Retirement prospects and peak oil theory?

[kjpliny]

I've learned a lot from all of the discussions on this forum, especially the safe withdrawal rates and forward looking calculations based on inflation and market fluctuations, etc.

Lately I've been absolutely facinated by the discussions about Peak Oil theory, mostly on this site: http://www.peakoil.com/gate.html?name=Forums and was wondering if anyone here has considered the possibility of a long term recession or even a depression worse that that in the 1930s caused by the lack of preparedness of our society and government in dealing with dwindling energy supplies from fossil fuels.* I realize a lot of this stuff comes across as alarmist, survivalistic and goes against the grain of the past 50 years of overall market & economic growth and prosperity, but suppose these oil industry execs, bankers and geologists are right and eventually the $#!T hits the fan, the dollar becomes devalued to the point where it's practically worthless (it is just paper and nothing more), and civilization takes a turn for the worse over a period of decades?

Could anyone imagine the DJIA going below 1000 or worse?* Does any one here hold precious metals or other tangible assets other than bonds/stocks and cash?* Has anyone studied peak oil theory here?* Be curious what you all think about it. There was even a related special on CNN tonight entitled "We Were Warned".* Seems this topic is beginning to hit the mainstream over the past 6 months or so.

[REWahoo]

Originally Posted by kjpliny

Has anyone studied peak oil theory here? Be curious what you all think about it.

We've had several threads and multiple discussions (and opinions) on the energy topic. Try a search for "peak oil".

Here's an example: http://early-retirement.org/forums/i...p?topic=3560.0

[. . . Yrs to Go]

This is not the first time the world was running out of oil, and I doubt the last.

The beautiful thing about free market economics is that it efficiently allocates capital. *At $60 oil all kinds of things become possible that could only be dreamed of at $20 - hybird cars, fuel cells, unconventional oil reserves, etc.

If you're worried about dooms day, you better stock up on bullets and MREs, because DOW 1,000 is going to be the least of your problems. *And if you think "tangible assets" are going to bail you out, you better own the real thing . . . no mutual funds or ETFs. *Besides, if Dow 1,000 hits, I suspect a can of tuna fish will be worth more in barter than a lump of gold.

[rmark]

peakoildebunked.com for the other side of the hysteria.

Most of the peak oil story is based on M. King Hubberts curve, which is usually drawn as a symmetrical bell curve under which the total production of oil is enclosed, giving the appearance of a crash. There is no need for a symmetrical curve, it could in fact be a long slow draw down. Without prior knowledge of the total amount of oil its hard to put much faith in the curve. This method was made popular by Hubberts call for U.S. oil production to peak in the early 1970's , as it did. This same method failed miserably in several other predictions of his.

[haha]

Originally Posted by rmark

This method was made popular by Hubberts call* for U.S. oil production to peak in the early 1970's , as it did. This same method failed miserably in several other predictions of his.

Could you give details on this second assertion?

I am in the camp that peak oil is real; how could it not be? We have essentially no gap between production and demand at present. A worldwide recession would slow things down on the demand side for a bit, but then it would be off to the races again. The demand story is clear- China and India are building roads and building cars and trucks. They are going to need oil to use this infrastructure.

As to supply, we have had a high oil price for some time now, where is the new supply? Why do you suppose that the majors are not drilling every prospect that doesn’t already have a hole in it? My guess is they don't want to throw good money after bad, and they know that the reserves are not there, at least in economical amounts at current prices, when adjusted for geological and political risk.

Over twenty five years ago Boone Pickens formed Mesa Petroleum (now Pioneer Natural Resources). His stated plan was to procure long lived gas supplies, and milk the cash flow rather than waste it looking for more reserves, which he felt were non-economical at the then current well head prices.

Mr. Pickens is nobody's fool. I think the majors are coming to his POV, regardless of what they say for public consumption.

Ha

[Ed_The_Gypsy]

So, buy oil stocks. Buy Exxon, Shell, ChevTex--the guys who will survive.

Also, buy tuna fish. Hide it under the bed.

[Nords]

Originally Posted by HaHa

As to supply, we have had a high oil price for some time now, where is the new supply?

Depends on your reference for "high". Gas prices haven't kept up with the CPI over the last four decades, and I think we can all agree that gas was pretty cheap in the 1960s. So filling up your tank today has not only been cleaning your engine, burning more efficiently, and better for the environment-- it's been cheaper too!

I think the only things limiting the supply of oil are (1) our ability to locate it and (2) our ability to extract it.

Everything else is financial spreadsheets and engineering. Perhaps more of the latter than the former, right, Ed?

[AltaRed]

Originally Posted by Nords

Depends on your reference for "high".* Gas prices haven't kept up with the CPI over the last four decades, and I think we can all agree that gas was pretty cheap in the 1960s.* So filling up your tank today has not only been cleaning your engine, burning more efficiently, and better for the environment-- it's been cheaper too!

I think the only things limiting the supply of oil are (1) our ability to locate it and (2) our ability to extract it.

Everything else is financial spreadsheets and engineering.* Perhaps more of the latter than the former, right, Ed?

Good perspective Nords. I've been in the oil and gas business virtually all of my career. There is tons more oil to be found and developed at the right price with the right technology which is improving each year. Peak oil may have been reached in the USA some years ago, but there are many immature petroleum basins in the world that the oil majors are now pursuing...with better prices and technology.

It takes upwards of 10 years to develop new sources of oil in difficult places. I am working on a very large project costing billions of dollars where oil was discovered in 2000. The first drop of oil won't be produced until late 2009 or sometime in 2010. I get very annoyed at people who think new supply should show up in a few short years.

[rmark]

I wish I could give a reference to his other forecasts, but they would have been on the hard drive that died, if I still had them. Hubbert made several forecasts on natural resources, one of which I believe was U.S. natural gas production peaking, which were disproved.

His method requires unrestrained production (early U.S. drilling was essentially unrestrained) while most production has been restrained by government regulation. His early papers did not use a symmetrical bell curve, which seems to be a result of graphing convenience, not methodology.

The arguements tend to revolve around whether economic or geological factors will be the driving force behind supply and demand. The geology faction thinks prices don't matter, economics thinks supply always arises.

Rising prices reduce demand and encourage production of previously uneconomic resources or leads to substitution.

[Ed_The_Gypsy]

Everything else is financial spreadsheets and engineering. Perhaps more of the latter than the former, right, Ed?

Damn straight, boss.

[Nords]

Originally Posted by Ed_The_Gypsy

Damn straight, boss.

And to think that this may get the nuclear power industry back up off its dead assets... I'm still waiting for my atomic car.

[Brat]

The problem with the nuclear power industry is their history of unfullfilled promises (spent fuel storage), leaky pipes, and worst case incidents.* It will take a lot to trust them again.* The first thing that needs to be solved in spent fuel storage and the big part of that is political.*

I watched CNN's discussion of oil options and was very impressed with Brazil's program using sugarcane (our farmers are talking about corn).* All of this will take a lot of land to do 100%, but we could put a dent in oil consumption using that resource (don't irrigate or use fertilizers or it could be a net-0 energy use).* They didn't talk much about bio diesel, but re-cycling fats could also help.* Increasing solar use can take a small bite out of oil consumption.* It will take lots of small adjustments, big changes in our power plant systems (from transportation to electrical), and time to transition.* All we really need is the will to do it.

[samclem]

The will to do it will come automatically--when the price is right.

I've heard several interviews with environmentalists who are starting to reconsider their blanket disdain for nuclear power. No greenhouse gasses, all the waste in a readily collected form, able to use the present power grid/infrastructure. Nuclear power will be part of the answer to the overall challenge.

[Nords]

Originally Posted by Brat

The problem with the nuclear power industry is their history of unfullfilled promises (spent fuel storage), leaky pipes, and worst case incidents.* It will take a lot to trust them again.* The first thing that needs to be solved in spent fuel storage and the big part of that is political.*

I'm encouraged by the pebble-bed reactor design, and I think it's time to burn out the pressurized-water systems and get rid of them. Unfortunately they're a huge infrastructure investment that could probably last for another 50 years... or until the next Chernobyl.

Once the PBRs get going, though, we'll probably discover some unique problems of their own as well. It's never as easy as it seems.

[Maximillion]

Bretton Woods took the responsibility for efficient management away and allowed politicians to print paper when it suited their needs.

Oil, Gold, Land, Water are real and are finite, paper with dead guys faces on it can be produced anytime and in any amount.

The more pieces of paper chasing real products, the more pieces of paper it will take.

Oil and Gold have not gone up in value, paper has gone down.

It is not paper money, it is paper currency,

I own Oil and Gas ETF's, 10%, as well as Gold ETF's, 10%, and also REITS, 10%.

50% Bond Ladder, including 10% GMAC and Ford.

Pfizer, J&J, plus some other Health Stocks complete my holdings(ZMH is a good one).

[MasterBlaster]

Well I'm not one to believe that modern civilization will fall with the depletion of large oil fields.

However, even if capital is invested today to bring more oil online, it can take a decade or more to bring some fields online. There can be large shortages in supply causing great economic impact. The efficient market scenario is great over the long haul. However in the time frame that you may be interested in, oil supply discontinuity can cause great harm to the economy and to your RE portfolio.

The shortages that we are seeing today can be traced in part to underinvestment over the last decade or two due to low oil prices. The low prices we've seen can further be traced back to overinvestment in the 70's and 80's due to high oil prices. The boom-bust oil cycle seems to have about a 30 year period.

Certainly we'd all be better off retiring into a market like 1980 rather than 1968. The oil cycle will have a tremendous impact on your portfolio and hence your RE lifestyle.

[Brat]

I too am a fan of the pebble-bed design but we still need to deal with spent fuel storage. Did you notice that that power plant was rejected up in Alaska? It will take a lot to earn the trust of the public.

[HFWR]

No environmental, economic, or national security issues concerning crude oil...

[Brat]

Originally Posted by HFWR

No environmental, economic, or national security issues concerning crude oil...*

Ah, but that is a risk the public has accepted - sort of.* We want the oil but any time there is an accident we tell the industry to 'fix it', we are not willing to invest in alternatives.

What concerns me is that the oil resource is concentrated in unstable areas of the world (which came first is debatable) and a disruption in supply can be precipitious.. not a gradual economic adjustment.* A disruption in supply won't just impact us, it will impact all of the economic powerhouses.* The competition for available resources won't be mud wrestling.