Ninety Dollar Oil

Oil continues its inexorable march upwards. It was only five weeks ago that oil hit $80 per barrel, an all time high. This morning, oil briefly traded (on the Nymex exchange) above the next benchmark, $90/barrel. And many of the most respected experts in the world (such as Texas oilman Boone Pickens, former Saudi oil minister Sheik Yamani, Matt Simmons) are all saying that $100 oil is inevitable, and just around the corner.

Oil’s recent run-up can be attributed to a couple things. Mostly, it is tied to the decline of the US dollar, which is commonly priced in US dollars. So in other words, as the value of the US dollar declines, oil producing countries need to trade their oil at a higher price to get the same value. In that sense, Canada is a bit lucky, because the relative strength of our dollar is cushioning the impact of the price increases to some extent. Another broader factor leading to oil’s rise is the global supply/demand equation – 2007/2008 is effectively the first time in the last century that globally, not enough oil can be produced to meet demand. Or so many people think – it’s hard to tell when you’re on the inside as this is happening, and the global marketplace for fossil fuels is incredibly complex, but there are a lot of indications saying we’re hitting a peak in global production right about now. In the near future, it will be harder or impossible to maintain current production levels in the future, even though demand will continue to grow.

On a positive note, oil is NOT that expensive. Think about it – it’s cheaper at the moment than bottled water. It’s cheaper than milk. In fact, it’s one of the least expensive commodities in the western world, which is part of the problem. I’d like to see the price go up somewhat, just to slow global consumption. We need to stop wasting it for frivilous use, because twenty years from now it’s going to be incredibly valuable solely for the production of plastics, metals, medicines, and all sorts of stuff that westerners seem to think they can’t live without. So yes, its value for transportation and for food production is high, but it’s more important for other uses in the long run.

Anyway, if you want to learn more, or like to read, I have a couple books here that I’m going to recommend. If you’re in university, you’re probably thinking “I don’t have time to read, I’ve got too much to read for school already.” Well, let me tell you that these books will shock you, and you’ll learn far more from even one of them than you’ll learn from any of your academic courses. These books will teach you things that are going to directly affect you and your lifestyle for the rest of your life. And I will put it as bluntly as possible: our civilization is in big trouble, and your lives are going to be far different five to ten years from now than what you currently imagine. You may think I’m crazy now, but if you read even one of these books, you’ll realize that the world is starting to wake up to a serious problem. Enjoy the party while you can, and if you like to read, get to work ...



The Party’s Over, by Richard Heinberg
This is my top pick, not because it is the best book listed here (it’s not), but because it is such a good overall introduction to the energy problems we are about to face, if you are just learning about the subject. To be honest, I found the first sixty-five pages to be a bit boring, talking about how humans got to this point in our history. However, after that, the book went on to cover a large number of useful topics from oil depletion, to alternative sources of energy, to specific thoughts and recommendations about how to potentially cope if some of the outlined events take place. It also talks about the economy, transportation, agriculture, the environment, and international politics. If you’re going to start somewhere, or even if you only want to read just one of the books here, this should be it. It will give you a good background on fossil fuel depletion, and then you can decide if you want to learn more by checking out any other books.



A Thousand Barrels a Second, by Peter Tertzakian
This is another good general book, which backs up a lot of the information in the book I mentioned above. This one is easy reading, pretty clear, with a lot of nice facts that are pretty easy to understand.



Sleeping With The Devil: How Washington Sold Our Soul For Saudi Crude, by Robert Baer
Let’s assume that you’ve now gotten to the point where you finally realize the importance of fossil fuel depletion. You can skip books like Twilight In The Desert and Hubbert’s Peak, and just accept the fact that cheap oil is running out. You don’t need to go through these slightly technical books to understand what’s happening. However, the relationship between Saudi oil and the rest of the world is particularly worth understanding. Saudi Arabia has the world’s largest reserves of crude, and the world’s largest daily production. They are literally the only nation right now which can significantly regulate the price of oil because of the claims to be able to increase or decrease production at will, to influence market prices. The problem is that they won’t let outside experts examine their geological data to verify whether or not their stated reserves (much more important than their daily production) are actually true. Many scientists believe that the Saudis (and several other Middle Eastern countries) are misleading the world and overstating their reserves. This is in the best interests of the American government, because if the world thinks that energy supplies are still plentiful, oil will remain less expensive, and the American economy and industrial empire depends entirely on inexpensive energy. Equally important, the American financial system is built upon the fact that oil is traded globally in US dollars. “Sleeping With The Devil” explains many facets of the complex relationship between the American government and the Saudi monarchy. Essentially, the Saudis sell their oil to the US to help the American empire from crumbling. In return, the American government has maintained the ruling Saud family in power for decades through military and other means. Understanding this relationship is perhaps not as important as understanding what will happen once Saudi Arabia starts to truly run out of oil, or if the ruling Saud family is removed from power, either of which possibility is becoming increasingly dangerous every year. This book will make you wonder whether it’s all a house of cards.



High Noon For Natural Gas, by Julian Darley
Many people, realizing the problems with the global supply of oil, point to natural gas as a clean and viable solution to wean us off our oil dependence. The problem is that this is a false solution. Much of the remaining natural gas around the world is not in locations conducive to supplying the gas to markets, because it has to travel through pipelines. LNG, or liquid natural gas, is not a wise approach, because by the time our society invests several years and untold billions of dollars in developing sufficient LNG infrastructure, the gas will start to run out. North America in particular is in deep trouble. Canada and the US will have depleted a very significant percentage of remaining natural gas on the continent within ten years. Even the large discoveries on Alaska’s North Slope will only give us a few more years of breathing room, and elsewhere on the continent, very little area remains unexplored. Even today, there are occasional rotating power outages in US cities, because power utilities that rely on natural gas for generation of electricity are having problems sourcing supply, and many natural gas generating stations in various stages of development are being shuttered because policy makers are starting to realize the gas is already running out. There IS a lot of natural gas left in the world. Unfortunately, a lot of it is in the wrong places, and hard to get to useful markets. Hopefully, industries like gas-to-liquids (for transportation fuels) will mature over the next decade. Companies are desperately trying to perfect such technology at the present time.



The Prize, by Daniel Yergin
This is the ultimate book about the history of oil, even though it does not cover the last fifteen years (it won the Pulitzer prize for non-fiction in 1992). This covers everything you will ever want to know about oil. This is NOT a book for a casual reader – this is for someone who has read other books about fossil fuel depletion, and who wants an extremely intimate background on the oil industry, from start to finish. Essentially, this is an incredibly detailed history book of some 900+ pages. You’d have to be a serious bookworm to enjoy this, and it takes a long time to get through it. But like I said, it is the ultimate book to read if you want to thoroughly understand the dynamics of the industry. Anyone who works in industries that are directly associated with energy, or anyone who invests significant amounts in the stock markets, should take a few months and work your way through this, a little bit at a time.