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With Oil Prices Poised to Jump as Much as 70%, Every Investor Needs an Energy Strategy

[RR note: This blog occasionally posts guest posts, and energy investing is a topic that is visited on a fairly regular basis. The website Money Morning recently noticed that I had linked to one of their articles, and asked if I would be interested in publishing some of their original energy-related content. Because their energy posts are generally consistent with the theme of this blog – and because I often find myself with little time to post – I will be posting some of their original content here. This doesn’t imply that I endorse everything in the story, but then again that was never the case previously with guest posts. These posts are designed to educate and promote discussion, and I will participate in the comments following these posts.]

With Oil Prices Poised to Jump as Much as 70%, Every Investor Needs an Energy Strategy

By Keith Fitz-Gerald
Investment Director
Money Morning/The Money Map Report

The U.S. news media has convinced many investors that oil consumption is falling because of the global recession. While that may be true, it’s a disservice to millions of investors because production is declining at a pace that’s actually three times faster.

And that suggests higher oil and gasoline prices in coming months – perhaps as much as 50% – 70% higher, or more – particularly if a U.S. economic recovery is truly in the offing.

To really see what I’m talking about, let’s start with a close look at consumption. I’m asked about this frequently in my global wanderings, most recently at the Las Vegas Money Show last week.

For months we’ve been hearing about a drop in global demand. It’s a popular story and one that sounds credible: After all, it seems logical to assume that during economic chaos, consumers and businesses alike will rethink their budgets and ratchet back their spending.

For consumers, the continued economic malaise will mean fewer trips to the store, less-ambitious vacations, and car-pooling to school or work . For businesses, the cutbacks by consumers will clearly translate into canceling trips where conference calls will suffice and using lower-cost shipping alternatives for the decreased sales volumes most U.S. companies will experience.

According to the U.S. Energy Information Administration, oil consumption fell by nearly 50,000 barrels a day throughout 2008. According to the latest figures, the EIA suggests that global oil demand may slump to 83.4 million barrels a day in 2009 – nearly 2.4 million barrels below 2008 consumption levels. On a percentage basis, that’s almost a 3% drop. I have my doubts that we’ll actually see a decline of this magnitude, but if it does occur, it will be the first time ever that consumption has declined for two straight years. That alone is pretty noteworthy in this era of cohesive and powerful global growth.

The reason I have my doubts about such a steep decline in demand is this: While overall consumption is dropping in such developed economies as the United States, Europe and Australia, it’s being at least partially offset by continued growth in China, the Middle East and Latin America. Because the data produced there is less than transparent, I can’t help but think that analysts are underestimating the growth we’ll be seeing in those markets, where consumption is accelerating strongly. And it’s entirely possible that growth in those markets will outstrip any fall here in the developed world.

Even if the growth in the emerging markets doesn’t quite offset the decline in their developed brethren, analysts seem to be forgetting that oil prices are a function of two variables – consumption and production. And it’s the change in production that’s going to catch a lot of people by surprise.

After a run of record high oil prices punctuated by frantic resources development, we’re now seeing the opposite scenario. The long period of lower than anticipated oil prices following oil’s meteoric rise last year means that the entire industry is no longer making the investments needed to sustain production capacity or actual production.

And not many folks recognize this fact.

For instance, direct project investment in drilling may be down as much as 20%, while the number of drill rigs in operation in America alone has dropped by more than 40%. Various estimates from the EIA and private sources suggest that actual U.S. production may fall by as much as 320,000 barrels a day. While the amount is a matter of debate, the fact that production is declining is not.

More than 20% of total U.S. oil production comes from tiny wells located in remote areas that were marginally profitable producers when crude oil was trading at $100 a barrel. With oil currently at about $61 a barrel, those producers are practically worthless now. So the “mom-and-pop” shops that own them are actually abandoning entire fields and equipment without a moment’s thought.

To be fair, at least part of the drop in demand can be attributed to increased reliance on methanol, ethanol and other types of biofuel, but that’s hard to quantify at the moment because the long period of low oil prices has eroded the economic viability of alternative fuels – at least for now.

The story is much the same with new exploration projects being cancelled left, right and center. The trend is particularly apparent in the Canadian oil sands that were everybody’s fancy only 24 months ago. Now we’re seeing Royal Dutch Shell PLC (NYSE ADR: RDS.A, RDS.B), StatoilHydro ASA (NYSE ADR: STO) and Petro-Canada USA (NYSE: PCZ) each backing away from multi-million dollar investments that were to bring online an estimated 500,000 barrels a day.

Russian, Saudi and Mexican producers are reporting the biggest production drops seen in 50 years. Even Venezuelan leader President Hugo Chavez – the perennial motor mouth and longtime U.S. critic – is eating crow. He’s begrudgingly invited (read that to mean “is begging”) the oil companies whose assets he nationalized only a year ago to “come back” into the market.

He has no choice. Venezuela’s oil production is already below its 1997 levels, and many analysts say that output could fall even more since Chavez has done such a thorough job of alienating the big foreign oil companies that actually possess the technology needed to extract crude oil from that country’s hard-to-reach reserves.

Chavez’s Chavez’s government seized the assets of 60 foreign and domestic oil service companies after conflict erupted over nearly $14 billion in debt owed by the country’s state-owned energy company, Petroleos de Venezuela (PDVSA). PDVSA accumulated the debt as oil prices took a dramatic slide from over $147 a barrel last July to less than $35 a barrel in February.

Then there’s simple shrinkage. This is an oil industry term for declining output. The EIA recently released data suggesting that production at more than 800 oil fields around the world is going to decline by about 9.1%. It doesn’t matter whether the decline is prompted by depletion, war, or simple neglect. The fact is that this shrinkage will take an estimated 7.6 million barrels per day out of the system.

I could go on but I think you get the picture.

Now imagine what could happen to oil-and-gasoline prices when normalized demand resumes. Not only will there be less oil in storage, but virtually the entire industry – exploration, production, refining and sales – is going to be caught sitting on its heels when the world needs it to be zooming along in high gear. And that means the companies that make up this industry will have to ramp up again to meet the newly increased consumption demands.

This whole process could take two years – or even longer – to play out.

As for prices, history is replete with examples of what happens when there are major shortages of key commodities.

In the Energy Crisis of 1973-74, for example, I can still remember the numbingly long gas lines and waiting in the car for hours to get a fill-up. My father and grandfather vividly remember that prices quadrupled in a matter of months. I’m sure you do, too.

Only a few years later, in 1979, we got another oil shock when prices quadrupled again. Because it was coupled with stagnant economic growth and virulent inflation (stagflation), this period was an economic disaster for the United States.

For those who had learned from the earlier crisis, however, it was a mondo- profit opportunity.

The same can be said for 2007-2008, when the huge spike in oil prices that I predicted contributed to the bear market in stocks, tight credit and recessionary conditions that led to the current malaise that continues to grip the U.S. economy. As much as anything else, high oil prices contributed to the carnage we’ve seen in the auto-making and airline industries, and to the financial crisis that started here before spanning the globe.
Which brings us full circle.

Many investors will refuse to believe we’ve arrived at this new energy nexus, especially given all the hype we’ve seen surrounding alternative fuels, hybrid vehicles and the new “green” mentality that’s taken hold here in this country. If you listen to some of the real believers, they’ll tell you that we could be living in a petroleum-free Nirvana – as early as tomorrow.

While I personally would like that, too, it’s a misleading argument if for no other reason than there are millions of consumer items we use – from plastic bags to makeup – still created using petroleum. And there are still more than 60,000 manufacturing processes that depend on petroleum, and even the most aggressive estimates suggest that it will take the world decades to shift away from them.

We’re in much the same situation when it comes to hybrid vehicles. There isn’t a mass-produced electric vehicle available today that could offset the coming rise in recovery-driven demand for oil and gasoline. There’s a strong effort underway, but I’m not aware of a single company ready to field the solution in cost-affordable quantities by 2010 – which is when most analysts say a recovering economy will stoke demand for oil.

Of course, U.S. President Barack Obama’s much-lauded efficiency and greenhouse-gas-standards mandate will help significantly, but that’s like bolting the barn door after the horses have run for the fields. The irony of watching auto executives “applaud” his press conference was almost too much to watch with a straight face. But that’s a story for another time.

The bottom line is this: Our society will be highly dependent on oil for many years to come and investors should plan accordingly.

If governments around the world really want to get serious, they could collectively work to eliminate the fuel subsidies that are part of the price paid for gasoline in Asia or sugarcane ethanol in Brazil. We could also stop our own energy pork barreling. But given the complete lack of transparency that surrounds this issue – not to mention the influence wielded by vested industry interests, and the scores of well-paid lobbyists that patrol the halls of power in our nation’s capital – I don’t think we’ll see any big changes anytime soon.

So I’m left with one inescapable conclusion, at least in the intermediate term. Every investor needs to have at least some sort of energy strategy – preferably one that includes a range of drillers, producers and suppliers to cover the spectrum from wellhead to consumer.

That way, we can profit from an increase in energy prices that we can only hope rise fast enough to jump-start the oil industry’s production arm but not so fast that it snuffs out the badly needed economic recovery.

[Editor’s Note: Money Morning Investment Director Keith Fitz-Gerald is the editor of the new Geiger Index trading service. As the whipsaw trading patterns investors have endured this year have shown, the ongoing global financial crisis has changed the investment game forever. Uncertainty is now the norm and that new reality alone has created a whole set of new rules that will help determine who profits and who loses. Investors who ignore this “New Reality” will struggle, and will find their financial forays to be frustrating and unrewarding. But investors who embrace this change will not only survive – they will thrive. With the Geiger Index, Fitz-Gerald has already isolated these new rules and has unlocked the key to what he refers to as “Golden Age of Wealth Creation” The Geiger Index system allows Fitz-Gerald to predict the price movements of broad indexes, or of individual stocks, with a high degree of certainty. And it’s particularly well suited to the kind of market we’re all facing right now. Check out our latest report on these new rules, and on this new market environment.]

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May 22, 2009 - Posted by | guest post, investing, Money Morning

25 Comments

  1. And this is why the price of oil has climbed to ~60.There is a huge amount of oil, not in the pipeline (except metaphorically) but in oil tankers that are being used as storage. That alone is a major reason that production is declining worldwide, they’re running out of oil shipping capacity. Add in the inventory overhang, and it’s like manufacturers in a recession with an inventory build up. They’ve got to slow production down until the inventory starts to clear.Venezuela and Iran are particular cases, both have been treating their oil industries as cash cows and not reinvesting enough to maintain their infrastructure, declining output follows as a consequence.And of course the demonetization of the oil industry continues, along with plans to throttle energy use in this country. The House of Representatives passed a “Cap and Trade” with the stated goal of reducing “carbon consumption”. Even Waxman doesn’t know everything that the bill actually contains.There is no recession so bad, that government can’t make it worse.

    Comment by LarryD | May 22, 2009

  2. I have to think this story by Fitz-Gerald is either intentional or misguided scare-mongering. Or an attempt to goose the NYMEX.We have a glut of oil–a glut so bad that Lloyd’s Shipping suggests that in June or July all storage space, on air, land or sea, will be full. There is no place to put the crude oil, and yet global supply is outstripping demand by 1-3 mbd. Global demand probably will not recover to 2007 levels until 2017, maybe later. After the 1979 price spike-recession, it took 10 years for demand to recover. This time the recession is worse, and alternatives to crude are better. The oil run-up to $60 is largely speculative. Add to the mix a very long-tern glut of natural gas—it looks like we have not years, not decades, not even generations but rather more than a century of the stuff, and shale deposits outside of the USA have not even been tapped yet. Even your great-grandchildren will not face NG shortages. And you can use NG to run cars, busses and trucks. Peak Oil was a dud. A more-worthy concern is Peak Banking.

    Comment by Benjamin | May 22, 2009

  3. If those stripper wells aren’t profitable at $60 oil, they should be retired.

    Comment by robert | May 22, 2009

  4. The last time I looked Tanker Rates were pretty low (that’s One reason they can afford to hire them for storage.)Amidst all the declining production in countries such as Mexico, Norway, the U.K. Venezuela, the UAE, Kuwait, Nigeria, etc., there seems to be only one nation on earth (Saudi Arabia) that “Might” be able to increase production by any significant amount. Plus, the newer oil is Lower Quality, and harder to get to. I suggest making your “next” car a flexfuel. Or, a hybrid. OR, a flexfuel hybrid (if they ever put one on the market.)

    Comment by rufus | May 22, 2009

  5. Rufus-Hitachi as we speak is delivering a battery for testing by major automakers that has 1.7 times the power of its existing product.The PHEV and BEV, introduced globally, would mean continuous declines in oil demand for decades. No sure we need biofuels. The best biofuel may be the new swttchgrass, which evidently yielded much higher than expected. Burn it to turn steam turbines for your BEV. There are just too many arrows in the quiver kill Peak Oil. I suspect we are watching to end of the Oil Era, and it is going out with a whimper.

    Comment by Benjamin | May 23, 2009

  6. Dear Kin,I also read the Clarkson review of the new new Insight from Honda.Another site which also “pans” the car is Jalopnik. They also mentioned weird noises coming from the transmission.In all fairness, I have also read a couple of positive reviews of the car.John

    Comment by Anonymous | May 23, 2009

  7. Benji, I fear you might be just a touch optimistic in the short run. However, over the medium to long time period I pretty much agree with you. What id Schlesinger say? “We vacillate between two modes, Complacency, and Panic?”

    Comment by rufus | May 23, 2009

  8. Robert,Fossil fuel stocks look like they might be a pretty good short to medium term play, If you invest in them you most likely will see significant stock appreciation, in addition to dividend income.On the other hand, if Hitachi suddenly announces tomorrow that they have perfected a battery that can be re-charged in 3 minutes and which will propel a car 500 miles before before needing to be re-charged (and weighs less than ten pounds), then I would either cash out in a hurry, or take short positions on my oil stocks and ride them on the way down.I would watch developments in the electrical world carefully. The only energy source that even has a chance to compete with oil and the internal combustion engine is “The Big E”, electrical energy and the electric motor.John

    Comment by Anonymous | May 23, 2009

  9. Is this for real? Did you follow those links from the “Editors Note”, especially the one to the Golden Age of Wealth Creation? This guy is a pure snake-oil salesman!!! I was really surprised you posted this — after reading his laughable sales spin I wasn’t that interested in the article itself.

    Comment by PeteS | May 23, 2009

  10. I was really surprised you posted this — after reading his laughable sales spin I wasn’t that interested in the article itself.Pete, that isn’t the issue for me. There have always been ads; some are of the snake oil variety. I have had ads pop up for the water car before – and once I had trouble getting rid of ads for Care Bears dolls. The bigger question is whether the material is topical, and worthy of discussion. For me, the answer is yes, especially given that I had linked into one of their articles on Chavez last week that was making some of the same points I had been making. It doesn’t mean that I agree with everything, but the points are worth debating.With a focus on investment, you are going to get a more of that sales pitch, but you can choose to ignore it. The fundamental issue is whether the thrust of the argument is topical. It is no secret that I think oil prices are headed higher. Or that at least I thought prices were very undervalued 6 months ago. That’s why I bought a load of Petrobras last December at $17.50 (now at $40.58). In the present climate, with oil having run up, I would be more cautious. Cheers, RRP.S. I haven’t clicked on the links myself, but I will check them out. In any case, I always say “Buyer beware” with respect to ads and such.

    Comment by Robert Rapier | May 23, 2009

  11. Pete and others;One thing I did do after checking out the links is to move the advertising part of that article to the end. That way, if you want more information, it’s there, but you don’t have to wade through it to read the article.Cheers, RR

    Comment by Robert Rapier | May 23, 2009

  12. Oil is here to stay along with gullible investors. “The bigger question is whether the material is topical, and worthy of discussion.”A more honest headline for this fiction would, “Energy Investment Strategy for Greedy Parasites”Energy is a basic and very cheap commodity. However, I know RR will pay whatever we producers charge to supply his family the energy he needs to maintain his children’s lifestyle. For example, RR recently took his family to Hawaii on vacation instead taking public transportation to work in a soup kitchen or pulling invasive weeds for the local chapter of Nature Conservancy.So RR, what do you give up first? Is the trips to fancy restaurants or hot water to bath your children and kill gems that are growing on the dishes your children use to eat?I do not begrudge RR whatever lifestyle he chooses. My point is not making fun of RR either.The point is that the human factor must be considered. On one hand you have greedy investors who pander to greedy, lazy people. On the other hand, you have energy producers who know supplying energy is a responsibility that requires long term investment in ventures that more often than not very risky. Putting it on a personal level, I would love to capture part of oil market share because I work in the electricity producing industry. While BEV and PHEV are really a very cool idea, it is a very stupid idea when you get down to details. At this moment, how many boys with toys are preparing their EV for a rally? How many boys with toys are preparing their custom cars for a rally?The deal here is that the ICE is very cool too. The ICE is also very practical. Yes the greenies hate the ICE (maybe because of Gorezillas book) but that is what they drive. I got a lecture at church about how wasteful Americans are during coffee hour. I got this lecture because at the time I worked at the evil power plant. In the parking lot, the family car was a 7-passenger van with a ski rack on top. Oil is here to stay along with gullible investors.

    Comment by Kit P | May 23, 2009

  13. However, I know RR will pay whatever we producers charge to supply his family the energy he needs to maintain his children’s lifestyle.Yet somehow while maintaining this grandiose lifestyle my electric bill is much lower than those of my neighbors, and my energy usage is about 25% of the average American’s. For example, RR recently took his family to Hawaii on vacation instead taking public transportation to work in a soup kitchen or pulling invasive weeds for the local chapter of Nature Conservancy.If you want to know the truth of the matter – and I didn’t really feel like I needed to share all information on what I was doing – it wasn’t a vacation, it was a business trip. I did spend about 2 hours at the beach, but the rest of the time was spent working on something in Hawaii. And if things proceed according to plan, the result of that trip will be highly carbon negative. Maybe some day you will stop jumping to conclusions. Until then, I guess we will all have to continue to spend time addressing misinformation.RR

    Comment by Robert Rapier | May 23, 2009

  14. “Of course, U.S. President Barack Obama’s much-lauded efficiency and greenhouse-gas-standards mandate will help significantly”…not at all clear that that’s the case. Restricting the use of coal will drive more power generation to natural gas, hence increasing its price above what it would otherwise be. At the margin, users who can choose either oil or nat gas…home heating, some industrial processes…will be driven more to the choice of oil.

    Comment by David | May 23, 2009

  15. Robert, re: ads, point taken. Although I have to say that Mr. “Greedy Hackers Set My Computer On Fire Trying To Steal My Fractals” Fitz-Gerald’s “ad” looks more like a malicious fabrication, a con job in other words.And his story about oil is strangely missing any information about the current glut in storage, or any hint that prices might slump again severely before they rise in the longer term. Or that extreme volatility could turn investing in energy into a giant Ponzi scheme. Maybe it’s just me, but I’m inclined to treat anything he says with a lot of suspicion. (Especially when I read about his magic formula which runs to 7 pages of 8-point type, or 2,787 characters. Hello? That’s less than 7 characters per line! I actually thought the whole ad was a joke when I started reading it. I’ve seen more convincing Nigerian 419 scams!):-)

    Comment by PeteS | May 23, 2009

  16. “it wasn’t a vacation, it was a business trip.”Excuse be for jumping to a concussion based on what you wrote.“the result of that trip will be highly carbon negative.”Since Hawaii uses lots of oil to make electricity, if RR was working small nuke plants then I might conclude that would be highly carbon negative. “Maybe some day you will stop jumping to conclusions.”It is not likely will I ‘stop jumping to conclusions’ when I hear things like ‘highly carbon negative’. Since this tread is about energy investment strategy, my gut reaction to hearing ‘highly carbon negative’ is to put one hand where I keep my wallet and the other in the pocket with I keep my check book. This is a typical Midwestern reaction to con jobs from Texans and Eurotrash. “Until then, I guess we will all have to continue to spend time addressing misinformation.”Actually that is you choice RR. I have notices that your response to anyone you think is proper homage to the great RR is a personal attack. At first I thought it was just me but I think RR has a think skin.So, RR would you like to waste some time on our vulnerability to con artists because we derive such a benefit from energy produced by others?

    Comment by Kit P | May 23, 2009

  17. the basic premise–“…every investor needs an energy stategy…” is correct. whether one believes in OIL,or NG, or WIND/SOLAR, or PIXIEDUST the premise holds. for certain, the 4 billion “have nots” or “have less than we” will not go away[reduce their desire/use for growing their economies which requires mammoth energy needs]. their gov’ts will illustrate the ways believed by them to best meet this need. in the case of today’s giants[ CHINA, INDIA] the priorities are obvious. OIL is at/near the top[whether one accepts Fitzgerald’s statements or not is moot].one’s strategy should not wander afield of the two six hundred pound gorillas leading the charge, regardless of any other views held.fran

    Comment by Anonymous | May 23, 2009

  18. Since Hawaii uses lots of oil to make electricity, if RR was working small nuke plants then I might conclude that would be highly carbon negative.Hawaii has lots of options. They are sitting on top of some unique natural resources. Some are more cost effective than others. All will be communicated in good time.I have notices that your response to anyone you think is proper homage to the great RR is a personal attack. At first I thought it was just me but I think RR has a think skin.Spell check is your friend. But you appear to operate under some serious misconceptions. No one need pay homage to me. On the other hand, personal attacks are not tolerated, and what you said – commenting (incorrectly) on my family and our energy usage – is getting pretty close to what is considered unacceptable. When you talk about me paying any amount to “maintain his children’s lifestyle” that amounts to a smear, and one that is 1). Unwarranted; 2). Incorrect. If you haven’t noticed, you still haven’t been banned, and unless it has completely slipped my mind I don’t recall you ever paying any homage. But there is a lot of area between “homage” and “personal attacks.” Try to spend more time in that area, and your time will be a lot better spent.RR

    Comment by Robert Rapier | May 23, 2009

  19. RR,Thanks for posting another money man’s trilogy of the next run up in oil prices and (IF) you have some extra cash, invest it wisely to then profit from the reverse pricing curves WHEN they next WILL happen.I appreciate the time you spend either posting your own thoughts and dissecting some energy issues OR even posting another man’s guest post like the one being debated herein.Why people like Kit have to try and make mincemeat out of everything you say or do is beyond me. Go away Kit – and please take your bitching somewhere else!The material being discussed herein is made possible by RR providing his own free time to prepare and post it. Lots of people are learning something and participating in the ensuing discussions. And I for one appreciate it!Cliff

    Comment by Anonymous | May 24, 2009

  20. Given how often Twit P. is flat wrong, you might be tempted to think he’s trying to discredit the views he pushes.Might be.

    Comment by Engineer-Poet | May 24, 2009

  21. in addition to an ENERGY strategy, an investor needs a COMMODITY strategy. what would oil/NG be without hardened, anti corrosive steel[molybdenum, vanadium, iron ore]. what would wind turbines, EVs, or solar be without rare earths. the same commodity interactions go on infinitem. energy commodities don’t exist without multiple other common and unique commodities. these same commodities can’t exist without adequate energy sources. the total situation is one of commodity interaction. which commodities are crucial to the end EROIE?NOTHING IS AS SIMPLE AS IT FIRST APPEARS.fran

    Comment by Anonymous | May 24, 2009

  22. E-P wrote,“despite a 20% increase in producing wells.”I would say this is an effective way to reduce importing oil.“Cumulative North Slope oil peaked in 1998 at 2 million barrels per day (320,000 m³/d)” E-P wrote,“It’s time to economize and electrify.”RR has asked me to be gentle. While I am all for not this is theory, it does not seem to be very practical and thus very effective way to reduce oil demand. It would appear that while the thermal efficiency of POVs have improved, people are choosing to to drive bigger cars more miles. At least while they still have jobs. How many barrels per day have EV reduced oil demand? Zero is just an approximate number. Zero is what I would call a very ineffective solution.

    Comment by Kit P | May 25, 2009

  23. “I would say this is an effective way to reduce importing oil.”Only someone stupid or trolling could take an increase from 497k wells to 647k wells while oil production dropped from 9.2 mmb/d to 9.0 mmb/d to be "effective"."Put all your eggs in one basket.  Dare to be stupid!" — Weird Al

    Comment by Engineer-Poet | May 25, 2009

  24. E-P, you need to point out which years you are referring to, because I can’t quickly identify them.I also note that this table is for the US only. We all know how oil exploration in the US has been hobbled.So it’s no surprise that US production peaked in 1985 and has declined since. Nor that the total number of producing wells in the US has declined, along with the productivity of the remaining wells.Hybrids, such as the Prius, are looking more and more practical, they don’t depend on putting a massive load on the electrical infrastructure and they squeeze a significant efficiency out of gasoline fuels. EVs that do depend on the electrical infrastructure will no be practical until that structure can support them, which I doubt the enviros will permit.

    Comment by LarryD | May 28, 2009

  25. “E-P, you need to point out which years you are referring to, because I can’t quickly identify them."The years are 1973 and 1985, which should be obvious.  Look at the column titled “Producing Wells (Thousands)”.”I also note that this table is for the US only. We all know how oil exploration in the US has been hobbled. So it’s no surprise that US production peaked in 1985 and has declined since."Oil production, hobbled?  In the middle of the Reagan administration?!  What are you smoking?  And how would that affect the productivity of existing wells?  Higher prices (remember, the second oil-price shock was in 1979) would make them ever more profitable to pump faster… if it were possible.The productivity of Alaska has fallen from over 2 mmb/d in 1988 to just over 700 mb/d in 2007, a drop of about 5%/year, which appears to be the natural decline rate for single fields.  The Lower 48 has fallen from 9.4 mmb/d in 1970 to 4.4 mmb/d in 2007, a drop of about 2%/year.  This reflects more area developed, plus lots of old stripper wells with very low decline rates (and production)."Nor that the total number of producing wells in the US has declined, along with the productivity of the remaining wells."Did it ever occur to you that wells are shut down when they don't produce enough oil to pay for their operation?  What are you going to do, subsidize the diesel to run the pumpjacks to pump crude oil?"Hybrids, such as the Prius, are looking more and more practical, they don’t depend on putting a massive load on the electrical infrastructure and they squeeze a significant efficiency out of gasoline fuels. EVs that do depend on the electrical infrastructure will no be practical until that structure can support them, which I doubt the enviros will permit."The electrical infrastructure is built for peak loads.  The USA could run a very large fraction of its transport on EVs amd PHEVs by charging them at night, when loads are low and many generators are underutilized.  Blaming things on "enviros" is rhetorical nonsense.

    Comment by Engineer-Poet | May 29, 2009


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