Peak Oil?

It’s been so long that I posted about politics that I forgot how many comments a post like that will generate. I think I’ll do more of it.

In the comments to my post yesterday, ST  suggested that the whole concept of "peak oil" is nonsense. Here is the comment that got things really going:

neither do the Brazilians, who just discovered a huge offshore oil
field. Some reports indicate that in 5yrs the field may be able to pump
about 80% of what Saudi Arabia pumps today.

‘peak oil’ is funny
to me b/c about a year ago the Saudi Oil Minister said that we’ve only
tapped about 18% of the world’s KNOWN proven oil reserves. Of course,
that was before the big find in the Gulf of Mexico this spring; &
before this HUGE SCORE by Brazil.

This topic is important for a whole host of reasons, but a small one is that my covestor portfolio is long oil related assets. My friend Mark has a macro view that oil is going up not down and he’s made a lot of money with that view in recent years. This chart shows pretty clearly that Mark’s view has become the conventional view in the past year.


But what if ST is right? What if there is a ton more oil in the ground and we aren’t close to tapping it out? Well that might be good news for those countries like Brazil and Mexico that may have a lot more oil reserves. Not to mention Russia and the middle east that are raking in money right now with oil at close to $100/barrel.

But it isn’t good news for the US who is a net consumer of oil to the tune of almost 14mm barrels a day. At $100/barrel, that’s $1.4bn a day going out of the US economy to other countries coffers.

This chart from the financial times (via Kedrosky) shows the net winners and losers in the oil economy.


So even if we aren’t looking at a peak oil scenario (and I honestly don’t have a clue about that), here in the US we had better get busy finding an alternative to oil because we are sending our money elsewhere at an unsustainable rate.

#Politics#VC & Technology

Comments (Archived):

  1. cortland

    The Brazilian find is great news, but the benefits are further than 5 years away. ST is optimistic.Using conventional technologies, the peak oil scenario is real. There are still massive amounts of oil underground and under the ocean, the great majority of which are untapped and will probably remain that way for a long time. The problem is that we don’t yet have the technology to tap them. Most of the oil in the earth is just too hard to get at. We’ve already harvested most of the low hanging-fruit, hence peak oil.Perhaps the peak oil theory will not hold true in 25-30 years, but for now that’s what we’re working with.

  2. Keith Erskine

    “Peak” oil is a myth, but the idea of “easy” oil isn’t. The oil field finds in Brazil and the Gulf of Mexico are at depths that have never been used for production. The oil fields in Alberta and parts of Venezuela are locked up in tar sands which needs energy (steam) to extract. So while we’re going to continue to find new old fields, its getting harder to exploit. The days of “Jeb Clampett shootin’ for his food” are over.

  3. Martin Edic

    All earthly physical resources are limited- we live in a closed system when it comes to oil. The problem with all of this is that we’ve taken out the easy to get stuff so even if we are at peak oil, the last 50% will be much more costly to acquire. Combine this with massive new markets in Asia and India and we’re hitting peak oil sooner. An article in the WSJ this week for the first time quotes oil execs and OPEC leaders admitting that we could hit peak as soon as 2015. These are the same people who had been saying we could manage until 2050.Personally I think oil has a long run upward, pricewise and I welcome it because apparently that’s the only thing that’s going to wake people up.

  4. michael

    Slow down folks….the first place to start on this topic is with at least SOME numbers. I’ll start with this one for some instant perspective on what “HUGE” means and how misleading statements are the norm not the exception when it comes to oil and the Peak Oil debate. From what I have read, Brazil’s find is estimated at up to 8 billion barrels of conventional crude. Let’s round that up to 10 billion just to be (very) generous. 10 billion barrels represents less 4 months global supply of oil at today’s rates of consumption (84 mbpd, 31 bbpd). Not insignificant, but to compare it to Saudi Arabia where the Ghawar field alone has already produced over 60 billion barrels already is very misleading and clearly aimed at those ignorant of the global oil picture.It’s a huge find for Brazil no question. With their existing leadership in domestic use of ethanol, this will enable them to export hundreds of billions of dollars worth of oil from this field. But, nearly 40% of the world’s population live in India and China. As many times as you have heard of this, it cannot be overstated when you look at their economic growth over the past 15 years, and projected out another 30 or so (let alone 50-100 years).Oil demand is following this growth apace as no modern nation has achieved economic growth decoupled from increased energy consumption (with the exception of Denmark noted), and neither India nor China is even trying to. India is at work on a $75 billion USD highway infrastructure project, and China expects to have over 700 million automobiles on its roads within 25 years. Rapid economic growth, several hundred million people emerging into an Asian middle class who very much aspire to drive cars and run air conditioners (the former the most relevant for our oil discussion, but overall energy consumption only adds further demand for energy).Back to the proportional understanding of oil finds like Brazil’s, I highly recommend this “simple enough for a sixth grader” visual look at oil discoveries between 1859 and the present. What it shows clearly is despite placating news stories oil discoveries have been in somewhat dramatic decline since the mid 1960’s while consumption has continued to grow and grow. The oil discovery data is at the bottom under “Growing Gap”:… This poster has been presented more than once to Congress by Rep Roscoe Bartlett, who has also had audience with the President on this topic.That reminds me of some anecdotal information on Peak Oil from left and right. Google who Bush’s energy advisor for his 2000 campaign was. His name is Matthew Simmons and he is a highly successful investment banker (Simmons International) with over 30 years experience in the energy sector. Simmons is also one of the leading voices in the Peak Oil debate. His book is Twilight in the Desert and is specific to Saudi Arabia’s supply picture. He argues persuasively that a Saudi peak is effectively a global peak and that their peak is imminent if not past (he does now argue that is was reached in 2005). You can download presentations he has given to the DOD in 2006 as well as numerous appearances on Bloomberg attempting to raise awareness of the global supply picture.Billionaires Boone Pickens and Richard Rainwater are also on the record regarding Peak Oil, and from the other side of the spectrum, both Gore and Clinton have let it be known that they have read Richard Heinberg’s “The Party’s Over” which is a foundational book on the topic, and Gore stated on Charlie Rose that he believed Peak was here or will be within a few short years. The government also commissioned a study on Peak conducted by SAIC (Scientific Applications International Corporation) which basically said Peak is inevitable and approaching. If it arrives in 30 years we have a lot of work to do and any less will spell economic contractions and a very bumpy ride adjusting and attempting to supplant oil with alternatives (I posted on the report and Peak here http://www.loungechicken.or… )A final common sense point for you free marketeers out there. OPEC has made headlines in the last two weeks saying they “refuse to increase production”. If oil is as abundant as the cornucopians say it is, then these prices are temporarily high in reaction to fear (war, political instability where the vast majority of reserves are, Venezuela’s nationalization of the 3rd largest reserves in the world etc). If that is the case, why would OPEC not choose to cash in on any shut in capacity at these historic highs for crude? I don’t have an answer, only educated guesses, but I think it is a powerful question that certainly hints that they either cannot increase production, or that they are certain prices will continue to stay high or rise even further.I’ll close by reiterating the central fact of this debate: everyone’s numbers are suspect, and the history of dirty dealings goes all the way back to Rockefeller, so you’ll have to choose who is lying and/or wildly misinformed at some point in your analysis, as well as what their motives are. I think it’s increasingly clear that denial and ignorance abound, and it is indeed a murky debate, so I urge you to stick with the math at all times until you get your bearings. Good luck.Great topic Fred. Go long. Go very long.

  5. Jeffrey

    Agree that the peak oil argument is nonsense and has more to do with people’s short-term angst about supply problems that are happening at this moment (many of which are related to refining capacity) than any macro trends. Remember in the early 1970s oil shock people were talking about peak oil — I remember seeing a countdown clock in the museum of science and industry that was counting back from 30 years — after that, no oil. That hasn’t really come to pass yet.The market will take care of this, but it will take a few years. Remember that oil runs the world because it is cheap. Every time that oil prices increase, it creates a new opportunity for alternative fuels.

  6. Geoff

    And even worse for the USA is what happens when oil starts to be priced in Euro’s like Saddam was , apparently, about to do before he was deposed.

  7. ErikSchwartz

    It’s really not very complicated.Petroleum is decomposing organic matter, the transformation takes place in a geological time frames. Petroleum is created at a linear rate (very slowly). The rate of production is in the long term irrelevant compared to the rate of creation. As long as the consumption rate is greater than the creation rate, even with 100% production, we will inevitably run out.Mankind has been using petroleum in significant quantities for about 100 years. The rate of increase of that consumption has been exponential.Linear creation overlaid with exponential growth in consumption is simply not sustainable.

  8. Jim Kingsland

    The recent finds in the Gulf and Brazil are small potatoes compared with daily world demand.. up around 85 million barrels per day thanks to skyrocketing demand from China, India and other far away places.Demand for crude out of China was next to nil back in the early 1960’s, It’s now running at over 7 mln barrels a day and will easily double within a decade. Soon enough the weekly DOE report on inventories will take a back seat to demand figures out of China.There’s one thing to clear up with peak oil. Peak oil does not mean that every ounce of crude is taken from the ground and the world runs dry. It’s really a situation of reaching a point when the easily extracted oil consumed. There will always be crude available. The issue is at what price will that crude be available at. What price before we have wars over whatever will be left of the cheap stuff… what price before we are forced to do an energy “Manhattan project’ to come up with a real alternative.Production peaked here in the U.S. in the early 70’s after 100 great years of pulling it easily out of the ground. There are hundreds of billions of barrels of shale oil available, but it’s not economical to extract.By the way, someone here cited the Saudi’s as a source of information regarding available supply. LMAO. You really believe what a Saudi with such a large vested interest would say?!? Who verifies their figures? Think about it, their claimed oil reserves have mysteriously not changed in 40 years of pumping. When was the last time they made a new discovery? Their claims of ample supply is reason enough to look further into the peak oil scenario.

    1. ST

      exactly — when was the last time the even LOOKED FOR NEW OIL in the Middle East?In Texas, there’s been over 1-million wells drilled, & they now have over 350,000 in operation.In IRAQ–they’ve only EVER DRILLED 2,000 WELLS IN THE COUNTRY’S HISTORY.The last time they ever tested Iraq’s Proven Oil Reserves was 1979, before the Iran-Iraq War.You think there might be more oil there?

      1. charlie crystle

        discovering more of a finite resource simply accelerates its exit. Move along.

        1. ST

          ‘discovering more of a finite resource simply accelerates its exit’?Is that Confucius philosophy or something?what happened to ‘technology trumps government’?New tech might help discover more oil in the middle east.

          1. charlie crystle

            Right, and then that expires, and the next, and the next. That’s why Dubai and other oil producing nations are investing in solar and other renewable sources.”discovering more…” build more highways, they fill up. Abundance inspires use. Scarcity inspires conservation.So who are you shilling for?

      2. Druce

        The problem with the theory that there’s a lot of oil waiting to be discovered, is a little thing called diminishing returns. You find all of the elephants in the first 10,000 wells. The 350,000 wells in Texas are stripper wells averaging like 10 barrels a day.You can’t take anything anybody says at face value. The Saudis are talking their book, they want to pretend they can supply the market, keep a high share of OPEC quotas, and discourage everyone else from investing in expensive projects. They don’t let anyone look at their wells scientifically and independently so their numbers mean nothing. Guys like Simmons are talking their book to some extent, they make a lot of money from high prices and selling books.The smoking gun is that the Saudis have in fact been looking in increasingly out-of-the-way places and yet their production has declined, even as the price has soared to $100.(… )The other key thing to remember is all those folks in China getting cars. Demand will double over 20 years. So if you think the price is going down, then you think supply is somehow going to double. Good luck with that.Matthew Simmons and Ken Deffeyes are highly recommended –

        1. Druce

          sorry, stripper wells are more like 10 barrels a year.

  9. markslater

    thanks to all on the comments – makes for great and informative reading. I unfortunately have little to add, but i think this is the first time that the second degree of content seperation has exceeded the reading value of the author (no offense fred – your post prompted this great discussion).

    1. fredwilson

      It is not the first time but its a great example of how blogging is a conversation not a publication.I want to do more of this kind of post where I start the discussion and all of you finish itFred

  10. Nate

    Peak oil is just the latest version of the Population Bomb scare. We’ve never “run out” of a natural resource in history even as we’ve increased population and absolute wealth. The reason for this is because as a resource becomes more scarce prices rise which creates incentives to use less, discover more, and find substitutes.This has happened with every other natural resource, and we can clearly see it happening with oil. The only difference with oil is that it’s got a bunch of psychological baggage that makes for great politicking.

    1. charlie crystle

      Right. Endless supply…I’m sure nobody’s ever died elieving that one.

      1. Andy Swan

        He didn’t say “endless supply”.Just the opposite, in fact. He said that as supply drops, price rises, and therefore the profit incentive to discover/develop alternatives leads to the original resource not being necessary anymore. At that point, the supply is “endless” because there is no demand.

        1. David B.

          Nathan is right, there is endless supply: at a certain price, no one will buy oil, they’ll just ride a bike or farm with a horse. What? Don’t you see, that is exactly the argument for peak oil. Oil may never run out but simply get too expensive to use. The result is the same. And to say, “Then we’ll just switch to another technology,” is to not understand the issue. There is no clear alternative. If you know of an easy way out, please let someone know.Only in America do people live, on average, many miles from work and the nearest grocery store. No other country has its infrastructure so centralized around the car. Every other country could handle a shortage of oil and just use trains to get to work, walk to the store, etc. Not America. (Ok, Canada and Australia would also have problems.) It’s not ‘Peak Oil’, it’s ‘Peak America’.

          1. fredwilson

            Unless you live in NYC and walk to work or ride the subway.NYC is a great place to live if you want to reduce your carbon consumptionFred

          2. Steven Kane

            i humbly submit that NYC is a great place to live if you want to reduce your AUTOMOTIVE carbon consumption. but not if you want to reduce your carbon consumption overall.electricity generation produces oodles of carbon emissions. probably more electricity consumed per square mile in new york city versus anyplace else on earth, execpt for other NYC like places such as shanghai and tokyo.also, since essentially no goods are produced within new york city, every little thing has to be transported into NYC via trucks and planes and cars and ships — another very humungous source of fossil fuel consumptionwe have to stop thinking that our energy and enviornmental problems are mostly about personal use of cars. thats a dangerous misconception that will lead to less useful activity not more

          3. Nate

            David, oil will not one day just be so expensive that the modern world will collapse.Maybe oil has “peaked” but who knows and who cares? As long as prices are allowed to create the right incentives for people to economize, find new reserves, and invent alternatives the world will have plenty of time to adjust. Hell, I wish the oil would run out sooner so we could start living in the future already.

          4. David B.

            Thanks for the reply, Nathan. Sure, I was being a bit dramatic to illustrate the point that it’s not so much about how much oil is in the ground but how much it will cost overall, which is derived by both the cost to extract it and demand.And I understand that as the price goes up, we’ll have more and more incentives to find alternatives.My concern, though, is that we got a bit too good at getting the easy oil. (E.g. the elaborate technology to create “super straws” and the various methods to find the pockets to place them.) Once you get through about half of the reserve (Hubbert’s point), it gets much more expensive to get the remaining amount.If oil just stayed at $100/barrel for the next ten to twenty years while we switched everything, that would be fine. It won’t. Worse, America has been ignoring that it’s been running at a substantial loss for years and is tremendously mired in debt. It’s stock (the dollar) is getting dumped.If you held stock in such a company and the CEO gives speeches saying “It’s ok! We’ve had tremendous success in the past, so we’ll be fine in the future, and we’ll just switch gears and become competitive when we feel a bit more challenged.” Would you rate it a buy, hold or sell? The challenge is now and America’s previous successes are meaningless in the face of it.

  11. Christian Sterner

    When I was in school here in Boulder, I distinctly remember how heated our geology professors would get regarding the world’s oil supply. So much has changed since then: global warming was still being disputed by very reputable scientists, it wasn’t as clear (at least to me) that we were funding wars against us via consumption etc. I quite frankly hope that the juice becomes unbearably expensive. Nothing is going to be more ultimately satisfying than a real, tangible, unsquashable disruption in the energy sector.Long on oil? Nah…long on bicycles. I’m sticking it to the man one rotation at a time.

  12. Tracy

    The original post was about finding an alternative to oil because of the cost to the US economy. The comments as I see them all tend to agree that cheap oil is a thing of the past – peak oil or not. Many alternatives to oil are now cost justifiable but they will still not be cheap. The economic impact to America’s economy is and will continue to be significant as the price of oil affects many aspects of our life. Since we are not that “busy finding an alternative to oil” I expect the cost of oil to continue going up until the impact is enough to force changes in consumption and alternative production. In the meantime, expensive oil is not a good thing under any scenerio. Expensive oil will slow the economy and is/will be a factor in recessionary pressures on the US economy – never a good thing.As far as “Peak Oil”, this is a very simple issue. It is not about how much oil exists in the world, it is about how much oil can be produced on any given day. The world uses about 84 billion barrels a day and production has been relatively flat since 2004. Since 2004, demand has continued to increase, yet production is the same therefore the price goes up. Basic economics. If we don’t see production ever reach 85 million barrels a day then the world has likely reached “Peak Oil”. If we see a gradual decline from 84 million, then “Peak Oil” is a fact with dramatic implications to the world economy. All signs indicate we are at “Peak Oil”.

  13. Geoff

    An interesting blog that has this discussion many times is at seem to remember that the Saudi oil could be less than thought due to the rate water is being pumped into the wells.I can well imagine future generations gasping in horror that we merely burnt one of the most pure materials on earth CH4 that is the starting point for most plastics production.

  14. Web 2.0 Asia

    What we shouldn’t ever do is to invest in new technologies to extract deep buried oil…. We should instead invest in the renewable energy!!

  15. wallbang

    Aug 16, 2004. In a town of rich and famous people. A town who qualifies their progressive consciousness by hiring a Sustainability Coordinator. In that town, on that date, a newspaper published my letter to the editor — predicting $100 oil by 2009.So what? Exactly my point:The American Dream in this world class resort continued to collectively inspire mega rich kings to build 36,000 square feet of in-floor heated castles with decks. Where no one lives. Second homes everywhere, of grand scale – second not implying the number two. Those people of influence, in that tiny jet set town, traded oil futures and home builders and REIT’s.In neighboring communities, land owners were forced to open their property for natural gas rigs and substations. A few miles more as the Raven flies, the nations dirtiest CO2 coal fired power plant literally chugs away.Why are the rich so adamant on building Castles In The Sky? (http://www.friendsofwolfcre… Could it be an (un?) conscious hedge? Could they be the elephants moving away from the unknown, sensing the incoming tsunami?Sci-fi for sure, and as Howard so often proclaims, we couldn’t make this shit up!?—Six-month moratorium on foreclosures? A greed induced, synthetic, construction melt down? Enter Mr. Wildcard, aka The Fed, forced to cut rates because construction is the foundation of The American Dream. Ayn Rand – be proud.Cut rates? The poor dollar. What might politicians and corporations be promising abroad to guarantee support for the dollar?Collectively, consciously, superficially, our money flows to everything not sustainable, nor survivable. What might trigger deep decisions? Within seven years, a device will detonate at a critical gas refining facility. Oil will spike well over $300. Within five years, the current Climate Cycle will continue to monkey wrench our aging infrastructure. Newly constructed high voltage power lines will sway heavily in ever increasing pre-frontal winds.—Humans have been a great catalyst for an elongated, severe climate change, in a time when the Climate Cycle is approaching a spike event. Silicon Valley is hyped with mostly dark shades of green, aka Savior 2.0. John Doerr sheds a tear, but continues holding pieces of paper in Google, not hurrying to cash out and put that money to use by leveraging FatKat (…. No wonder he’s squirming at Web 2.0 (…. Child vs Money vs Shirts. Bill Joy is off flipping castles and building yachts. Al Gore a perfect mirror of Dan Quayle of Cerberus. Red flags? Of course. But red flags take deep thinking and deeper action – combined with analytical skills in 4D.Deep thinking? Why would any genius want to discover the next break through technology, the next atomic bomb? If someone brings to light the magic bullet of cheap sustainable energy, The American Dream will explode exponentially, consuming much of what we know as Nature. Google Earth becomes a dirt ball in space. No time.—Alas, a few white knights, who have not contemplated the cartoon, coyote running off a cliff scenario above, have ridden into the kingdom(s) of the rich bringing golden tools for The American Dream to continue its mega build out :Nanosolar – This low cost effective source is the right model for future climate variables – if the battery technology can match expectations.Bioenergy – Juan Enriquez perceives the magical, no doubt. Perhaps he will hold his inventions close until our nations policies are in alignment with sustainable dreams. (…Microbial Fuel Cell – This would be likened to the Tube Amp vs Solid State. Certainly not fundable so why do it? (…—Michael 🙂

    1. Wallbang

      Human emotion and financial speculation are far greater a danger than Peak Oil. An explosion today is described with much less passion than I would project:”As shockwaves of the explosion were felt in the energy markets, oil prices rose … … the blast had a ‘psychological impact’ on the health of the 10.5 million barrels of imported oil from Canada. It shows how tight we are and that we feel vulnerable…”(

    2. wallbang

      Here’s a recent short movie about that tiny town produced by friends. Jury award at MountainFilm. Ordering is blatantly not web 2.0 :)Lost People of Mountain Village (

  16. Wallbang

    Gets lonely fast here in comments 🙂 Googlebot isn’t even here.Google today announced a small investment toward alternative energy. Certainly eSolar has some momentum. But not enough to displace the new coal fired plant ramping up construction on the Navajo reservation, and the many being build in India and China.The oil rich folks invested tens of billions today in Citi , Sony, and other beaten down old school industries. Not surprising as Dubai attracts trillions of dollars for their world class resort, which hovers a few feet above the ocean surface.Collectively, civilizations cash continues to race to things not sustainable. Nor survivable. With no risk management – wow – seem to be the theme of the day.Michael :)ps – Fred, I might be wrong, but Googlebot isn’t archiving your blog comment section.

  17. Eric Gonzalez

    It’s much worse than most people realize. I wrote about peak oil here:http://ericgonzalez.wordpre…The key is to follow Ghawar. Once that falls over, the S#$% hits the fan.