Last week, I headed to New York to speak at the Second Annual Mine LLC Oil & Gas Forum at Yankee Stadium.
I’ve probably spoken at one hundred conferences during my career, and I have never received one question so frequently at a single conference...
“Is Peak Oil dead?”
I can understand why this question has entered the mind of the market.
Just a day before the conference, former Saudi Aramco Executive Nansen Saleri was on CNBC talking about the state of the world oil market in general — and the U.S. oil industry in particular.
When asked if Saudi Arabia can increase oil production above 10 million barrels per day and sustain that level of production, Saleri said:
“... the more relevant question is that there are a lot of other Saudi Arabias out there. America is becoming more energy independent. Spare capacity will eventually come from the U.S.”
But it’s not the sentiments of an ex-Saudi Aramco exec that have Peak Oil naysayers writing an obituary for the Hubbert curve...
It seems every week there comes news of a massive new discovery of shale oil and shale gas.
Just last Thursday, Apache announced it discovered a shale gas field in British Columbia bigger than the Marcellus — making it the largest in North America.
According to Apache, the discovery is estimated to contain enough gas in itself to justify doubling the size of the Kitimat terminal it's proposing with partners Encana and EOG Resources.
The company is calling it the best and highest-quality shale gas reservoir in North America, based on the volume of gas three test wells are producing.
The second largest U.S. independent oil and natural gas producer by market value, Apache said the tests suggest it has 48 trillion cubic feet of marketable gas within its Liard Basin properties.
The discovery in British Columbia dovetails on news that Russia has discovered a shale oil play it claims is 80 times bigger than the Bakken.
Now that’s a bold statement.
North Dakota has gone from just 60,000 barrels per day in 2007 to close to 600,000 barrels per day right now. And of those 600,000 barrels, 210,000 have come online just in the past year.
Drilling activity in the Bakken has been so explosive, current estimates point to the Bakken producing more than 1 million bpd by the end of the decade — a level that could be maintained for halfway through the century.
Throw in the Eagle Ford, and oil production just from these two tight oil plays could be between three and four million barrels per day by 2020.
If the same success can be duplicated in Russia, the world will undergo an oil and gas renaissance the likes of which haven’t been seen since the 1950s and 60s, when cheap oil ushered in a wave of global prosperity...
(Make no mistake; the three most powerful stimulants for an economy are 1. cheap money; 2. affordable labor; and 3. cheap energy.)
Russia's “Bakken” is called Bazhenov. It's an enormous formation spanning over 570 million acres in the frigid environment of Western Siberia. To put that into perspective, that's the size of Texas and the Gulf of Mexico combined.
But while all this is going on, the price of oil has remained high.
Remember, Peak Oil is as much an economic event as it is a geologic one...
Peak Oil doesn’t mean we are running out of oil. It means we’re running out of cheap, easy-to-get oil. It will simply cost more money and resources to get less.
To wit, the average Bakken well costs $7 million to drill and averages 150 barrels a day, whereas a single gusher from the Gulf of Mexico can produce 250,000 barrels of oil per day.
I told the conference attendees to watch the price of oil, or “the wisdom of price.”
This tells you everything you need to know...
Since the market bottom in March of 2009, oil has reentered its uptrend. Since March 2009, oil has been above $50 a barrel for 39 straight months.
It’s been above $60 for 36 straight months. It’s been above $70 a barrel for 25 straight months.
It reached a high of $115 a barrel in May of last year... and a high of $110 in March of this year.
Ten years ago, oil sustaining these prices this long would have been unthinkable.
It would’ve been a crisis.
But every crisis contains the blueprint for its own solution...
And right now we’re witnessing the solution, as human innovation responds to price and the profit motive.
In my next article, I will explain why oil prices will remain high.
The original bull on America,
Brian is a founding member and President of Angel Publishing and investment director for the income and dividend newsletter The Wealth Advisory. He writes about general investment strategies for Wealth Daily and Energy & Capital. Known as the "original bull on America," Brian is also the author of the 2008 book, Profit from the Peak: The End of Oil and the Greatest Investment Event of the Century. In addition to writing about the economy, investments and politics, Brian is also a frequent guest on CNBC, Bloomberg, Fox and countless radio shows. For more on Brian, take a look at his editor's page.