‘Dean of Oil Analysts’ Maxwell (Part 1 of 4):
Oil Shortages Start in 2010; Peak Oil Hits 2012-2015
--EnergyTechStocks.com
February 4, 2008
Nearly 40 years on Wall Street, plus 12 years before that working for a major oil company, equals a lifetime of experience for Charles T. Maxwell, senior energy analyst at Weeden & Co., known as the “dean of energy analysts.” Now, in an interview that sounded like a preliminary draft of a valedictory address, Princeton and Oxford-educated Maxwell has laid out in stark, uncomplicated terms what might be called the “Nightmare on Main Street” that he sees barreling toward America and the world.
Every investor needs to pay attention to Maxwell’s nightmare scenario, because if the dean’s forecast is correct, it’s going to influence every investment decision made for at least the next 10 to 20 years. As we’ll see in this four-part series, although Maxwell sees much pain being inflicted on consumers and investors, he also sees opportunities to make a lot of money.
It all boils down to this, Maxwell told EnergyTechStocks.com: We live in a world where there is only about 1.2% more oil available each year, not enough to keep up with 1.5% annual demand growth. Between now and 2010, this supply shortfall will be made up through a drawdown in inventories, helped out by a slowdown in demand in 2008 and 2009 due to a recession or near-recession in the U.S.
But in 2010, Maxwell said, the shortfall will become greater than can be made up by what’s still in inventory, and thus will begin a long period of global oil scarcity that will get worse starting in 2012 or 2013, which is when Maxwell foresees a “peak” in conventional oil production. It gets even worse in 2015, which is when he expects a peak in the production of all liquids, a category that includes condensates, tar sands oil and biodiesel.
Maxwell described the period 2010 through 2015 as the “letting down” of production. In 2015, he said, the all-liquids peak arrives, after which production “starts down,” even as demand continues up. He added that production will start down even though new oilfields will go into production, and even if there is only a 4.5% average annual depletion rate from existing fields, which is what Cambridge Energy Research Associates has optimistically concluded. (Others believe the depletion rate is significantly higher.)
As the nightmare worsens, Maxwell sees cities in many countries where people depend on kerosene having to do without this life-sustaining fuel. If this prediction of Maxwell’s turns out to be correct, one can easily imagine a sharp rise in the number of environmental immigrants flooding into the more developed countries in Europe and Asia. This could lead to excruciating social unrest that produces outbreaks of violence, as some experts have already predicted.
When will the nightmare end? Maxwell said that by 2025, “We can create some answers.” He explained that both plug-in electric vehicles and cellulosic biofuel made from garbage are “wonderful ideas”; however, given that it takes 10 to 15 years or longer to turn over the world’s vehicular fleet, such technological breakthroughs won’t happen quickly enough to prevent the nightmare from happening.
Which leaves unanswered the question of greatest importance in most people’s minds: how high is the price of gasoline going to go?
----
Part 2
Part 3
Part 4
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Troublesome times are here,
filling men's hearts with fear
Freedom we all hold dear,
now is at stake...
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And this whole 'ethanol from corn' business is a very bad idea. The price of everything dependent upon corn has risen far higher than normal price inflation would typically allow. Beef, poultry, eggs, butter, oil, cheese.... a whole gamut of products have risen BECAUSE of corn ethanol.
But yeah, we need to get on the stick and do SOMETHING. And doing the RIGHT thing is better than just doing "something" simply for the sake of DOING something.... That last bit make any sense to you?
It need not. We have a great example of the possibilities of going very nearly cold turkey on oil: Cuba.
When we began the embargo against Cuba and after the collapse of the USSR, they were like any other communist or capitalist nation - wholly dependent upon oil to fuel their economy.
And what happened when the oil dried up? Doom, disaster, despair?
No. They simply did without. They created a self-sufficient economy.
Now they certainly have human rights problems and issues with liberties that I would never want to emulate, but their self-sufficiency revolution IS reproducable in a capitalist system.
If you're not familiar with it, you can read about it here.
The one way I think he's off is that I don't believe there IS a replacement for oil. I don't believe technology can save us. There won't be a magical replacement for oil in the quantities and price range as oil currently is to generate the amount of energy we're getting from oil now.
I agree with you, Eric: Corn- and other-based ethanol is no solution. That will only drive up the cost of food and it simply doesn't generate enough energy to replace oil.
This is why I think living within our means is the only response. It's not even a solution really, it's just what we'll be forced to do pretty soon.
We may dislike Cuba's former leader, but we better start learning some of the hard lessons they learned (when it comes to doing without oil) and soon.
Corn is not an alternative fuel it is a food, and people are starving. Yet we want to tell them that it is more important to feed the cars instead of them? Electric cars are no option with slow recharge rates and low range.
We should build more refineries, increase oil exploration and pump our own from Alaska and the ocean.
Since it has only been 103 years since we defined energy (E=mc^2). We have been searching for ways to harness it without a net loss. Allot of progress has been made there is still no way to package it for everyday use. Realistically it may take another few decades before we have a real alternative (fast recharge, long range, faster than a dog can run).
If we fall into third world "Cuba" conditions then I guarantee you research will not get done. Can anyone tell me the last great invention or discovery to come out the third world?
Uh oh. Blog ecumenity(sp?) ... Peopel gettin' along? Must be of the devil. Never mind. (poke, jab).
This only delays the inevitable. Oil is a finite resource. Finite, meaning Limited, Not Endless.
We've peaked on production this last decade. Every year we produced more and more for the 100 years we've been pulling oil from the ground. Until now. We've plateaued and production will now begin to decrease while demand continues to increase.
That's the point of this article. The laws of supply and demand dictate that prices ARE going to go up. Building more refineries and searching for more (doing more damage in the process that someone has to pay for) will only serve to ALSO drive up the costs and we're still left with a finite product.
Think if we try REALLLLLY hard we can put off the crunch for 20 years instead of ten? Or maybe put it off for 50 years?
Well that's fine for you. You'll be on your way to compost. But what about your children.
We must live within our means. Responsibility dictates it. Morality dictates it. Justice dictates it. Love of humanity dictates it.
"Let's think back to people in 1900 in, say, New York. If they worried about people in 2000, what would they worry about? Probably: Where would people get enough horses? And what would they do about all the [horse manure]? Horse pollution was bad in 1900, think how much worse it would be a century later, with so many more people riding horses?
"But of course, within a few years, nobody rode horses except for sport. And in 2000, France was getting 80% its power from an energy source that was unknown in 1900. Germany, Switzerland, Belgium and Japan were getting more than 30% from this source, unknown in 1900. Remember, people in 1900 didn't know what an atom was. They didn't know its structure. They also didn't know what a radio was, or an airport, or a movie, or a television, or a computer, or a cell phone, or a jet, an antibiotic, a rocket, a satellite, an MRI, ICU, IUD, IBM, IRA, ERA, EEG, EPA, IRS, DOD, PCP, HTML, internet. interferon, instant replay, remote sensing, remote control, speed dialing, gene therapy, gene splicing, genes, spot welding, heat-seeking, bipolar, prozac, leotards, lap dancing, email, tape recorder, CDs, airbags, plastic explosive, plastic, robots, cars, liposuction, transduction, superconduction, dish antennas, step aerobics, smoothies, twelve-step, ultrasound, nylon, rayon, teflon, fiber optics, carpal tunnel, laser surgery, laparoscopy, corneal transplant, kidney transplant, AIDS… None of this would have meant anything to a person in the year 1900. They wouldn't know what you are talking about.
"Now. You tell me you can predict the world of 2100. Tell me it's even worth thinking about. Our models just carry the present into the future. They're bound to be wrong. Everybody who gives a moment's thought knows it."
-- Michael Crichton in a 2003 speech to CalTech, emphasis mine
It is rational to see that that supply is now dwindling and start making other plans.
It is irrational to say, "Wanna bet something else will come along - something which we don't have any clue as to what it is right now? Why don't we bet civilization on it, we can structure our whole economy so that it is wholly dependent upon cheap oil and hope that something will appear to take its place before it's gone! Yeah!!"
Where's your faith in people now? There are ALWAYS creative, inventive, entrepreneurial people who, inspite of oppresive regs and investment capital sapping taxation, that find ways to fill needs.
I recall hearing not so very long ago, that a scientist or researcher (or a scientific researcher--who knows?) who went to look over an oil source pumped dry years ago. Know what he found? Oil. I just wish I could remember where I heard the story or remember the guy's name or remember where I left my car keys.
If drilling only "delays the inevitable", it's time to go nuclear.
2. My "trust in people" has nothing to do with natural limits. If a fella asked me if he could borrow all my money so he could bet on a lottery and he promised he'd get it back to me because he knew he'd come through, I wouldn't bet my future on it.
This has everything to do with living within our limits. With personal responsibility.
It is personally and societally irresponsible in the extreme to do what we're doing. I wish more conservatives would own up to it and live up to the name "conservative."
As to nuclear power, it's development and the building of new facilities has been more restricted than has been new oil refineries. And they've been restricted by the same people under the guise of even more ludicrous doom and gloom arguments. Three Mile Island showed that our people in the field know what they're doing, as no real threat was imminent, their safety protocols having worked as designed. (Not so with Chernobyl where they didn't have the same safety standards.)
So if lefty greenies shut the heck up and stay out of the way, intelligent people in the industry, who are concerned about safety more than the greenies because of their close proximity to the "threats", get the job done. In fact, in this country, our dependence issues and lack of alternatives have been the result of green obstruction more than anything else.
That justs about sums it up.
I'm only speaking against the opposite but equally arrogant presumption that we won't, and against the further arrogance that any objection to that presumption is an assault on rationality, responsibility, morality, justice, and the love of humanity.
Of course some people object to nuclear power as an alternative, but I'm inclined to think that they would object to any alternative. Since we live in an imperfect world, there are no solutions and only tradeoffs, as Thomas Sowell likes to say. So, any source has its benefits and costs; it seems to me that some would object to any source of cheap energy, invoking as a reason the costs of that energy, however slight, because they don't like the idea of cheap energy per se.
Some of the arguments are frankly fatuous. If one's objection to nuclear power is the health risks posed by its waste, one has to account for the health risks of not having a soure of inexpensive energy.
Do people actually think that the tremendous growth in life expectancy just happened? That, though it directly coincided with industrialization, it had nothing to do with industrialization?
Lower infant mortality rates and higher life expectancies come from sanitation, abundant food, and modern medicine. These things are as readily available as they are because energy is inexpensive: moving to an economy that does not use petroleum, nuclear power, coal, or any alternative source of inexpensive energy is going to be much more costly in terms of human life than in using nuclear power. So, dismissing nuclear power because of human health risks is a case of being pennywise but pound foolish, and berating others for disagreeing with you in your opposition to nuclear power ostensibly out of consideration for other people is laughable.
In general, the call for sustainable living makes a lot of sense only if you forget a few inconvenient aspects of realities.
One aspect is that our increasing life expectancy would be much less available if we eschew all forms of inexpensive energy, that energy pays not only for our Playstations and Audis, it pays for our bread and penicillin.
Another aspect is ably illustrated by the collision of Shoemaker-Levy 9 with the planet Jupiter. We live in a violent universe, and our planet is not immune from extinction level events.
A society with early 19th century technology would be less able to detect a comet on a collision course with Earth and completely unable to do anything about it. A modern society that abandoned all efforts to find inexpensive sources of energy wouldn't be in quite so bad a position as we were in the 1830's: we would still have all the knowledge we have already gained and some use of some very heavy-duty technology.
But, all other things being equal, a society that doesn't eschew inexpensive energy is more able to react to existential crises and extinction-level events because that society has the infrastructure to bring to bear its innumerable resources.
The prophets of a peak-oil disaster who urge us to get back to the soil have nothing to offer us if that soil is threatened by an oncoming comet. Their call to avert one doomsday scenario makes us much less able to react to other doomsday scenarios.
But it is PRUDENT to NOT assume that we will. We KNOW we have roughly X amount of oil - some finite amount. We know we've reached about the peak of that easily available oil.
It is responsible, prudent, CONSERVATIVE (as well as coservationist), to not bet the world that somehow maybe we'll perhaps find something that maybe we could possibly continue to live beyond our means.
IT IS VERY MUCH like the example I've given multiple times: IF a fella wins the $100,000 lottery and begins spending $90,000/year, getting way in debt and building a lifestyle based on the assumption that he will continue to get $100,000/year because, who knows? He might win a lottery again.
It is the utmost in fiscal absurdity to bet the farm on a remote and non-existent possibility. It is arrogant to assume we can continue to over-consume. It is responsible to call for an end to the overconsumption.
1) As Jad Mouawad reported in the NY Times last year (mirror here) we do not "know" that we have reached the peak of easily available oil.
"It’s the fifth time to my count that we’ve gone through a period when it seemed the end of oil was near and people were talking about the exhaustion of resources," said Daniel Yergin, the chairman of Cambridge Energy and author of a Pulitzer Prize-winning history of oil, who cited similar concerns in the 1880s, after both world wars and in the 1970s. "Back then we were going to fly off the oil mountain. Instead we had a boom and oil went to $10 instead of $100."
Logically, what's easily available doesn't always decrease because availability is a function of technology, and technology has been improving. How long it will continue to improve is an open question, so it's not at all clear that we've reached the peak of available reserves.
2) You act as if no alternative sources of cheap energy have been found, but that's not true. Nuclear energy is one of several alternatives (coal and natural gas being the others) that do not need to be improved to a degree that's beyond our ability to forecast.
You don't like these alternatives, but you should not deny they already exist. Finding an alternative source of cheap energy that meets Dan Trabue's exacting standards may indeed be like winning the lottery -- especially if you are oppposed to cheap energy per se -- but your standards are far, far more demanding than the constraints of the real world.
3) Most importantly, you begin your latest comment with a seemingly reasonable position that it's prudent not to assume an alternative source of cheap energy, but then you go right back to presuming near omniscience on the subject, first comparing finding an alternative to winning the lottery then saying this outright:
"It is the utmost in fiscal absurdity to bet the farm on a remote and non-existent possibility."
You don't have the foggiest clue whether the possibility is remote, much less non-existent. It is arrogant to continue to act as if you do.
"IT IS VERY MUCH like the example I've given multiple times: IF a fella wins the $100,000 lottery and begins spending $90,000/year, getting way in debt and building a lifestyle based on the assumption that he will continue to get $100,000/year because, who knows? He might win a lottery again."
No, it's not "very much" like that at all. We can produce so much energy from petroleum, not only because so much is available (which is fortunate) but also because human ingenuity was able to refine it and to harness the latent energy from within the substance.
A better analogy is this: a man started a company with $500 and built a successful enterprise which he sold off for a total profit of $100,000.
He's spent $90,000 of that amount, partially on frivolous things, partially on life's necessities. He now has $10,000 to invest in a new enterprise. Indeed, it's not guaranteed he'll find and be able to profit from another "big idea", but his chances aren't as bad as winning a lottery.
There's a vast difference between trusting in human entrepreneurship and hoping for a windfall from gambling, and it's offensive to see the two confused.f