Peak Oil & GMAC get the $

Research for Online Investors

by John Dalt

12/30/08

GMAC gets the money!  GMAC qualified for bank status Monday, and the FED handed over $5 billion.  Within hours a new financing scheme was announced, 0% loans on new GM cars and trucks for customers with FICO scores as low as 621!  GMAC had required a FICO score of at least 700 recently.  GM’s Vice President of North American sales and marketing said “That brings a lot more customers into play for us”.   

I have used the term ‘Peak Oil’ a few times, sometimes incorrectly.  Today let us discuss this term and what it means.  The term ‘Peak Oil’ was coined in 1956 by M. King Hubbert.  He used observable data on existing wells and fields.  He modeled production of limited resources from the time of discovery.  The model showed increasing production, then flatting, then decline.  This pattern is observable in individual wells, production fields, and Hubbert predicted in U.S. Oil production as a whole.

Peak Oil does not predict or mean that we will run out of oil, but that production will peak, flatten and then decline on existing wells. The problem is replacing old wells and fields faster than they decline. Hubbert originally predicted ‘Peak Oil’ would be reached between 1965 and 1970. This would be the time when we could no longer replace the declining production with new wells. We have imported oil in increasing quantities year after year. Peak Oil has not affected us because of the availability of oil imports. Now we see peak oil effects on oil exporting countries fields also. Saudi Arabia, Iran, Venezuela, Mexico, and Russia all are facing declining production and increased domestic consumption. Large capital exploration projects are needed to find the oil that is needed to replace the fields that are on the backside of the curve. The first oil in Pennsylvania was sopped up in rags from pools that bubbled to the surface. Today’s large oil pools are found in deep water, under salt, under ice in the Arctic, or off shore in political and environmentally sensitive areas like Florida and California.   Below is a chart of world oil production courtesy of:http://www.lifeaftertheoilcrash.net/

·         Today, the world only finds one new barrel of oil for every 4 barrels we consume.

·         New wells drilled in the last few years have doubled but production has remained flat.

·         Almost 75% of today’s production is from fields that were discovered prior to 1970.

·         The U.S. now produces the same amount of crude as in 1947

I hope OH! BAMA! has seen the same statistics I have.  We need to drill off shore, drill in Alaska, and drill in the Arctic.  He should fully endorse Boone Pickens Plan to use natural gas to power cars as soon as possible.  Natural Gas is plentiful and not imported.  The shale gas that has been found can supply the U.S. with plentiful power for transportation for about ten years.  This will only buy us time for scientists and researchers to develop lower cost and plentiful sources of energy.  If OH! BAMA! punishes oil use with taxes and limits exploration it will extend the recession as our economy absorbs the cost.  I do not think the government can borrow money to prime the pump of the economy, and then take it back in taxes and higher cost of living expecting growth.   

Oil is going to cost more in the future until demand destruction forces it to be put to the highest and best use, where economics determine the use of this declining resource. Pushing our cars back and forth to work is probably not the highest and best use for an expensive resource!

WARNING:    The information presented in this newsletter is based on generally available news releases, corporate filings, current events, interviews and the editor’s opinions.  It may contain errors and you should not make investment decisions based solely on what you believe you have read here.  Do your own research, it is your money.  If you lose it, it is your responsibility, not ours or your grandmothers!  The editor may or may not have a position in any securities discussed.   The editor may have held a position in a security earlier, or in the future. 

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