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JW
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by
JW
by
Gregor Macdonald
Executive Summary
- Why oil price vulnerability is growing
- Why the marginal cost of oil is rising higher at an accelerating rate
- Why the marginal cost of oil for non-OPEC regions is now above $90
- The hard math explaining why an increase an output from OPEC will no longer reduce the world price for oil
- The new rules that will govern the price of oil from here
- The alarming growing risk of large-scale war for oil
Part I: OPEC Has Lost the Power to Lower the Price of Oil
If you have not yet read Part I, available free to all readers, please click here to read it first.
Part II: The Cruel Math of the Marginal Barrel
An unpleasant megatrend that has affected global oil production the past decade has been the quickly escalating cost of production. However, prices have finally risen high enough to stabilize declines in regions like North America.
This actually makes for a new and emerging vulnerability: the risk that prices fall at some point through levels that remove the new oil supply.
Given that world oil production has been trapped below 74 mbpd since 2005, and that the cost of the marginal barrel keeps rising, this vulnerability is growing.
The Cruel Math of the Marginal Barrel
PREVIEW by Gregor MacdonaldExecutive Summary
- Why oil price vulnerability is growing
- Why the marginal cost of oil is rising higher at an accelerating rate
- Why the marginal cost of oil for non-OPEC regions is now above $90
- The hard math explaining why an increase an output from OPEC will no longer reduce the world price for oil
- The new rules that will govern the price of oil from here
- The alarming growing risk of large-scale war for oil
Part I: OPEC Has Lost the Power to Lower the Price of Oil
If you have not yet read Part I, available free to all readers, please click here to read it first.
Part II: The Cruel Math of the Marginal Barrel
An unpleasant megatrend that has affected global oil production the past decade has been the quickly escalating cost of production. However, prices have finally risen high enough to stabilize declines in regions like North America.
This actually makes for a new and emerging vulnerability: the risk that prices fall at some point through levels that remove the new oil supply.
Given that world oil production has been trapped below 74 mbpd since 2005, and that the cost of the marginal barrel keeps rising, this vulnerability is growing.
by
Gregor Macdonald
There’s been a lot of excitement in the past year over the rise of North American oil production and the promise of increased oil production across the whole of the Americas in the years to come. National security experts and other geo-political observers have waxed poetic at the thought of this emerging, hemispheric strength in energy supply.
What’s less discussed, however, is the negligible effect this supply swing is having on lowering the price of oil, due to the fact that, combined with OPEC production, aggregate global production remains mostly flat.
But there’s another component to this new belief in the changing global landscape for oil: the dawning awareness that OPEC’s power has finally gone into decline. You can read the celebration of OPEC’s waning in power in practically every publication from Foreign Policy to various political blogs and op-eds. David Ignatius of the Washington Post wrapped up nearly all of the recent claims in a nice bundle in his May 4, 2012 piece, An Economic Boom Ahead?, when he quoted PFC Energy’s David West:
“This is the energy equivalent of the Berlin Wall coming down,” contends West. “Just as the trauma of the Cold War ended in Berlin, so the trauma of the 1973 oil embargo is ending now.” The geopolitical implications of this change are striking: “We will no longer rely on the Middle East, or compete with such nations as China or India for resources.”
(Source)
While it’s true that the Americas hold great promise to convert natural gas resources to higher production levels, that is not the case with oil. The celebration of a geo-political swing in energy power therefore misses a crucial point: No region — from OPEC to Non-OPEC, from Africa to Russia — has the single-handed ability to lower the price of oil now, because none can bring on new supply quickly enough for a long-enough sustained period of time.
OPEC Has Lost the Power to Lower the Price of Oil
by Gregor MacdonaldThere’s been a lot of excitement in the past year over the rise of North American oil production and the promise of increased oil production across the whole of the Americas in the years to come. National security experts and other geo-political observers have waxed poetic at the thought of this emerging, hemispheric strength in energy supply.
What’s less discussed, however, is the negligible effect this supply swing is having on lowering the price of oil, due to the fact that, combined with OPEC production, aggregate global production remains mostly flat.
But there’s another component to this new belief in the changing global landscape for oil: the dawning awareness that OPEC’s power has finally gone into decline. You can read the celebration of OPEC’s waning in power in practically every publication from Foreign Policy to various political blogs and op-eds. David Ignatius of the Washington Post wrapped up nearly all of the recent claims in a nice bundle in his May 4, 2012 piece, An Economic Boom Ahead?, when he quoted PFC Energy’s David West:
“This is the energy equivalent of the Berlin Wall coming down,” contends West. “Just as the trauma of the Cold War ended in Berlin, so the trauma of the 1973 oil embargo is ending now.” The geopolitical implications of this change are striking: “We will no longer rely on the Middle East, or compete with such nations as China or India for resources.”
(Source)
While it’s true that the Americas hold great promise to convert natural gas resources to higher production levels, that is not the case with oil. The celebration of a geo-political swing in energy power therefore misses a crucial point: No region — from OPEC to Non-OPEC, from Africa to Russia — has the single-handed ability to lower the price of oil now, because none can bring on new supply quickly enough for a long-enough sustained period of time.
by
Gregor Macdonald
Executive Summary
- Why many entrepreneurial ventures addressing resource scarcity have less time than they imagine
- Why understanding the unintuitive economics created by resource scarcity is key
- Copper is serving as a case study in how peak supply is putting upward pressure on world prices
- The approaching "dead end" for millionaries
- Why physical networks will trump the importance of digital ones in tomorrow's economy
Part I: 'Cornucopians in Space' Deliver a Dangerously Misguided Message
If you have not yet read Part I, available free to all readers, please click here to read it first.
Part II: The Looming Dislocation Risks Posed by Resource Scarcity
One of the most stunning and repeated patterns seen in the 2000-2010 timeframe is that, right as many natural resources experienced phase transition to much higher prices, the production rate of those resources either slowed, stalled out, or in some cases fell.
This is the real reason, in my opinion, why so many writers and thinkers are grappling with the problem of creating future wealth and obtaining (or recapturing, if you will) the kind of abundance we once enjoyed.
It’s positive, actually, that the news story about mineral mining in space has been so popular and covered in just about every major newspaper, because it unintentionally articulates the very long timeline to the solution of resource scarcity now facing human economies. To Peter Thiel’s point, therefore, it would be better to solve our problems in ways that actually serve humanity on relevant timescales, than to delude ourselves into thinking that miracles are just around the corner.
The Looming Dislocation Risks Posed by Resource Scarcity
PREVIEW by Gregor MacdonaldExecutive Summary
- Why many entrepreneurial ventures addressing resource scarcity have less time than they imagine
- Why understanding the unintuitive economics created by resource scarcity is key
- Copper is serving as a case study in how peak supply is putting upward pressure on world prices
- The approaching "dead end" for millionaries
- Why physical networks will trump the importance of digital ones in tomorrow's economy
Part I: 'Cornucopians in Space' Deliver a Dangerously Misguided Message
If you have not yet read Part I, available free to all readers, please click here to read it first.
Part II: The Looming Dislocation Risks Posed by Resource Scarcity
One of the most stunning and repeated patterns seen in the 2000-2010 timeframe is that, right as many natural resources experienced phase transition to much higher prices, the production rate of those resources either slowed, stalled out, or in some cases fell.
This is the real reason, in my opinion, why so many writers and thinkers are grappling with the problem of creating future wealth and obtaining (or recapturing, if you will) the kind of abundance we once enjoyed.
It’s positive, actually, that the news story about mineral mining in space has been so popular and covered in just about every major newspaper, because it unintentionally articulates the very long timeline to the solution of resource scarcity now facing human economies. To Peter Thiel’s point, therefore, it would be better to solve our problems in ways that actually serve humanity on relevant timescales, than to delude ourselves into thinking that miracles are just around the corner.
by
Gregor Macdonald
Promising Investments as the Race for BTUs Heats Up
by Gregor Macdonald, contributing editor
Tuesday, April 3, 2012
Executive Summary
- Three attractive sectors to invest in early as we enter the post-oil economy
- The transition away from oil has already begun — which energy sectors are leading?
- The key trends over the next five years
- How scarcity — and inflation — will manifest in this next phase
Part I: The Race for BTUs
If you have not yet read Part I, available free to all readers, please click here to read it first.
Part II: Promising Investments as the Race for BTUs Heats Up
Hopefully readers will not be too shocked by my openhandedness towards a cyclical global expansion — restrained by oil for sure, but made possible by several years of continued reflationary monetary policy and the ability of humans to tactically access new sources of energy.
Let’s remember that a tremendous amount of pain, in industrial terms, has already been taken by the OECD over the past 7 years as it shed nearly 15% of its oil demand. Readers will also recall my previous essays, in which I warned that an export boom was continuing to unfold in the United States. And readers of my work over the past several years know I’ve been adamant that the 5 billion people in the developing world have plowed right through the 2008 financial crisis increasing their reliance on coal.
Thus, I identify three areas of investment as the world stumbles forward with poor growth in the OECD, restrained by oil but becoming increasingly desperate to find some — any — additional energy resources. These are not stock recommendations, nor am I making a timing call as to when to invest in these areas. Rather, these are indicative of three means by which an investor could participate in emerging, secular trends over the next 2 to 4 years.
Promising Investments as the Race for BTUs Heats Up
PREVIEW by Gregor MacdonaldPromising Investments as the Race for BTUs Heats Up
by Gregor Macdonald, contributing editor
Tuesday, April 3, 2012
Executive Summary
- Three attractive sectors to invest in early as we enter the post-oil economy
- The transition away from oil has already begun — which energy sectors are leading?
- The key trends over the next five years
- How scarcity — and inflation — will manifest in this next phase
Part I: The Race for BTUs
If you have not yet read Part I, available free to all readers, please click here to read it first.
Part II: Promising Investments as the Race for BTUs Heats Up
Hopefully readers will not be too shocked by my openhandedness towards a cyclical global expansion — restrained by oil for sure, but made possible by several years of continued reflationary monetary policy and the ability of humans to tactically access new sources of energy.
Let’s remember that a tremendous amount of pain, in industrial terms, has already been taken by the OECD over the past 7 years as it shed nearly 15% of its oil demand. Readers will also recall my previous essays, in which I warned that an export boom was continuing to unfold in the United States. And readers of my work over the past several years know I’ve been adamant that the 5 billion people in the developing world have plowed right through the 2008 financial crisis increasing their reliance on coal.
Thus, I identify three areas of investment as the world stumbles forward with poor growth in the OECD, restrained by oil but becoming increasingly desperate to find some — any — additional energy resources. These are not stock recommendations, nor am I making a timing call as to when to invest in these areas. Rather, these are indicative of three means by which an investor could participate in emerging, secular trends over the next 2 to 4 years.
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