Sounding the Peak Oil Alarm

Written By Keith Kohl

Posted April 2, 2007

"In a time of deceit telling the truth is a revolutionary act."

–George Orwell

Dear Wealth Daily Reader,

The first step is denial.

And we’ve certainly seen plenty of that concerning peak oil.

An uproar of dissent claimed that peak oil wasn’t a worry. First it was technology that would rescue us from the pernicious effects of peak oil. Yet so far, it hasn’t been able to keep production rates high enough to quench the world’s growing oil thirst. Then came the idea that new oil discoveries would surely be our salvation. As it turns out, they make up only a fraction of the depleting older fields. Peak oil opponents were stuck in a rut.

Fortunately, the final step is acceptance.

The U.S. Government Accountability Office (GAO) has released an eighty-two page report warning us of the devastating impact of peak oil: "Crude Oil: Uncertainty about Future Oil Supply Makes It Important to Develop a Strategy for Addressing a Peak and Decline in Oil Production."

Naturally, it begins by echoing what I’ve been telling Wealth Daily readers for a long time–the Energy Information Agency (EIA) estimates that world oil consumption will increase to 118 million barrels by 2030. Currently, the U.S. accounts for of a quarter of the world’s oil consumption, over 20 million barrels every day.


The GAO report estimates that world oil production will peak between now and 2040.

Good to know the GAO has limited its time frame to three decades.

The report also recognizes the IEA estimate that countries outside the Middle East have peaked in conventional oil production, or soon will. It specifically notes that U.S. oil production peaked back in the 1970s. Production since then has fallen dramatically. We are now producing the same amount of oil as we did in the 1940s.

One of the GAO’s concerns is rising oil consumption in the U.S. transportation sector. Here’s a look at exactly how much oil the sector uses:



And U.S. consumers paid $38 billion more for gasoline in the first half of 2006 than during the same period in 2005.

But can’t we just switch over to some other fuel?

Not exactly.

According to the same report, alternative technologies in the transportation sector have "limited potential to mitigate the consequences of a peak and decline in oil production."

Among some of the alternatives the GAO studied were ethanol, biodiesel, biomass gas-to-liquid, coal gas-to-liquid, natural gas and hydrogen fuel cells. The problem, however, is that each one has considerable development hurdles to jump before overtaking oil. Just as the GAO suggests, a huge amount of investment dollars is needed for them to become viable solutions.

The GAO advises that the impact of peak oil will be more severe than previous oil supply disruptions. This is because a global peak in oil production is irreversible. The report gives a thirty year period during which this will occur, since it is extremely difficult to pinpoint the exact date.

OPEC’s Lack of Cooperation

Perhaps OPEC should take some advice from Orwell and just tell the truth. The exact amount of OPEC’s reserves has been questioned for decades. The reason is they do not allow outside parties to evaluate their fields.

Analysts believe that OPEC is fudging its oil reserve numbers. The GAO cites a few examples to illustrate this. Kuwait’s reserves remained the same from 1991 to 2002, despite a lack of major oil field discoveries and production of more than eight billion barrels of oil.

The world will continue to guess until OPEC begins showing data from its oil fields.

Get it While You Can

Don’t get me wrong, I appreciate the GAO standing up and releasing its report imploring the U.S. to prepare for a decline in world oil production. But the truth is that this report is like throwing a pebble into a creek–it’ll make a few ripples, but it won’t stop the current.

The bottom line is that peak oil is right around the corner. And the question is whether or not you are in a position to benefit from it. And that’s not to mention the geopolitical or weather catastrophes that drive oil prices higher. You need to be in a position to exploit the future energy crisis, whether its from Canadian oilsands, oil shales or other unconventional sources. And that’s where we come in.

Three months ago we were questioning whether oil would fall below $50 a barrel. Now we’re wondering if it’ll ever go below $60.

Wait until we’re hoping it falls below $150 a barrel.

Until next time,

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Keith Kohl

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