Peak Oil Has Changed Everything

Written By Brian Hicks

Posted October 16, 2006

If you need more proof that the Age of Oil is coming to an end, you need look no further than two sentences that were uttered last week.

One was spoken by the Pentagon. The other, about two hours later by President Bush.

Here's what the Pentagon said on Wednesday, October 11:

US will stay at full strength in Iraq until 2010, says army chief

"Military commanders at the Pentagon have revealed that they are laying plans to maintain troop numbers in Iraq at about 140,000 for at least another four years as sectarian violence continues to surge and fatalities among American soldiers have risen sharply."

Later in the day, Bush held a press conference at the West Wing driveway of the White House. Near the end of his speech, he gave an explanation of why US troops are in Iraq and will remain for another four years . . .

"The stakes are high. As a matter of fact, they couldn't be higher.

"If we were to abandon that country before the Iraqis can defend their young democracy, the terrorists would take control of Iraq and establish a new safe haven from which to launch new attacks on America.

"How do I know that would happen? Because that's what the enemy has told us would happen. That's what they have said.

"And as commander in chief of the United States military, and as a person working to secure this country, I take the words of the enemy very seriously, and so should the American people.

"We can't tolerate a new terrorist state in the heart of the Middle East with large oil reserves that could be used to fund its radical ambitions or used to inflict economic damage on the West."

-George Bush, October 11, 2006

In that one sentence, Bush admitted that oil is the central focus in the war on terror. Of course, the more cynical and politically astute among us already knew this.

But the Administration is no longer using WMDs or "spreading democracy" as the rationale for regime change.

It's now the security of precious recources.

So the war on terror is really "a race to secure massive energy reserves in geopolitically weak nations."

I mean, we're not invading the Sudan or Somalia, two nations that are terrorist hotbeds and known Al Qaeda hangouts. Why? Because in terms of energy, they're small potatoes.

And this brings me to my main thesis: Peak Oil has changed everything


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Calculated Chaos?

About the time of the invasion, I read a report by the Rand Corporation. The analysts who published the report argued that the likely outcome of the invasion would not be a thriving democracy . . . not even a democracy by Middle Eastern standards. The likely outcome, they argued, was civil war between the Sunnis and the Shiites.

This had to be one of the possible scenarios in the neoconservatives' calculus.

In fact, I've maintained for the past year that the invasion of Iraq was either a gross miscalculation, or else the chaos that has ensued was the intention all along.

I believe it was the latter, because I believe Peak Oil is now the rationale behind our foreign policy.

I mean, think about it. Iraq controls the third-largest oil reserves on earth. If you go in and upset the apple cart and it remains a mess, you have created a pretext to stay in that oil-rich country. And Bush just enunciated that very fact on national television.

And as long as Iraq sits on an estimated 115 billion barrels of proven oil reserves, it will remain America's 52nd State.

But it wasn't Bush who was the first in the Administration to explain the precepts of America's current foreign policy.

A year before Cheney became Vice President, while he was still CEO of Haliburton, he gave this speech regarding the Herculean task the world faced over finding new oil supplies. Here's what he said:

"From the standpoint of the oil industry obviously-and I'll talk a little later on about gas-for over a hundred years we as an industry have had to deal with the pesky problem that once you find oil and pump it out of the ground you've got to turn around and find more or go out of business. Producing oil is obviously a self-depleting activity. Every year you've got to find and develop reserves equal to your output just to stand still, just to stay even. This is as true for companies as well in the broader economic sense it is for the world.

"A new merged company like Exxon-Mobil will have to secure over a billion and a half barrels of new oil equivalent reserves every year just to replace existing production. It's like making one hundred per cent interest; discovering another major field of some five hundred million barrels equivalent every four months or finding two Hibernias a year.

"For the world as a whole, oil companies are expected to keep finding and developing enough oil to offset our seventy one million plus barrel a day of oil depletion, but also to meet new demand. By some estimates there will be an average of two per cent annual growth in global oil demand over the years ahead along with conservatively a three per cent natural decline in production from existing reserves.

"That means by 2010 we will need on the order of an additional fifty million barrels a day. So where is the oil going to come from? Governments and the national oil companies are obviously in control of about ninety per cent of the assets. Oil remains fundamentally a government business.

"While many regions of the world offer great oil opportunities, the Middle East with two thirds of the world's oil and the lowest cost, is still where the prize ultimately lies, even though companies are anxious for greater access there, progress continues to be slow."

Fifty million barrels per day is the equivalent of nearly six Saudi Arabias.

But even that might be optimistic. You see, I doubt anybody foresaw the massive economic juggernaut of the Chinese economy, and how quickly it would begin consuming oil.

Check this out . . .

The China Factor

China's automobile sales are expected to reach 6.8 million to 7 million this year, making up one tenth of the world's total.

The figure will climb to 10 million in the year 2010 and 20 million in 2020, overtaking the United States to become the world's top firsthand automobile market.

These forecast come as more middle-income Chinese families will be able to afford a car in the coming years, thanks to rising incomes and falling car prices.

China will replace Japan as Asia-Pacific's largest auto producer by 2013, when it is set to make over 11 million vehicles a year, auto experts JD Power-ARA Automotive said.

China produced 6.42 million vehicles last year, compared with Japan's 11.02 million units. But Japan's output is projected to fall below 11 million units in 2007 as key manufacturers move their production overseas in an effort to cut costs and establish export centers abroad, the auto consultancy said.

Meanwhile, China will continue to expand its auto manufacturing capacity, and is expected to add no fewer than one million units to its production each year to meet fast-growing demand, the same report announced.

Since China joined the World Trade Organization five years ago, Chinese consumers' demand for sedans has grown an average of 37.5 percent annually.

This year, the sale of sedans is expected to hit 4 million, compared with 800,000 units in 2001.

China's automobile sales stood at 3.24 million units in 2002, ranking fourth in the world. The position rose to third in 2004.

But even these dramatic statistics don't tell the whole story. Here's where the China situation gets scary.

Only eight out of every 1,000 people in China own a vehicle today. Contrast that with the global average of 120, and over 800 in the United States.

The Chinese have the same dreams and aspirations as Americans. They want a piece of the industrialized pie. And they want cars. Lots of 'em.

If China had the same car ownership ratio as the US, it would be home to some 960 million cars


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This is why oil consumption is expected to increase to 19 million barrels per day by 2015. And that's just straight-up demand. That doesn't take into account the decline rates in existing fields.

So what does all this mean?

Well, you've heard Mike Schaefer say that this is the greatest investment event of a lifetime. And I agree.

In fact, we've been tapped by Wiley Publishers to write a book on Peak Oil and how to profit from it. Tentative publish date is the fall of 2007.

But in the meantime, we here at Wealth Daily are designing a program that'll allow you to profit from this opportunity for years to come. It's one of the reasons why we've added Greg McCoach to our lineup of All Stars.

In the days and weeks to come, you'll be offered a special chance to secure and grow your future wealth, despite any havoc Peak Oil may wreak.

Profit from the Peak!

Brian Hicks

Publisher, Wealth Daily

P.S. By the way, I've been receiving a lot of email as to why I've sold some of my energy stocks in the New America Investor portfolio.

Simple. I wanted to lock in profits in some of my high-fliers. I still own half of all the energy stocks that were in the portfolio.

Another reason I decided to sell some of my energy positions was because I believe we're in a new technology bull market. So I wanted to make room for new tech positions.

I mean, after recommending NVE Corp (NVEC:NASDAQ) on July 14, 2006, we were sitting on a 127% profit a month later. Take a look:

NVE Corp

You may remember NVE Corp. They were a part of that "Holy Grail" MRAM launch during the summer.

With that, the technology rally began in earnest. And it's done wonders for my New America Investor members. Take a look:





or Sold


MMC Energy Inc.












NVE Corp.






Admiral Bay Resources Inc.












Freescale Semiconductors Inc.


















RAE Systems






Transglobe Energy Corp.






Ceramic Protection






Metal Storm












Pacific Safety Products






Cano Petroleum






Connacher Oil & Gas, Ltd.






EFJ Inc.






PetroQuest Energy






Irvine Sensors












Orbital Sciences












UTS Energy Corp.






American Science & Engineering












Novavax Inc.












Spartan Motors






Total Portfolio (+/-) : 25.066 %

Like I said, in the days and weeks ahead, I'm going to show you not only how to profit from my technology, biotechnology and military technology picks, but how to enjoy the massive gains from Mike Schaefer, Greg McCoach, Jeff Siegel, Luke Burgess and the Phantom Trader.

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