Peak Oil Debate Continues

“There is no Peak Oil,” Newt Gingrich told a crowd in Colorado this week.

Newt is wrong.

But he’s also a politician who has to pander to whatever crowd he’s in front of. In this case, he was addressing the 2012 Colorado Election Energy Summit, hosted by the Colorado Oil & Gas Association.

Colorado, like North Dakota, is the middle of a shale oil boom. That’s where the Niobrara shale is.

It’s creating jobs and wealth and investment opportunities.

But Colorado — and indeed the entire shale boom — isn’t defying Peak Oil as Newt and many others would have you think…

Clouding the Issue

Former contributor to this letter Chris Nelder recently wrote a brilliant piece about this very tactic for Smart Planet called “The Politics of Peak Oil.”

In it, he notes:

“Peak Oil” refers to the maximum rate of production of regular crude oil. Period. It’s a number.

It is not a theory.

It does not mean “running out of oil.”

It is not the moral equivalent of Malthusianism.

It is not a political movement, or a religion.

It’s not a dessert topping. It is not a floor wax.

It is not about oil reserves (oil that has been proved to exist and to be producible at a profit), or resources (oil that may exist in the ground, irrespective of its potential to be produced profitably). Those quantities do play a role in estimating the peak, but do not determine it in any way.

“Unconventional” liquids such as biofuels, natural gas liquids, synthetic oil made from bitumen in tar sands or from kerogen in shales, and liquids made from coal or natural gas are not regular crude oil, nor are they equivalent to crude on several important counts.

When you’re talking about unconventional liquids, you are not talking about oil, and lumping them in with oil does not increase the volume of oil. That’s why it’s called “Peak Oil” and not “peak liquid fuels.”

When people like Gingrich say things like “There is no Peak Oil,” Nelder concludes:

Either they haven’t the foggiest idea what “Peak Oil” means, nor a grip on production data (let alone the key production/reserves ratios)… or clouding the issue, and painting Peak Oil analysts as Chicken Littles, is their explicit intent.

You can say Peak Oil is real while still acknowledging that North America is undergoing a major supply boom. The two aren’t mutually exclusive.

But it better suits their goal of political polarization to cloud the issue.

Data

When you look at just crude oil production — not natural gas plant liquids, or bitumen, or other liquids, or any type of reserves — the picture isn’t cloudy at all.

Take Saudi Arabia as the prime example. It’s never produced more oil than the 9.55 million barrels per day it hit in 2005.

Sure looks like a crude oil production peak to me — or at least a gently downwardly sloping plateau.

You see, the Saudis don’t have the shale that’s giving birth to increased North American production.

Or take a look at Mexico. It’s the epitome of Peak Oil, with its production down sequentially in each of the past six years.

That sure looks like a peak in production, too.

In the U.S and Canada, however, production has been rising for the past few years. But they are only two countries.

What happens when more countries start going the way of Saudi Arabia and Mexico, losing production every year?

I told you last month that Nigeria, Venezuela, Libya, Iran, and Angola are all starting to see production slides.

If the new production in the U.S. and Canada isn’t enough to offset the losses in other countries, we’ll have a peak in production. That’s what Peak Oil is.

I don’t care how many trillions of barrels anyone says is here or there or offshore or technically recoverable or proven. Unless it’s being produced, it’s not part of the Peak Oil debate.

It’s kind of like colonizing the moon… You can talk about and study it all you want, but it doesn’t matter until you act on it.

Acting On It

For me, the scenario is plain and simple…

If there were ample amounts of crude oil and peak production wasn’t an issue, we wouldn’t be spending billions upon billions to find and try to extract the harder and harder to get stuff, some of which isn’t even oil, but an oil substitute made from bitumen or kerogen.

If there were ample amounts of crude oil, we wouldn’t need the tar sands.

If there were ample amounts of crude oil, we wouldn’t be fighting Russia for Arctic mineral rights.

If there were ample amounts of crude oil, Brazil wouldn’t be drilling holes in mountains of salt miles below the ocean’s surface.

But there aren’t. And we need every drop of combustible fossil fuel we can generate.

That’s why companies operating in oil-rich areas — like the Bakken — are doing so well. And it’s why we’ll continue to tout them as good investments. 

Yes, a North American oil boom is underway.

Yes, the oil industry will continue to make new finds.

Yes, investors will make obscene amounts of money from them.

But unless total world production can break out of the 72-to-74-million-barrel-a-day range it’s been in since 2004, Peak Oil will continue to be an issue.

And by the way, total world petroleum consumption (gas, jet fuel, distillates, fuel oil, all of it) was over 85.7 million barrels per day last year.

The world produced 74.098 million barrels per day.

So we’re already living off the “other” stuff that isn’t crude.

I think Newt knows as much about oil as he does about winning a presidency.

Call it like you see it,

Nick Hodge

@nickchodge on Twitter

Nick is the founder and president of the Outsider Club, and the investment director of the thousands-strong stock advisories, Early Advantage and Wall Street’s Underground Profits. He also heads Nick’s Notebook, a private placement and alert service that has raised tens of millions of dollars of investment capital for resource, energy, cannabis, and medical technology companies. Co-author of two best-selling investment books, including Energy Investing for Dummies, his insights have been shared on news programs and in magazines and newspapers around the world. For more on Nick, take a look at his editor’s page.

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