Oil depletion, a first post.

First a few disclosures, before I get started, because I feel that I will be a regular poster on this blog, and some people need to understand from which direction I am approaching.

Mike is not out to scare you: When I talk about subjects at times, and start pointing to hard facts, people have told me more than once, that I am scaring them. From there, a lot of them start to stick their heads in the sand, in regards to the subject. What I am really trying to do, is to get people to open their eyes, and make them aware. If I can get the public to thinking, so that they will prepare themselves for future events, then I have achieved a goal.

Mike is an investor, not an environmentalist: Years ago, I started investing for current income and retirement. To know what to invest in, requires time, research, and a lot of thinking. Based on what I have discovered, a good amount of my investments are in hydrocarbons ( Note, this is not an endorsement. Invest in whatever wets your whistle. ) The way I speak about hydrocarbons at times, is not always in the best interests of the environment. If that turns you off, please stop reading now, and ignore me forever. I do like a clean environment, but being green, doesn’t always make green.

The industrialized populations of the world, are currently set up for the biggest paradigm shift of their lifetime. Easy to produce petroleum ( oil ) is running out, and the only thing saving us at this moment, is one of the most rotten economies for some of our lives. This event is called “Peak Oil”.

Over time, us humans have built an industrialized society, based on cheap, easy to access oil. This cheap oil, allows us to do many things, that we normally couldn’t do, without a serious amount of effort. We can drive to work in comfort in gasoline powered cars, on petroleum paved roads. In the old days, people had to get up before daylight, in order to walk to work in all types of road and weather conditions. It allows us to fly cheaply, in order to visit people and places around the world, where in old times, long range travel was just a dream for most of the population. This cheap petroleum even allows us to be so lazy ( especially in the USA ), that we can drive three blocks to the corner store, in order to pick up snacks and a six-pack for the night.

Oil is seriously embedded in our food supply, that is set up for mass consumption. Cheap oil is one of the main factors, that allows our food supply to be produced at a decent cost. From the farmer’s diesel powered tractors that plows the fields, plants the seeds, and harvest them when ready, to the petroleum based pesticides and herbicides, and the natural gas based fertilizers. The diesel/jet fuel powered vehicles, that allows these products to be shipped great distances, in order to reach your local market. The petroleum based packaging, that keeps the products fresh. The gasoline that is used by consumers to drive to and from the markets. This example just touches on things grown in a field. The amount of petroleum goes up even higher, when raising livestock is visited.

With the amount of cheap food that is produced, the worlds population has exploded over a short period of time ( think the last 100 years ), creating even more consumption. This greater consumption has been no problem, because up until about 2005, oil has been dirt cheap. In 2005, the world started to experience a phenomenon, called Hubberts Peak, where the amount of oil that can be produced, can not keep up with demand for the product. Marian King Hubbert was a geophysicist working for Shell Oil in 1956, when he predicted through analysis, that oil production in the US lower 48 states would peak in 1970, and then begin to fall steadily and irreversibly. Several others mocked his theory at the time, but when 1970 came around, sure enough, Hubbert was on the money. The only thing that saved the US from this peak, was the importation of foreign oil supplies, with one of those suppliers being Saudi Arabia.

Saudi Arabia has the greatest amount of hydrocarbon reserves in the world. When oil exploration begun in Saudi Arabia, there was so much present, that in order to discover it as the joke goes, all you had to do was jab a stick in the ground. Saudi Arabia is also known as a swing producer, because it is said to have the only excess capacity in the world, to produce more oil in order to keep it cheap. Saudi Arabia is also home to the largest oil field in the world, that is named Al-Ghawar. Al-Ghawar has been in production since 1948, which is an unusual amount of time for an oil field to produce. Saudi Aramco, the oil arm of Saudi Arabia is using every trick in the book, to maintain the pressure in this oil field, in order to keep it producing. This includes injecting sea water and nitrogen gas. A healthy oil field doesn’t need to be injected with substances, in order to produce.

Most of Saudi Arabia’s oil fields, are based on dry land. Between 2004 and 2008, rates for shallow water drilling rigs went from US $30,000 per day, to US $150,000 per day, due to demand from Saudi Arabia. “The only time a crude oil producer goes offshore is when onshore production opportunities have been maximized. Offshore exploration is much more risky and production costs are four to five times higher than onshore.” ( Morgan Downey, “Oil 101” p.24 ) So this suggest that the kings of oil production know that they are facing a big problem. This offshore field that they are developing, goes by the name Manifa. The crude oil in Manifa has big problems. The oil is heavy with vanadium and hydrogen sulphide, making it virtually unusable. Refineries didn’t want it. So if economic activity picks up, and oil demand rises, where will the spare capacity come from? This brings us to the conclusion, that “Happy Meals” are soon to get a whole lot more expensive.