often is dismissed as simply a way for OPEC to focus attention away from their own responsibility. But the fact is that prices are determined in the oil futures pit to a large extent and some speculators, like hedge funds, are represented in the pit. Speculation is not just a form of gambling or “playing” the weak dollar. It also serves to move forward the future supply and demand impacts on the oil price that speculators see coming.
Second, is the mindset of the oil exporting countries, including OPEC, which are increasing supply at a slower rate than they could. I call this hoarding but it is known more commonly as “resource nationalism.”
… Third, and most complex are cost pressures. The paradigm example of costs reducing potential supply is the “oil shale” deposits in the American West and elsewhere. CERA, the ever-optimistic consulting firm that makes its money from companies and governments that have a stake in keeping oil prices low, likes to refer to the vast quantity of hydrocarbons still in the ground, a large percentage of which is oil shale. CERA points to such “reserves” as a reason to doubt the coming of peak oil. But the reality is that no economical means of producing oil from shale deposits has been discovered despite decades of government-financed work by big name companies. Oil shale is simply too expensive to process into oil for it to work at an oil price of $100 – or even at $200.
… We need to understand that the simple model of peak oil, expressed recently by an industry leader, as “when output growth stops the oil price will go through the roof,” is a vast oversimplification of reality. In fact, oil is already becoming scarce because of cost pressures, hoarding, and, sometimes, speculation. Of the three causes, cost pressures are the most constant and unrelenting and are causing the speculation and hoarding.
Jim Kingsdale has been managing investments since 1989, prior to which he was a cable television executive and entreprenuer.
(5 March 2008)
Oil’s Wakeup Call
Martin T. Sosnoff, Forbes
Oil at $100 a barrel is a wakeup call for investors and politicians alike. You can’t blame ExxonMobil for making $11 billion quarterly. Prices are set by the futures market, not in boardrooms or coffee houses in Riyadh.
Normally, I avoid commodity plays, but I’ve joined the crowd. I despise gold, copper, iron ore, potash and coal because, after all, mines are just holes in the ground. It’s more elegant to analyze tech houses. Mining or finding oil is capital intensive … Suddenly, I’ve got religion, rapidly building up my participation in energy and commodity plays.
If you want to dream about oil prices long term, the go-to guy is Matt Simmons, chairman of Simmons and Company International. Simmons’ thesis called “the Peak Oil Thesis” is awesomely simplistic: The elephantine oil fields of Saudi Arabia peak out in a few years. Unfortunately, this is only a working hypothesis.
Saudi Aramco technocrats won’t let Simmons near their reservoirs or seismic research data. They claim a reserve margin of several million barrels a day. Simmons’ competition, Cambridge Energy Research Associates in Massachusetts takes the Saudi side of the argument, but the market these days is siding with the bears on net worldwide incremental production possibilities.
The next five years will tell the story. I’m leaving out the demand side of the U.S. equation. If you believe our next president and the Congress will draft a cohesive energy policy that curbs demand and successfully encourages new energy sources, you don’t want to play in this game. Just be mindful that we have over 100 million cars on the road, gas guzzlers, and they’re going to hold the road over the next 10 years.
Oil now accounts for 95% of transportation energy, and Simmons and others believe future growth in oil demand is inexhaustible. I never knew anyone who could predict the price of oil accurately for more than six months. The consensus historically runs wide of the mark, expecting demand to peak and prices to collapse from supply sources. The classic magazine cover story in The Economist in March 1999 projected $5 a barrel oil, that the Saudis would flood the world with cheap oil and demand would peak. How wrong can you get it?
Martin T. Sosnoff is chairman and founder of Atalanta/Sosnoff Capital, a private-investment management company with over $8 billion in assets under management.
(5 March 2008)
