Running Out of Energy

Got a great question from Carl in Cincinnatti (sp?) that is so great I want to give another day to think about it before we go to print.  In summary, Carl is trying to figure out a career path that may lead to to San Francisco or Chicago or staying put.  My comments about San Francisco and Chicago being way expensive shook Carl up a bit and we need to study the issue a little more seriously.  For starters we will review Category 9 about buying a house for 30% off.  Also, Category 6 on renting.  But we will do that tomorrow.

Because something caught my eye this morning in the paper.  Headline--"There's Plenty Of Oil Now, Expert Says."  Wow.  I thought we were out, or near out.  The first paragraph says that the oil supply is not in a 'peak oil' mode, demand will not out run supply and the supply of oil may increase by 25% by 2015.

Where is this report?  Buried on the last page of the business section. 

Where is this oil coming from?

-unconventional sources such as ultra deep drilling in the Gulf of Mexico,

-off shore of Africa and South America,

-heavy oils out of Venezuela and Canada,

-Saudi Arabia.

Saudi Arabia?  I thought they were almost dry.  Guess not.  Not great news about Venezuela but Canada isn't exactly a revolutionary, rogue nation.  Africa and South America.  Ok with me.

The report comes from the Cambridge Energy Research Associates run by Daniel Yergin who is a pretty heavy hitter in the energy bidness.  Yergin's report refutes two popular theories--one is the 'peak oil' theory which holds that worldwide crude production has already peaked and will soon decline "plunging the world into high prices, shortages, and political calamity."

The other theory is that Saudi Arabia will soon become a worthless sandbox with no oil. 

As far as theory number one Yergin "said flatly that the much discussed 'peak oil' is not imminent."  I guess not if he says production is going up 25%.  As far as Saudi Arabia goes, it appears that SA has more production capacity that will be brought on line within the decade increading production from the current daily production of 9 million barrels to 12.5 barrels per day by 2010.  Hmmm, doing the math that is within three and a half years and an increase of, let's see here, 12.5 minus 9 is 3.5 divided by 9 is ...hey, that's up over a third and a third is more than 30%.  That's a lot.

So maybe the world is not coming to an end next week. 

There are two important takeaways from this report.  And it is not the fact that oil production is going up. 

The first takeaway is that good news or, at least good news that runs against conventional thinking, ends up on the back page if reported at all.  Remember the news business mantra--if it bleeds, it leads.  If not, it goes on the back page.

The second takeaway is that economists usually look at existing variables and discount or ignore innovation.  The leading proponent of this was Malthus (sp? again) who a long time ago projected mass starvation because the population was growing but food production was not.  Well, we all know what happened.  The American farmer said the hell with that and we have enough to eat and there are a lot more people around.

So listen to Yergin and discount the naysayers.  Reminds me of a boss I had that went almost clinically depressed.  He read the paper every day on the train into work.  He quit reading the paper and his depression went away.  Maybe he shouldn't have stopped reading the paper but his world, and mine, sure got better when he did.

Another good thing about Yergin's report is that Carl will have enough gas to travel to Chicago and San Francisco.  Will talk about that tomorrow.

Comments

[Nervous Canadian]

Canada may not be a revolutionalry, rogue nation, but it does have oil, and the criteria for being invaded by the US seems to be more heavily weighted towards having oil than being rogue (North Korea perfecting nuclear weapons unhindered while oil-rich Iraq with no nuclear weapons gets invaded). Scary.