Book Review: Profit from the Peak

Profit from the Peak by Brian Hicks and Chris Nelder

One of the threats from peak oil is the potential for financial ruin as oil prices run up. If you were invested in airline or automotive stocks through the recent run up in oil prices, you have probably seen those investments lose a lot of value. If, on the other hand, you were invested in oil futures, oil companies, or oil field service companies - you have probably done well even as the overall stock market slumped. The idea of profiting from the peak - an event that is likely to cause misery for those who are least prepared - may seem an odd combination. It almost feels like "Profit from Homelessness." But the reality is that unless you understand how energy prices affect the prospects of various sectors, you are placing yourself at a financial disadvantage.

Thus Profit from the Peak - the new book co-authored by my friend Chris Nelder - was destined to spark a lot of interest. Chris and I agree on most things energy-related, but we do also have some areas of sharp disagreement. In this review, I will explain what I liked about the book, but I will also detail my differences. Consider this a partial review, and a partial commentary on some of the particular topics in the book. However, my comments, and anything posted here at The Oil Drum, should never be construed as investment advice.

First off, The Oil Drum was referenced a great many times in the book. The work from many of the regular contributors was featured. The first chapter was an introduction to peak oil, and it argued that peak oil is upon us. The information in the first chapter will bring a reader up to speed on the potential problems we are going to experience from peak oil, but it also provides background information such as how oil is formed and subsequently refined.

Moving on to Chapter 2, the book gives a good explanation of oil depletion, and provides a nice overview of the major oil producing countries. But it also brings up the first area of disagreement that I had with the book - and that is valuation of oil companies. As the book states when talking about investing in blue chip oil companies, "we wouldn't touch most of them with a five-mile drilling rod." I have a different opinion.

Theirs is not an unusual argument: Oil companies are seeing their reserves and production rates decrease, and therefore their stock values are bound to follow. But let's consider the case in which a company sees a 5% drop in their oil production rate, and yet the price of their remaining oil reserves increases by 50%. This is not too far off the mark from what we have seen happen. What has been happening - and what I think will continue to happen - is that oil prices will rise faster than production rates will drop. That means that the value of an oil company's reserves will increase year after year, even as the overall volume of the reserves declines. The argument that oil companies won't weather peak oil very well discounts (or ignores) this.

Consider the case of ConocoPhillips (COP). Full disclosure, ConocoPhillips was my previous employer, and I am still a stockholder. Here's why I still own COP, and will for the long haul. According to the 2007 annual report for COP (you can download it here), proved reserves at year-end 2007 were 10.6 billion barrels of oil equivalent (BOE), down 5.4% from 11.2 billion BOE at year end 2006 (this, primarily a result of the exit from Venezuela). At the end of 2006, the world average crude oil price was $55.95. At the end of 2007, the world average crude price was $89.76 - up 60% over year end 2006. Today, the world average crude price is $126.06 - up 125% over year end 2006.

Thus the value of COP's oil reserves has more than doubled in the past year and a half, even though the size of the reserve has fallen by a little over 5%. (Note that this comparison is approximate, as the majority, but not all, of the BOEs are from crude oil). Further, the total value of COP reserves at today's average crude price is $1.3 trillion - and I think prices are going higher in the long-term. The market cap for COP is about 1/10th of that at $142 billion. The market is seriously discounting the run-up in prices when evaluating oil companies like COP. Each $1 gain in crude prices increases the underlying value of COP's reserves by $10 billion. Yet you could buy COP a year ago - with oil trading at $60/bbl, for only 20% less than the current price. Investors must expect that oil prices will fall back to the $80 range.

However, there are two caveats to consider when evaluating oil companies. One is that governments are bound to intervene as oil company profits continue to rise. If oil goes to $200 and then keeps rising - Big Oil is going to make a ton of money. Governments are going to be under pressure from upset citizens to do something about this, and they will likely put various sorts of windfall profits taxes into effect. There will also be calls to nationalize, but the oil companies would likely just move to friendlier countries.

The second caveat is that the trend of falling production can't continue forever. At some point, the oil companies are going to have to make some strategic decisions and become much more diverse in their energy offerings. But since prices have been rising faster than production is falling, they are likely to have loads of cash for getting into other energy businesses. It is admittedly an atypical model - negative production growth combined with sharply higher revenue and profit growth. But unless you think production is going to fall faster than prices will rise, I think oil companies are a pretty safe bet. They possess a resource that people are going to be willing to pay a lot for.

The other area that Chapter 2 missed on was the situation with refiners. While negative on Big Oil, the book was very bullish on refiners such as Tesoro (TSO) and Valero (VLO). Quoting from the book "Valero and Tesoro are going to make a pretty penny every hour they operate their refineries." Of course that depends on one very important issue: The ability to maintain decent crack spreads. Unfortunately for pure refiners, softening demand has prevented them from increasing gasoline prices at the same rate that oil prices have gone up. As a result, refining margins have been crushed. Big Oil has the advantage of being able to absorb soft refining margins. After all, they are also producers, so they are selling oil for $130 a barrel. Valero, on the other hand, is buying oil for $130/bbl. As a result, in the past 12 months Valero has seen their stock fall by 40%. Over the same time period COP has seen share prices rise by 21% (and in the past 5 years, COP shares have increased by 240% - not bad for a Blue Chip).

Chapter 4 makes the case that the true cost of oil - when the negative externalities are factored in - is $480/bbl. I have only minor quibbles there, and in general agree with the overall point that we don't pay the true cost of oil. I found Chapter 5 - The Pentagon Prepares for Peak Oil - to be a very interesting read. I had never really thought about it, but the book points out that the U.S. Department of Defense is consuming well over 100 million barrels of oil a year - the most of any government agency in the world. Imagine what $130 oil is doing to defense budgets. This chapter also makes the pertinent point that we have outsourced a lot of our manufacturing - and therefore our CO2 emissions - to China. Thus, it is hypocritical of us to blame the Chinese for their fast-growing carbon emissions.

Part II of the book is "Making Money from the Fossil Fuels that are Left." This section was generally a good, fact-filled read. The information on methane hydrates was quite interesting. The book stated that the U.S. possesses methane hydrate reserves equivalent to 56 trillion barrels of oil. Of course it will be a difficult prospect to extract them commercially. This section also put oil shale claims into perspective, pointing out something that has long been apparent: Break even is a moving target, and it tends to move up along with oil prices. I have noted this for years, but I never defined it with a catchy name like the Law of Receding Horizons. Oil shale always seems to be economical at the current price plus $10-$20/bbl.

I did find inaccuracies in this section. For the layperson, most of these are trivial. But if you think about energy most of your waking hours, some of the inaccuracies will feel like an itch that needs to be scratched. For instance, on Page 96, natural gas is described as a mix of methane and propane. Propane was probably a typo, as natural gas is primarily methane and ethane. Page 109 states that ExxonMobil shelved their $15 billion LNG plant in Qatar. That was actually a proposed GTL plant. And on Page 117, the book states that diesel produced from CTL emits twice the volume of greenhouse gases as normal diesel when you burn it - and another ton of CO2 per barrel when you make it. That's a misstatement. CTL diesel produces exactly the same CO2 emissions as normal diesel (after all, it is chemically the same as regular diesel) when you burn it. It is the production process of CTL that causes the overall carbon footprint to be so high.

There were two comments on tar sands that I disagreed with. One is on Page 127, and states that the total net energy gain is only 5 or 10%. That would make it worse than corn ethanol. Yet on Page 122, the EROI for tar sands was stated to be "as low as 5." An EROI of 5 indicates a net energy gain of 400% (invest 1 unit, get 5 back, the net is 4 and the net gain is 400%). The second disputed argument is that tar sands must be totally dependent upon natural gas, or the construction of dozens of new nuclear plants. Thus the conclusion is that tar sands can't scale up much. But if in fact the net energy return is 400%, the solution is easy. If you don't have natural gas, you cannibalize and burn part of your production to drive the process. That will be an economic decision, but will become more attractive as natural gas supplies deplete and drive prices up. (Note that this isn't an endorsement of tar sands production, as I agree with the book that there are many environmental concerns surrounding the process).

The last and final section of the book, Part III, was Energy after Oil. I particularly enjoyed the section on geothermal power, as I think this alternative option doesn't get enough coverage. The book did a good job of clearly explaining how geothermal works, and identified some potential investments in the sector. This section also does a good job on wave and tidal energy, takes on the hydrogen economy, makes strong arguments in favor of carbon taxes, and argues that the future will be electric.

Again I found some nits to pick about the biofuels coverage. On Page 142, it is stated that biodiesel can be used as a 100% blend. However, there are no warnings about the cloud and pour point issues surrounding straight biodiesel. Try running straight biodiesel in very cold weather, and you could end up with a frozen tank of fuel. I had a few minor quibbles around the ethanol section (Despite the hype, Brazil does not get 40% of their motor fuel from ethanol!), but overall I thought Section III was the strongest section of the book.


While I found some areas of disagreement, I found the book to be enjoyable to read, and I learned a few new things that I didn't know. Anytime I can do that, I am happy with a book. Those new to peak oil will especially get a lot of value out of the first section; those who know about peak oil will enjoy the latter parts of the book. Finally, each person will probably find that they disagree with one or more of the investment recommendations. That's bound to any time financial advice is being offered. But you will also find lots of little companies you never heard of - but are worth investigating.

Note: I don't consider myself to be an expert in investing. While I haven't done too badly, my style works for me, but it may not suit you. I try to anticipate long-range trends, so I am a buy and hold, long-term investor. So please don't write and ask for investment advice. I will not give it, and if you invest in a company that I mentioned in a favorable light, you are on your own.

I stayed up till the wee hours last night finishing off my copy.

I like the book and I like the review! The first chapters are like an ASPO/TOD/Matt Simmons recap! Long time lurkers will recognise quite a few of the graphs. Nice in print!

Geothermal also looks like a winner to me.

Overall: Its likely that high energy prices will push down PE ratios if we enter a drawn out Recession and Inflation will be even higher so its even more important to pick stock winners. This book gives useful advice on PO and companies likely to benefit -Recommended Reading.


P.S. Regarding the Tar Sands -what about the new Hyperion Nuclear Battery? And generally one of the biggest areas that we can gain in is doing something with all that waste heat from electricity and industrial processes -IMO as big as gains from extracting energy in the first place...

Co-generation needs to be rolled out everywhere ASAP. Over 90% efficient. Its a no brainer - which our politicians should be able to identify with.

Energy Efficiency is the only option available to us.

Energy Efficiency is the only option available to us.

no wind, solar, hydro or geothermal?

Wind, solar (thermal solar), hydro and geothermal are all highly efficient as far as I know, with high eroei.

But its a very good comment - I should have said energy efficiency in energy production and energy consumption is the only option available - in co-generation I was describing an energy production system that may run on coal (for base load) topped up with urban waste and biomass.

Yooooon, I absolutely agree on co-gen. It should be a requirement of any new permit to build a commercial structure, and planners should offer incentives for manufacturing plants etc. to co-locate with existing facilities that have waste heat. Likewise, I would favor strong incentives to deploy heat pumps; if the cost of the units can be brought down or offset by incentives, the "free" heat and cooling could put a real dent in heating oil and nat gas consumption.

Right now, I am not aware of any such incentives in any U.S. municipality. But with the stroke of a pen, planners could offer them, resulting in a very significant boom for both co-gen and heat pumps, and deployment could occur quite rapidly.

On the whole, I agree that efficiency is the no-brainer.

ChrisIs - UK stocks melted today. The day was one of several in recent months where one part of the market went one way - south - (Bank of Scotland down 11.6%, Royal Bank of Scotland down 9% - these are two of the UK's biggest banks) whilst BP up 1.5% and BG Group up 0.4%. The latter is one of my favorite stocks. One of the biggest sellers of LNG into the American market and significant equity in the Santos basin (declaration - I own BG.L stock).

We need to fight a bit harder to get energy efficiency adopted as standard currency. In absolutely everything we do, energy efficiency must be King. For a fair number of years at least, this will allow society to function, doing all it does at present, without too much pain - gives time to think about phase 2 of the Long Emergency.

But I gotta say that in a world run by **** heads - I'm not currently that optimistic.

Right with ya there...

Same thing here today: A tough day for the financials, and a bomber day for energy. But I wasn't complaining 'cuz I'm long energy, plus I saw the financial meltdown coming and went long SKF (ultrashort on the financials) a couple of weeks ago. It's nice to get it right once in a while...

I wonder how the costs would compare in generating electricity centrally and using air heat pumps to multiply it's heating efficiency to suing buried hyperion reactors and installing pipework to pump hot water to houses in co-gen?
It's apparent that the installed co-gen pipework in places like Holland will give them an enormous advantage compared to, say, the UK.

A problem I see is that the global financial system itself is facing perpetual collapse in parallel with the decline of oil production. Does the book take this side of things into account?

Although I like the book a lot (great job, Chris), it doesn't discuss that at all. For those who know about the link between oil, the economy and fiat currency, it's the elephant in the room. I fair way of handling it might have been to say, "There is a limited amount of time to make your money." I don't have any idea what conversations were had behind the scenes on this topic but if Chris wants to chime in that would be helpful.

This is despite that in the Epilogue they do include a lot of urgency and the fact that we're really boxed in. However, the subtitle is "Why We're Energy Optimists" and for the life of me I can't figure out why they are given the poor evidence they muster. Earlier in the book they are really straight about all sorts of topics, including the link between fossil fuels and population. But the end of the book feels like something happened along the lines of a producer in Hollywood saying, "You have to make a happy ending or the film will bomb."

But this is a very good book and I don't hesitate recommending it. If you're looking to give someone a thorough review of the topic plus some investment advice, it's certainly worth the reading time and money.


It may be true that the "global financial system itself is facing perpetual collapse in parallel with the decline of oil production," and indeed I did note several times in the book that the assumptions of continued economic growth are probably bad ones, due to the decline of oil

But--as with the sour crude refiners argument I made--it's probably oversimplifying things to say so. Tell the Middle East that it's facing perpetual financial collapse! I think they would say, "Maybe, but it will be long after yours."

No one can predict exactly how the cookie will crumble. There will be many losers, but there will also be winners. Likewise, no one can say exactly how much switching to renewable energy we can accomplish, or when, or how much demand destruction there might be along the way.

We can, however, say with great confidence that humanity will respond in unpredictable ways, and that it's not out of the question that we might fill the gap of fossil fuel depletion faster than anybody now expects. We already have a multitude of possible solutions to this problem. It's really more a question of political will and financial health than anything else, and who can predict that? To simply say that financial ruin lies ahead would be wrong, and counterproductive.

I truly believe, like the book's subtitle says, that this is the "greatest investment event of the century." Smart investors have an opportunity here to make an enormous amount of money in a very short time, regardless of the larger trends. That's why investing in the energy sector is the focus of the book, and why a discussion about fiat currency and economic theory would have been off topic.

That said, your Hollywood comment wasn't completely off the mark, Andre. I'll just say that it wasn't entirely up to me, and leave it at that.

Thanks for commenting, Chris. Re: the Hollywood ending, I understand how those conversations go. I don't need to pursue that further.

As for not being able to predict the future, please don't be insulted by this but I've found in my work that often that point is made as an excuse to stop thinking (remember that I coach business executives -- they are not immune from this particular foible). Of course you can't predict the future. But you can set ranges and bracket the possibilities. So let's not stop and instead keep going.

On the positive side, does anyone think the economy can grow while oil supply is shrinking? That's clearly impossible given how dependent on oil our economy is. (There are a few people who think this, we call them cornucopians and they are stuck in a paradigm and they can't see that they are stuck, so it's valid to ignore them for now.)

So that leaves the economy staying even as the best outcome possible. Is even that tenable?

No, because the best estimates are that each % of oil provides between 0.6% (from the last oil shocks; see Hirsch's paper on the topic) to 2.5% of the GDP. Given those two data points and at least looking to determine the correct order of magnitude, Hirsch reasons that a 1:10 ratio is too low and that a 10:1 ratio is too high, thus for his purposes a 1:1 ratio works well. I'll use the same order of magnitude.

Now we are left with the economy declining at something like the same rate that oil is declining as the best possible outcome.

What's the worst possible outcome?

The worst possible outcome is that people around the world collectively wake up and realize that the money they think they have in the bank is really nothing but numbers in a computer database. What gives those numbers value are two things:

  • the agreement that people will perform work when numbers are moved from one database to another
  • that the law is there to enforce the contracts that specify the moving of numbers between databases

In other words, these numbers are just an agreement between people backed by the force of law. They are nothing more than that. Agreements can and do change all the time.

If people stop agreeing to the above, then the system breaks down — completely. The numbers in the databases become just numbers in a database.

Now that we've bracketed the best and worst cases (neither of which are very pleasant), let's look at what could cause people to stop agreeing that these numbers in the database are worth paying attention to.

One thing that would do that is massive defaults on the loans that are the source of our fiat currency (see Chris Martenson's Crash Course and the video Money as Debt to understand this point clearly). At that point it doesn't matter if the force of law is there to back up a contract because if the business or individual can't gather the money to service the debt the law can't do anything about it except organize the cleanup.

So what would cause a massive default of loans?

One thing that for sure would do that is a declining economy in which wave after wave of businesses and individuals declare bankruptcy. The filing for bankruptcy is primarily designed to discharge debts at some fraction of the original amount. Countries that allow quick discharges, like the U.S., have tended to be more resilient than those for which bankruptcy is more onerous because entrepreneurs are allowed within a relatively short time frame to dust themselves off and try again. But this would overwhelm the system.

All of a sudden a gradual decline doesn't seem very likely, does it? A massive wave of loan defaults is actually probable as oil is removed from the world economy.

Soon the financiers and asset holders will realize that their best bet is to turn their assets into cash which can then be used to buy things that they really want, like farm land, for instance. That will be the beginning of the Great Asset Selloff and you can already see the beginning of it as we enter the depression by looking at the number of listings in Craigslist.

When I started selling my car at the beginning of February there were about twenty Subaru of all models available in the Bay Area of San Francisco. My strategy was to be the lowest price always so that I got the calls before anyone else. I had two buyers that I foolishly thought were already getting a great deal so I didn't budge during negotiations and they walked away. That occurred at the$600 and $800 below-Blue Book prices. My final selling price at the beginning of May? $1400 below Blue Book and it was getting to be quite a job making sure I was the lowest price because the final week I counted over 70 Subarus of just my model.

The machine is grinding to a halt. Me saying so might just have people prepare a little who wouldn't otherwise, even at the cost of potentially speeding up the process.

So I think a long-term investment strategy has no logical basis to it — at all (see Chris' comment below). And I don't even think it's "on the edge" or "could go either way." Mathematically the economy we have set up requires growth. Remove oil and one removes growth. Remove growth and the system collapses. Period. If the reader doesn't believe that, ask someone who understands this to walk you through it.

That's why in the Post Peak Living Six Week UnCrash Course I recommend that people turn their money into things as quickly as they can (the course and The Guide To Post Peak Living have recommended things). I also coach people to give up their attachment to how they thought the future was going to look and start creating a new future for themselves worth living into. No one is going to give people their new role; they are going to have to create it for themselves and start preparing now. For instance, I am taking a welding course and am going to buy a welding machine and supplies. I figure that might be a good backup skill to have.

And I wish the very best of luck to all of us.

Cofounder, Post Carbon Marin (part of the network)

I'm not so sure that the system will grind to a halt, but I do suspect it will both shrink and slow down. Growth isn't necessary for trade to occur. Nor is growth of the total economy necessary for investment. There are parts of the economy that will grow and those parts will get investment. The return on the investment will be small, much smaller than in the past, but it will be there.

I'm not saying that the markets will save us. I'm also not saying that I trust that my current portfolio, a large part of which is invested in ETFs of several major markets, will just grow as in the past. Nor am I saying that I disagree with your recommended courses of action. But I think it is too strong to say that "the machine is grinding to a halt". We're going to get (or are getting) a wallop and its affects are going to last a long time, but markets are incredibly adaptable, and as long as people want to trade goods and services, they will exist, if not grow inexorably.

Hi, Mark.

I don't think it will be the end of all markets. Forgive me if I left you with that impression. Where humans are markets are sure to spring up, of that I'm sure.

Let me be more specific: the current system of trade that depends on far flung suppliers that equally depend on relatively stable exchange rates between the currencies of different countries will grind to a halt.

This is no small thing. I'm not sure I could find even a handful of articles of clothing in my closet that are made in North America.

In the aftermath, small, hyperlocal markets will emerge.

As for growth being necessary, I think you'll find all our systems are predicated on the notion that business profits will exist and grow in the future:

  • our pension schemes
  • our social safety net
  • our ability in incur and service debt
  • growth is priced into the value of every stock

and so on.


Cool. I think we are nearly of same mind. Completely agree that many of the services we enjoy today are going to change for the worse if not disappear altogether for a time.

Let's think about a system where growth is not expected. Heck, let's say that our current system comes to that realization. Bam! The markets drop massively with that expectation. Some markets even close as capital flees for cover. But where does the capital flee to? Commodities? Bonds? Cash? Inflation will probably make folk avoid cash and bonds. Companies will still exist, perhaps not the ones we know today, but those that survive will have learned their lesson. Ultimately, all that cash, probably much less valuable cash, will move back into the markets. But then what?

My bet is on growth. Not exponential growth, but a more sustainable curve. Perhaps logarithmic or logistic and starting well below what we're at today. Without the expectation of 6% profit per year, the markets will be much more sane. You won't throw your money into them unless you actually know something. People will still make money in the markets, even on average, just not the kind of money we've grown used to in the last 50 years.

But there's going to be some real suckage between now and then.

I think that without oil, money will have very little value compared to what it has now. The world has way too much money in it as it is, parked in bank accounts with owners who think they have real "wealth."

ChrisN said:

We already have a multitude of possible solutions to this problem. It's really more a question of political will and financial health than anything else

This sounds very cornucopian. Did you really mean that there is no doubt that alternative technologies and resources can substitute for fossil fuels, on the same scale for all uses, as well as allowing continued growth of the economy, into the future, with only politics and economics stopping that move?

Could you clarify whether that is what you meant?

Did you really mean that there is no doubt that alternative technologies and resources can substitute for fossil fuels, on the same scale for all uses, as well as allowing continued growth of the economy, into the future, with only politics and economics stopping that move?

No, I definitely don't mean that. I intentionally said nothing about whether they can achieve the same scale, for which uses, or whether they could allow continued growth. I only said that technologies and strategies exist that have yet to be really exploited.

Where I depart from Andre's view is that I assert that those questions are still formally unanswerable, whereas he seems to be quite convinced that global economic collapse is inevitable.

I think we have to be careful to state which time frames we're talking about, and which countries. In the next 20 years or so, I have no doubt that the developed world will experience economic fallout for all of the reasons he stated, and more. But I am not convinced that the effects will be nearly as bad for the red-hot sectors of the developing world, like Asia and the Middle East.

Likewise, if we go 50 years out into the future, who can say with any confidence what the balance of energy supply and demand will look like? On an day when I'm feeling optimistic, I might say that increased public transport, efficiency improvements, relocalization, and increased RE supply could make a huge difference by then--although how much, we can't say. On a pessimistic day, I might even buy Andre's scenario. But there is no way that I would claim either scenario with any certainty.

In the end, I don't think forecasting that far out is terribly useful anyway. The important thing is that as many people as possible understand the problems, and do their utmost to be one of those "silver BBs" that could, in aggregate, contribute mightily to the solutions.

As Andre alluded, he fears that any optimistic view of the future will breed complacency. I take an opposite position: It's crucial to have some optimism about what can be done in order to motivate people to seek their own solutions.

Hi, Chris.

Well, I thought it was self-evident that we'll experience collapse when people realize that the debt on the books will never be repaid. Just as letting air out of a tire leads to a flat tire so too will removing oil from our economy lead to a rudimentary, local market economy. (Forget alternative energy; it won't make a substantial difference in time or maybe ever.) But I guess it's not so self-evident after all :-).

I think this is formally answerable although I'm not going to attempt it now. One would need to demonstrate that the value of money approaches zero as the stored value on the books evaporates.

By the way, I think people bring emotion into play too early in the process. The first job to do is get clear on the range of possibilities. Do that as dispassionately as possible and use optimism and pessimism merely as tools to change the underlying variables. For instance, bring in optimism to really explore one end of the scale, and then pessimism to explore the other end of the scale. But then immediately remove them so that you can think clearly. Some people, typically engineers in my experience, are adept at this style of thinking.

Once the range is established you are on more solid footing. THEN bring optimism to your response to whatever occurs, not because it's "the right thing to do" but because of what Chris said: people will stay in action and achieve more results if they are optimistic.

Bringing "optimism" in too early will give people a skewed view of the world and they will then make poor decisions.


Thanks for clarifying that. Your saying, "It's really more a question of political will and financial health than anything else" had me wondering if you thought that, technically, there are solutions that would enable economic growth to continue indefinitely.

My take is, I think, irrefutable. Economic growth requires more resources (ultimately), since it means more stuff is made and used (whether it's in services or physical products). As we can't assume that we'll ever be able to plunder the asteroids and other planets for resources, whilst maintaining a liveable environment, it is obvious that economic growth must end. The only real question is when. No doubt there are many factors though maybe collapse will come through the first scarcity of a vital resource.

If we don't move gracefully to a sustainable economic model and a sustainable society, then collapse is inevitable (how could it be otherwise?). If we do manage to get to a sustainable society then it will be very different from now and questions of "investment" and "profit" will have very different answers. From here to collapse or sustainability will be a decline, from the point of view of our current growth society. Even in that interim period, I think any financial investment is risky. If one doesn't absolutely have to urgently find alternative sources of income through gambling or investment, I'm not sure why anyone would indulge.

sofistek, I think the answer to why anyone would invest in energy at this point is self-evident: because if we don't invest in it, it won't materialize! The more we can produce unconventional fossil fuels, the more gradual the decline will be, and the greater our hopes for a managed reconfiguring of our economies instead of a sharp collapse. And the more we invest in renewable energy, the better our long-term chances are for achieving a sustainable society.

Anyone who has no need to increase their wealth or retire their debt is truly blessed, but that isn't the case for most people. I believe that investing in energy is a better choice than just about anything else, aside from the basics like land, water, and food.

Anyone who has no need to increase their wealth or retire their debt is truly blessed, but that isn't the case for most people.

I agree. However, one may be able to redefine "need".

Investing, as implied in your first paragraph (i.e. actually putting money into a venture, rather than trading stocks), is probably not the kind of thing that most people could get into. But both kinds of investing is a gamble, either in the short term or the long term. Those who "need" the extra money may not be able to risk what they have on the stock market. So "need" may be translated into "need, given one's current situation". That current situation may be changed by investments (of varying risk) or by re-arranging one's current situation. For example, taking a hit on one's property and moving down or away. Maybe moving in with family or combining resources with friends or family to better prepare.

For someone that can't afford to lose anything of what they have, is intrinsically risky investment ever the best way to go?


The first rule of investing is: never risk more than you can afford to lose!

Well said. People please note!

That's why investing in the energy sector is the focus of the book, and why a discussion about fiat currency and economic theory would have been off topic.

I think fiat currency discussion and economic theory should have been covered(I haven't read the book). what's most likely to happen is that we're going to have massive inflation and even hyperinflation as fiat currencies feel the strain of inflation. it may not be wise to hold some currencies. some fiat currencies might go away. some might convert back to gold or silver standard.

A problem I see is that the global financial system itself is facing perpetual collapse in parallel with the decline of oil production.

and why do you think that and do you have any historical examples?

How does this book compare with "The Oil Factor" by Stephen and Donna Leeb? Leeb and Leeb are peak oil aware. The key innovation in their book is their case against the buy-and-hold strategy. Their argument is roughly that normally you should invest in things like alternative energy, natural resources, etc. but that when the annual oil inflation rate goes really high (like over 80%) that presages a recession, and you switch to a defensive strategy with a lot of bonds until the inflation rate recedes. So you switch your investments depending on the economic climate.

I'm not so much interested in your comments on their strategy itself as whether "Profit from the Peak" references this argument or discusses this book in any way, and your thoughts on how "Profit from the Peak" compares to "The Oil Factor."



I've read both books -PFTP does not address this strategy. By its market entry/exit timing ommision it essentially recommends a BUY AND HOLD strategy.

I would suggest PFTP is used to form a set of companies that a timing strategy may then be used with to optimise market returns.

Having said that Leebs market timing idea is probably itself too broad -its possible within each of these cycles bubbles may form and die. Corn Bio diesel -for example- could see a surge of investment only to die when EROI/Famine considerations kill it...


There is much overlap with Profit, but I found that Profit gives better context mostly because it is more up to date.

The Leeb book helped me get in and his subscription investment service has been valuable, although the monthly newsletters are free as far as I can tell. He also misses some stocks by a mile. It was obvious 6 months ago that First Solar was soaring, but Leeb didn't recommend it until it ran out of steam at $250/share just this month. Patterns like that make me think of "pump and dump". He also missed things like Vestas at $98, now over $650 after only 2 years. Pretty obvious investment, not that I was able to make it because of asinine trading restrictions. I can convince myself that there are huge investment returns to be made in completely inconsequential parts of our energy solution. All part of being on at the ground floor of incredible exponential growth. Don't expect that the companies you gain from will change the world, most cannot scale. Meanwhile, ones that can e.g. GE are burdened by all sorts of crap like financial services and "entertainment".

I don't churn as much as Leeb recommends, and he provides no insight into seasonal timing of energy investments (viz natural gas). He is big on "Chindia", claiming e.g. that Coca Cola is a great buy because millions of Chinese are going to drink that swill. I'm not so sure. Recall the "Come Alive with Pepsi" fiasco, which was translated in China into "Pepsi brings you back from the dead." Perhaps that is accurate.

However, Leeb is no longer following his own advice. Oil has broken through his Indicator (TM), and by his rationale one should be bailing out of stocks and into deflationary hedges. Instead, he is rationalizing that his recommended investments are hedged already, which makes sense only if you hold the 50-60 stocks in his various categories. I have gained on a half dozen recommendations that doubled or more over 2 yrs, and lost a bit on ones he said to dump. So, there is value there, but you need to put in many thousands of $ to make it worth the time. I invest to preserve value against true energy+food inflation and the $ collapse.

One of the more doomerish arguments of the PO community is that when oil peaks, further economic growth becomes impossible. When the financial community wakes up to this there won't be any more need of a stock market since it is a way of giving money now hoping to increase it due to growth. I would be interested in hearing comments on this argument.

Me too!

In addition the Stock Markets in the 1970s got absolutley hammered (apart from certain key sectors: Gold, some commodities, oil, others?)

It's likely the stock market is going to be a 'war zone' post peak. PE Ratios could plummet as the 'future growth paradigm' that many stock valuations rely on is gradually erroded away...

Having said that its also going to be a market where companies that offer solutions will see their stocks soar. How much would a starving man pay for a machine that made food?

My highly speculative timeline shows the collapse of the financial system as a possibility 'Mid 2020s' -I think a lot of things have to happen b4 Capitalisms Engine (the market) dies!

The markets have been around for ~250 years so for a 95% confidence interval we can say they will exist between 12.5 and 5000 more years... -12.5 years would put their demise @ 2021...


Well, "the economy" isn't some monolithic thing. If you watch the daily action of the stock market lately, you usually see one of two things: Either the energy sector gains, and all other sectors lose, or vice versa. As energy stocks gain, that contributes to economic growth. This is why it's a silly argument (though one that's made often enough) to say that peak oil means the death of the markets. A huge portion of the S&P 500 index (which is generally considered the best barometer of "the market" in general) derives from fossil fuel stocks!

Look at it this way: Some (and I am one of them) say that we have effectively been on the peak/plateau for three years now. While this has undoubtedly been a factor in slowing the growth of the U.S. economy, the dollar has been another very important factor. If you look beyond the U.S., you see the euro holding up quite well in the face of peak oil, and you see China still maintaining an 11% economic growth rate, with India and the major Middle Eastern producers not far behind. And global trade continues to be extremely important to all participants.

This is why it's a silly argument to say that peak oil means the death of the markets.

It's silly without qualification.

I think a lot depends on people's awareness and reaction to that awareness. If we see recession deepen and unemployment rise inexorably, even whilst energy costs rise, maybe people will start to get the notion of a finite planet. If people start to realise that all of their aspirations for the future (and for their children's futures) will come to nothing, who knows what reaction that will spark off?

world oil production didn't increase at all yet world REAL gdp increased 60% in that time.

that shows that the world may have a tougher time with high oil prices than with physically less oil.

Are you saying that this oil crisis is the same as that one? Are you saying that the world is in the same condition or that efficiencies will be as easy? Are you saying that once those efficiencies have been implemented, the same efficiency improvements can be made again and again?

Maybe, just maybe, the world can squeeze by for a while with less oil (and, eventually, gas and coal) but in a continuous decline, scarcity will hurt just as much as higher prices, if not more.

scarcity will hurt just as much as higher prices, if not more

Yes, and many people seem to get that.

The CNN/Opinion Poll results in yesterday's DrumBeat indicate that 55% of Americans fear rationing and long lines most. 45% fear high prices most.

Are you saying that once those efficiencies have been implemented, the same efficiency improvements can be made again and again?


Maybe, just maybe, the world can squeeze by for a while with less oil (and, eventually, gas and coal) but in a continuous decline, scarcity will hurt just as much as higher prices, if not more.

we won't be in continuous scaricity, prices will decrease some day as we squeeze oil out of our economy. just look how after peak whale oil prices declined off their peak.

Then you don't recognise limits. There are practical and theoretical limits to efficiencies. As we become more efficient, there are less opportunities for efficiency. The world has one or two billion more people than in the time period you reference. Many surging economies subsidise energy costs.

Why do you think we won't be in continuous scarcity (apart from occasional surpluses following occasional demand destruction via high prices)? We will have to squeeze oil out of our economy, as you say, but that doesn't stop us using oil (and gas and coal, or any other finite resource). When a resource is consumed beyond its renewal rate, scarcity is the result. Of course we will have more or less continuous scarcity of fossil fuels, if we continue to consume them. How could it be any other way?

Your reference to whale oil implies a belief that we will always find better and more abundant resources to replace ones that become scarce. As we live on a finite planet, that is patently untrue.

Then you don't recognise limits. There are practical and theoretical limits to efficiencies.

as it pertains to oil and cars, my problem is I don't know oil demand. will car in 2015 be entirely electric? say coal and etc grow more scare? I don't know what that means for cars or homes because I don't know what demand will be. I don't know how efficient homes and appliances will be. how do I know if even big screen tvs will be wind ups? how do I know if they will just run on the temp of the room? how do I know that 2 solar panels and the grid electricity won't be fine for most people? sure there are limits but even if I did calculate them I could never calculate the population and the demand that would make those limits a problem for the population.

Your reference to whale oil implies a belief that we will always find better and more abundant resources to replace ones that become scarce.

I don't think that is implied at all.

I believe in the mises explanation of peak oil.

The Myth of "Peak Oil"

First, whatever ends up replacing petroleum will come in its own good time, later than we'd like but probably sooner than we expect. It will come because it stores energy and power better than gasoline does and more cheaply to boot. It will come with some tremendous benefits and some unfortunate drawbacks. Consider as you lament the evils of crude oil: the fairly accidental discovery of kerosene and expansion of the refining process in the second half of the 19th century saved whales from an early mass extinction while at same time making nighttime light and winter heat affordable to even the most impoverished parts of Asia, Africa and Latin America. Gasoline itself was originally a waste product, largely unused until the invention of the internal combustion engine, and automobiles made for cleaner streets (no more manure) and safer farm equipment, given that farmers no longer had to wrestle with motors that had minds of their own. Kerosene itself languished as an unloved byproduct of refining for several decades until the invention of the jet engine...

I don't necessarily trust technology, but I do trust human ingenuity. Civilization as we know it will grind to a halt without the energy we derive today from crude oil, and that's in and of itself is motivation enough to make sure that future energy is widely available at prices people can afford.

What happens is that you substitute human labor for energy. Insulating a house has a very high cost because it is difficult, dirty, and sometimes dangerous work. At low energy cost and high labor cost, this does not make sense. At low labor cost and high energy cost, it does make sense.
At every higher level of energy cost and lower level of labor cost, there is another project that is economically sensible. Since energy cost is going up and labor cost is going down (for unskilled labor, anyway), the result is that energy keeps getting squeezed out of the free market economy.

That is purely a faith based view of the future. You say you recognise limits but that is not apparent from your previous posts.

The human view that we need the energy to continue civilization does not guarantee success at finding suitable substitutes for any resource we use today that will become scarce in the future. Nor does it guarantee that we will find a way to avoid seriously damaging our own habitat as we strive to keep civilization, as we know it, going.

Following is an extract from "The Australian" newspaper today (and why this little Average Joe continues to sit on fences: I still don't know who to believe!)...


"Forget 'peak oil' -- for a few decades at least. Today's high prices for oil are, in large part, a consequence of the unsustainably low oil prices a decade or so ago.

"There's no doubt the days of cheap oil have gone -- but what is the outlook? As the short-term and cyclical forces that have boosted oil prices ease over coming months, oil prices are likely to come down for a time -- much to the relief of motorists and governments.

"Even as we enjoy this short-term drop in the price of oil, we must allow that, over the next decade or so, average oil prices are likely to be a good deal higher than those we've seen in the past.

"That's because of the increased demand from emerging economies, declining production from existing low-cost oil reserves and the increased costs of extracting oil from deep-sea fields will be pushing up oil prices.

"That said, suggestions that oil prices will average $US200 or $US300 a barrel over the next decade are as fanciful -- and as dangerous -- as the forecasts in the late 1990s that oil would remain cheap. I'd suggest an average price of oil of about $US150 a barrel and, given where we are now at, that's not a big deal.

"The increases in oil prices we've recently experienced -- and the relatively high trend prices for oil that are in prospect -- will encourage exploration and, more important, will bring about greater efficiencies in the use of oil, including the substitution of other sources of energy. The best thing about high prices is high prices".


PS. "Petroleum Woodside" shares have fallen from $67 to $59 in around ten days. More uncertainty from my point of view!

Regards, Matt B

Most journalists are not trained science. You should bear that in mind in your deliberations.


Three comments:
1. Chapter 2 Your take is correct on how to view reserves and production. Energy trust (especially in Canada) have done very well for investors by exploiting mature properties; investors should focus on cashflow not accounting profits.
2> Tar sands: Nexen has a plant which will be using the bottom of the oil barrel to generate steam when it becomes operational with 12 months. Also EROI of about 5 sounds good -confirmation is in the cashflow generated by these companies.
3. Environmental isues in the tar sands: the new plants are getting much better, the major problem is from the old plants. Continuing pressure will force further changes especially since these companies can no longer claim inability to pay.


I'm surprised that you don't mention water as a cost to tar sands production! Fresh, sweet drinking water, in huge quantities, that's rendered not just useless but toxic by the process.

The financial question we're all asking is, "inflation or depression?" Stagflation can only stay balanced for so long; eventually it'll have to tilt one way or t'other. When every hairdo on the BoobTube is saying "inflation, inflation, inflation," that's a sure warning to me that a big downward correction is on the way. Stoneleigh thinks so too:

The financial question we're all asking is, "inflation or depression?" Stagflation can only stay balanced for so long; eventually it'll have to tilt one way or t'other. When every hairdo on the BoobTube is saying "inflation, inflation, inflation," that's a sure warning to me that a big downward correction is on the way.

Indeed. A consensus takes time to form and become entrenched as common knowledge. The stronger the consensus, the later it is in the trend. A complicating factor is that the 'hairdos' don't really understand what inflation is - not rising prices but an expansion of the money supply relative to available goods and services, of which rising prices can be a symptom.

By the way, the Law of Receding Horizons was coined right here on TOD (see The Oil Junkie's Last Fix, Part I).

I'm surprised that you don't mention water as a cost to tar sands production!

Had it been an article on tar sands, I would have. That is part of the environmental concern over tar sands production.

nelsone, rest assured that I did cover the water requirements of tar sands production in depth in the book.

Hi Chris,

I often see people stating there are huge new reserves in the US & Canada that are only costing $18-20/barrel to produce, do you know what tehy are talking about? I can't see the tar sands being that cheap to produce.

I believe that's about right for the earliest entrants in the tar sands plays. Not so for the later developers though. Still, "it's not the size of the tank which matters, but the size of the tap." The last I checked, Aleklett believes that tar sands production will be lucky to grow from ~1.3 mbpd today to ~3.5 mbpd in some decades, but that's where it will likely top out.

Solazyme to meet ASTM Standard. First Algae Biodiesel to do so.

Excellent! Now for their next technology innovation, we need them to go back in time twenty years and bring it to market then — maybe thirty.


Thanks Robert for your balanced review and good critical feedback. I'm sending my next book to you for a technical review before it goes to print!

My call on the heavy sour crude refiners was bad, no doubt about that, and I'm personally paying for it, as I am holding underwater positions in them. When I wrote the book last spring, the outlook for the sour crude refiners was far different than it is today. Their margins were at a record level then, and it would have taken a remarkably prescient analyst to imagine that they would have collapsed to today's levels, or to identify the factors that would have weighed against them. My argument was simple: if there is an excess of heavy sour crude capacity, and it trades at a huge discount to light sweet, then those who can process it should make out nicely. Perhaps this demonstrates that simple arguments rarely succeed when it comes to oil!

The rapid increase in global sour processing capability--and the shrinkage in the heavy sour discount--caught me a little by surprise. I thought it would take quite a few years of such investment to make a big difference. On the other hand, I have not given up on the idea that in the longer run, the sour crude refiners might turn out to be decent plays.

Likewise for the integrated majors, I didn't anticipate that crude prices would rise so fast and so far (and I wasn't alone there). That really changes the economics of things. You are correct that the majors should continue to turn a tidy profit. I think I was right to point out that they are not investing in the future of their businesses so much as they are circling the wagons and intentionally downsizing, though. Yes, at some point they should become more diversified, and I hope they do, but that hasn't really happened yet.

On the other hand, many of the calls I made last spring have turned out to be very good ones, such as the deepwater drillers, and the players in solar and wind. I expect that many of my other recommendations in renewable energy will be "triple-baggers" within the next couple of years.

Regarding the question on strategy, yes, I restricted myself to long recommendations. Trading actively is tricky and hard to get right, especially in a market such as we have seen this year. One week you'd do well to be in gold and cash, but the next you'd lose money as the market rallied strongly, so it takes a sophisiticated understanding of the markets to play those ups and downs successfully (and even then you might not pull it off). I firmly believe that most average folks who want to invest a bit of money in the market are better off to pick a few good ones, and just hold 'em.

I appreciate the interest of all who took the time to read my book, and I hope it helps you to find profit in energy investing. After all, my #1 recommendation for anyone in preparing for life after the peak is to eliminate debt, and build a good cash cushion.


Great book Chris. I have been negative on refiners for quite some time and I disagreed with your views in the book. It hit me one day when I was discussing this with a friend when I said in 10 years crude oil supplies will be down to 77 million barrels per day. I felt that refiners will be the worst investment next to to the stock market. I went short Tesero and even made a joke about it.
I continue to believe these are dead barring someone buying them for a huge premium.

I suspect that the Cantarell crash has taken a lot of sour/crude off the market, and as I noted in September, 2007, I expected to see overall utlization rates in importing countries declining.

Like several people here, refiners just struck me as an intrinsically bad idea (though I understand the emphasis on heavy sour). If the volume of business is declining, that whole industry is going to find itself over-capacity and unprofitable.

The oil majors seem like almost certain wins EXCEPT for political factors. As you say, they're likely to face steeper and steeper taxes, and there's also the possibility that more countries will nationalize their reserves or insist on renegotiating leases to capture a larger share of the cash-flow.

One area RR didn't mention (I haven't read the book yet) is field services companies. Higher prices will make more and more marginal fields profitable, which means more demand for drilling rigs, pumps, etc.

One area RR didn't mention (I haven't read the book yet) is field services companies.

The book does cover them, and they are a good bet, in my opinion. But they all aren't created equally. Some of them are also trading at pretty inflated PEs. Perhaps warranted, but worth a note of caution.

Chris is a good guy, and he co-authored a good book. There's lots of useful information in this book. I recommend it.

-- Dave

I see the crack spread as a very important issue since I reside in the poorest county in Iowa. Household incomes in America have been stagnant during this rise in oil prices which means customers cannot afford these prices for much longer. The drop in sales and VMT are already happening. This puts pressure on retailers and refiners to keep their markup to a minimum. It is ironic that higher prices could cause stations at the end of the supply chain and in low income areas to close due to operating losses. Sales of cigarettes and Coke can subsidize the loss on gasoline for only so long. Since refiners don't have non petroleum products to sell they may simply shut down causing a shortfall in supply until the crack spread widens again. When folks can't get gas at any price then they will long for $4+ pump prices.

I worked in Nigeria for a while and if you want to see the outlook go to Lagos. Whether you profit from oil stocks, gold or what have you, it does make any difference in Lagos.

I only scanned the book in the bookstore and was surprised by the Valero recomendation. Granted I do own 1000 shares because it lowers my stress at the pump and when politicians talk about amnesty and the related family immigration.

I don't think the book mentioned investing in deepwarter services like Acergy or even carbon fiber. I loaded the truck on Zolt a few weeks ago because I started thinking that it will not be the wind industry that will be huge, but it will be the auto industry that will really spur demand for carbon fiber in order to get substantial mileage gains. I think that will be the place to profit from peak oil.

Were those covered in the book?

Sorry if my post violates an ordering rule. This is my first post and I know the drill.

The book does recommend Zoltek, but now (a year later) there are some other interesting plays to be had in wind. For deepwater drillers, I recommended Transocean (RIG).

Chris, one company that you may want to watch is Composite Technology. They bought a wind turbine business which all of us longs hate. But the real product of interest is their electricity transmission cable. Lower line losses, better performance in heat, etc. It is an interesting product. China is their big buyer but they just installed in Poland and Mexico.

It is going to be my death I fear. Dilution has reduced the profit I expected (because of that damned wind turbine division,) but it could do well from where it is at.

Buy things that are cheap, real tangible assets that will hold real value in times of currency devaluation. Gold stocks are just paper, silver coins under the bed are tangible but can be stolen.

Land and property are reasonably priced. Look for bargains. Water, timber, farm land. But don't waste time building Thunder Dome in the sticks. Owning rental properties is the old working class way to accumulate wealth.

Owning rental properties is the old working class way to accumulate wealth.

At least until the revolution, after which the working class expropriates and executes all of the capitalist pig landlords.

Seriously, I do wonder how popular landlords are going to be. I keep saying: forget about being better off than your neighbors, just try to figure out how to keep from being worse off.

One point regarding the oil majors that may have been overlooked. One of the biggest news items lately has been the dramatic rise in oil production costs. Certainly this trend will continue and eat into the profit margins for expensive oil. Combine that with the trend to lower EROEI oil. I wonder how long rising prices can keep up with falling production and rising production costs.

I also wondered this. RR says that rising costs will outweigh declining production, but won't more and more investment have to be made to keep production from declining even more rapidly? At what point do alternative technologies appear to oil companies to be lower risks than investing more to get declining reserves out of the ground? Thanks.

RR says that rising costs will outweigh declining production, but won't more and more investment have to be made to keep production from declining even more rapidly?

It is reflected in the fact that a 60% increase in crude prices doesn't equate to a 60% increase in profits. But, year over year profits at COP - the company I discussed in the review - were up 27% in Q1 2008 versus Q1 2007. This despite the fact that refining margins had all but vanished. But revenues were up by 33%. The reason profits didn't keep pace with revenues is 1). Higher taxes in 2008; 2). Higher expenses for investing in new production.

I made that very argument in the book, but again, no one can predict what oil prices will be in the future. If they continue to rise as they have been for the last three years, then I think Robert will be proven right. But if they stabilize here or fall, then even Big Oil's profitability might be hard to maintain, because I don't see the cost structure falling nearly as much.

It has occurred to me that consumer credit availability is clouding things a bit. People with credit cards will continue to use them to make purchase especially when most of the MSM keeps telling them that oil prices should go back down soon. There are two consequences to this;

1)Demand destruction is delayed
2)People spend their way further out on to a limb

It is likely that without any relief from high oil prices, more and more consumers will end up defaulting on their debts. Any ideas on how this will play out in the financial industry? I wouldn't be surprised if the response is, "more of the same" but, how long can the Fed continue to prop up failing banks and what does this all mean for the value of the greenback?

Edit: Andre (aangel) sort of answered this in a post upthread, completed 6 minutes before I completed my original posting of this!

Peak oil means:

1. Deflationary trends in non essential things.
2. Inflationary trends in essential things.

IMO, investing in AGRICULTURALS is THE place to be, because agriculturals are essential and are produced by fossil fuels (diesel, fertilizer, herbizides, irrigation etc...). Add to that climate change and the 2.5 Bio. Asians changing diets as well as a 25 year lasting bear market.

I wouldn't invest in gold neither in silver.

Hello Euro,

I gotta agree. As posted before: we should gladly accept sitting in the dark if it keeps food & water coming to our table. As detailed in my numerous postings: depleting FF flowrates means depleting I-NPK; we need a huge ramp in O-NPK recycling.

Consider early weblinks from TODers: Russia says $250/barrel soon, and Putin has told his people to grow their own food. Consider weblink that stated Belarus was denied increased Russian phosphate; they must import from Morocco, etc. Yep, it will get ugly. The past guano wars are nothing compared to what's coming.

Consider that Potash North is up 22-fold in just a week just over being granted a mining permit [years from production, if ever!]. That's insane.

Bob Shaw in Phx,Az Are Humans Smarter than Yeast?

I wouldn't invest in gold neither in silver.

I've been hearing that since I bought gold and silver almost four years ago.

gold and silver are real money. if you want to take the doomerish view, when we don't mine anymore because of peak oil all metals will be precious, correct? all metal above ground will be golden as we'll never mine anymore under it.

Gold and silver are valuable largely because people think they are valuable, and because they are geologically rare. (Otherwise, lead or zinc for batteries might soon be worth more.) As long as people continue to think they are valuable (and this thinking has persisted for thousands of years, in contrast to thinking about say, tech stocks or suburban houses), you should be fine. Nevertheless, you can't eat them, and most gold that has ever been mined is probably sitting in someone's vault, waiting to be sold (just like a stock in your portfolio). An extremely familiar argument, I'm afraid, and one without a definitive answer. Tradition is certainly on the side of gold.

Incidentally, don't write off underground mining completely. Its case is somewhat analogous to agriculture. People mined metals underground long before they used fossil fuels, just as they farmed. Only the quantity produced has increased greatly, because fossil fuels enabled open pit mining of extremely low grade ores, just as they enabled mechanized agriculture. Traditional underground mining, like traditional agriculture, is extremely labor intensive, and does not require fossil fuels, or even explosives (in its most primitive form). Peak oil implies peak metals, but probably not the end of metal production, any more than the end of oil production (for a long while at least). Even in the doomerish case of complete collapse, there will always be underground landfills to be mined for metal objects, as you imply, until those too are depleted and become more valuable.

Nevertheless, you can't eat them,

but I can exchange gold for money to buy food or just straight gold for food.

Energy-- the way we use it and the way we view it-- is undergoing a complete transformation. This book shares all of Oil's dirty secrets of the past 50+ years, where it's going, what's ahead for us... and how individuals can capitalize on this very real energy transformation.
The future of energy is moving, I realized this when i visited

if there is less oil to refine, the utilisation rate of the refiners will decrease. So there will be over capacity.
Any comments on this? I guess high quality oil will be scarce, whereas heavy oil will be more abundant
any comments on this ?

anyway, I would never buy the refiners

My September, 2007 essay in the subject:

While we're on the subject of the ELM, I finally did an article about it today: The Impending Oil Export Crisis

I have long thought it was a very important concept, I'm glad to see it finally getting recognized, and I wanted to elevate it as much as I could. Jonathan Callahan's new Energy Export Databrowser was most useful in making the charts; thanks Jonathan!

It is pretty bizarre that net oil export capacity is not the #1 story worldwide. Just a couple of days ago, the talking heads on CNBC were discussing the established "fact" that Saudi Arabia could produce at their current level for at least 50 years. Of course, even if true, what happens to net export capacity as the Saudi's consumption increases?

At the Saudi's current rate of increase in consumption, they would be at zero net oil exports around 2030, with no decline in production.

Hi WT,

Do you think there is much chance that the oil exporters will curb their own demand by say raising prices? For example, I know that in Russia they have fuel prices that are broadly similar to the US, i.e. around $4/gallon = ludicrously cheap but not as low as the ME and their consumption has actually fallen by 0.9% from 2006 to 2007 according to the BP statistical review. Unfortunately KSA consumption has gone up by 7.4%.

I think your argument will fail for the same reason mine did: it's overly simplistic.

Bear in mind that I specifically recommended the heavy sour crude refiners only. But it's a complex topic and depends largely on the discount of heavy sour vs. light sweet, and the relative trade of each, not necessarily on the total amount of oil refined.

In any case, Valero and Tesoro were only two of dozens of stock recommendations I made, and among the rest there have been some outstanding performers.

Good web link for up to the minute price of oil:


I haven't read your book yet. I just ordered it off Amazon. I was hoping to get your thoughts on interest rates with regards to investing in fixed income.

Most central banks around the world view inflation as when a manufacturer or producer of a good feels like they have pricing power. Currently manufactures and producers are just trying to pass on raw material costs, I think most don't feel like they have pricing power. This is one reason in the US we have seen relatively modest upticks in the CPI even though we have seen prices for everything go up.

We are seeing inflation. The traditional response from central banks is to raise interest rates to cool off growth. If the Federal Reserve raises rates in the U.S., this does not mean raw material costs will go down because it is a competition for resources worldwide that is driving the inflation. I think everyone who reads this board thinks oil and many other raw material costs will continue to rise.

If central banks start raising rates this will only compound the problem for slower growth worldwide. Where do you see interest rates going as we approach peak oil.


dwestlund, I think you've put your finger on a very important point. In my view, the Fed is now stuck between a rock and a hard place. I don't think there is all that much they can do at this point, and I think they know it. All they're doing now is trying to jawbone the dollar back up, without making any concrete moves...which is probably their best course of action!

I have long maintained that he CPI is a bad joke, designed to make the economy look better than it actually is. Who or what can do anything without food and energy?

My guess is that central banks will try to slowly raise rates as much as they can without killing growth altogether. But actors like China will have a far easier time of it than the U.S.

I try to anticipate long-range trends, so I am a buy and hold, long-term investor.

that's pretty much the best that you can do.

Hello TODers,

Just a heads up--India is considering shutting off exports of sulphur, sulphuric acid, and phosphates:
...the Government should come out with measures to support domestic manufacturers by banning export of raw materials such as sulphur, sulphuric acid and phosphoric acid.

This is all the more necessary because the global fertiliser industry is at the hands of two large players — OCP of Morocco and Phoschem-Mosaic of the US — who cartelise and fix prices, sources said.

“Even as the fertiliser industry is facing crippling supply-side constraints in getting raw materials, Indian producers of sulphur, sulphuric acid and phosphoric acid are merrily exporting the products,” sources in the fertiliser industry said, calling upon the government to ban the exports.
Please see the included pricing chart--sixteenfold sulphur increase and nearly $2,000 for phosphoric acid!

Maybe they are finally starting to realize that I-NPK & sulphur are Strategic Elements. As posted before: farmland at the Liebig Minimum of insufficient NPK is comparable to a SUV wheezing along with the gastank on the big 'E'.

Bob Shaw in Phx,Az Are Humans Smarter than Yeast?

From the 2nd reader review on Amazon:

"My best friend who is retired from Wal Mart and former upper mgt with them has a brother that works on the Gulf oil rigs and he states that he can't count how many excellent producing wells are capped off- I wonder why ?. Beside the earth core keeps producing more oil and oil pools in the Gulf now are refilling up from those deeper deposits seeping upward. All this info is readily available on the webs you just have to search it out apparently these dooms day writers didn't do that."


I'm looking forward to picking this up and reading it tomorrow. I'm going to jump the gun a little and mention that I think the best play on electrification is Emerson (EMR). Yes, they are a bit of a conglomerate, but they will be very involved.


Matt: Yeah I saw that today, hilarious. Even more hilarious is that he still gave the book a 5-star rating. You can almost tell how uninformed the response is just by grading the grammar...

Yeah "Oily Crap: 5 stars." Classic.


Chris - Great book. Thanks. While I see plenty of pain ahead, at least a lot of people are starting to notice the train wreck ahead. With a little leadership in the White House (and higher gas prices), I'm hopeful that we'll finally start aggressively attacking this problem.

An article today that echoes of 'The Long Emergency'.

Hi Folks,

I think this weeks Truckers strike in Spain will be the model we will have to work with.

I respectfully suggest that the longer we can fool the masses the better. If this process of implosion is going to be as brutal as many suspect, we should start massive "Don't worry be happy" campaigns and offer lots of viable alternatives and outcomes to individuals trapped within the system.

These fool politicians who are still dilly dallying, who are not making any directional decisions will destroy us all.

If the Olduvai Theory is coming to pass it would be a very wise investment by all players who have any excess money, from countries to cities to corporations to start putting some reachable escape chutes in place as they educate the masses to reality.

Once it reaches a Fisherman's and a trucker's strike situation, it is too late. How does a person with a mortgage in the suburbs, paying off an SUV, commuting to a job to earn a wage, a few kids and etc ever get to choose his/her lifestyle in time to become self sufficient.

Many of us here are probably passed our high testosterone years and have a few (Paper) investments we can cash in to make a move. I now live in a small house I made from my coconut trees. My gasoline is $20 a month and I eat my chickens and pigs.

With Fiat currencies I am not sure any investment in any business will ever pay off once the system starts unwinding. I suspect that Prof Antal L Fekete may have spelled out the rules for fiat currencies very clearly. Barter may be future investments.

The sheeple have to be weaned and hardened and shown the way or draconian repression will be needed.

Some comments.

I made 200% to 300% returns off of railroads in a few years (= to my oils) before selling before the upcoming recession. I will buy back the two Canadian RRs later. US RRs ?

I avoid refining, pipelines, marketing companies as much as possible. Thus no COP or XOM. As volumes hrink (and oil exporters want to invest in new refineries), a losing game. I almost sold VLO & TSO short.

No mention was made of short selling. I am short mortgage insurers, airlines, cruise lines (they have not collapsed, yet), casual dining.

Hydroelectric producers occupy the place that bonds would in most portfolios. Some (Canadian Hydro Developers) are diversifying into wind and other renewables. Hydro is long life (longer than me !), low cost energy producers. Some rainfall risk, but diversification helps with that. I own hydros in Brazil, Canada, Austria and would like to own Swiss and New Zealand.

Even in a TSHTF world, several of those nations should remain operational and the investments retain some value.

The Canadian hydros have mainly long term sale agreements with some, but inadequate, inflation adjustments. But the contracts expire and reset within my expected lifetime.

Governments own 51% of the Brazilian & Austrian hydro utilities, which is good and bad. Limits upside and downside risks.

Best Hopes,


Can you tell me your faves in hydro? Thanks. I have also been mainly doing puts on transports for the last couple year (AMR,YRCW,others. Plus CX). Has definitely outperformed my longs in oil.


Canadian Hydro Developers puts all cash flow back into more projects, no dividends. The "greenest" investment out there.

The other Canadian merchant hydro companies are Income Trusts, with tax treatment getting worse soon (maybe). I think this is built into the price.

Innergex is highest quality of the group. Great Lakes Hydro #2 and Algonquin is the dog (also owns Arizona water systems, or did, etc.) but highest dividend. Another whose name I forgot.

Two half state owned Brazilian hydro utilities (small NG) listed on NYSE, CIG and CPL. One high dividend, the other lower, more growth orientated (remember who is 51% owner, the local state).

Verbund in Austria. Also half state owned.

Quite a mix & match (cross ownership, joint ownership of hydro & nukes, etc.) in Switzerland. I looked but missed the large appreciation in Swiss utilities. Moto Colombus will get you a cross-section of Swiss utilities (from memory).

And one listed utility in New Zealand is almost 100% hydro (interest in a wind farm). Forgot name ATM. I think you may need to open account with NZ broker to buy.

Hopes that helps,


Nice, Alan! Some very smart plays there. I think this is the first I've seen of your trading strategy--I'm impressed.

I wrote an article about shorting the airlines and going long rail just a few weeks ago, see Peak Oil and the Rail Revolution

I avoid refining, pipelines, marketing companies as much as possible. Thus no COP or XOM. As volumes hrink (and oil exporters want to invest in new refineries), a losing game. I almost sold VLO & TSO short.

But, COP and XOM aren't just refining. They produce and sell oil. Had you sold them short, you would be under water right now. As I showed above, the underlying value of COP's reserves has more than doubled in the past year, while the stock has appreciated 20%. Profits are growing at about a 30% clip.

But compare oil companies without the ballast of refineries, etc. (or a minimum of them in relation to their oil & gas resources (under development or in production).

XOM & COP et al vs. APA, CNQ, ECA, Tullow, PBR, BRGYY (BG Group), STO (OXY should be on list, but I sold it to buy others). Please note that only APA and OXY have much exposure to windfall profits tax on oil.

I might short XOM or BP (always good to short bad management) and "cover" with the rest of my portfolio. But otehr shorts are MUCH more attractive.

Best Hopes for COP, the best managed of the majors IMHO,


One other thing to point out about COP is the Burlington acquisition. At the time, analysts really beat COP down because they said Mulva overpaid. After all, he paid $7.50/MMBTU for their gas reserves. Analysts said that if gas averaged above that number for several years, it was a great deal. Below, not such a great deal - and I think gas was in the $5 range when the deal was finalized.

Today natural gas traded at $12.80.

My observation of Mulva - and I got to speak with him on a couple of occasions - is that he is a pretty sharp guy.(I even got to talk peak oil with him once).

And what did Mulva say about Peak Oil ?


Mulva underwent an evolution on both peak oil and global warming. The first time we spoke of it, he essentially said that he was 57 (or about that) so peak oil would be a problem for the next generation. I then asked if he thought we shouldn't be investing more into alternative energy. At the time we were cutting back our investments there. He said "We are an oil company, and we are going to stick with what we know."

Each year, employees are allowed to fill out detailed surveys of where they think the company is, and what we should be doing. We were told that Mulva reads them all. The first year after I spoke to him, I made the case for investing in alternatives, and that we should become more of an energy company. The second year, I made the case that we should be out holding town hall meetings to explain to the public what we are all about. As you may know, we started doing both.

So, two years later, I got a chance to speak to him again. I asked him what had changed, since before "we were going to be an oil company." He said that he had become seriously concerned about climate change, and that he felt like supplies were going to be constrained faster than expected. (I can say these things about that private meeting because he later made these comments in public). I think he seriously had a change of heart, and we really started ramping up our investments into alternatives.

Just saw this on CNN Money:

Bull of the Day: ConocoPhillips (NYSE: COP)

Our continued positive outlook for ConocoPhillips’ shares reflects the company’s strong position in the politically stable OECD markets and its attractive valuation. The company has significantly strengthened its upstream portfolio through its Burlington and LUKOIL transactions and remains a premier domestic refining player. The recent alliance with EnCana further cements its upstream and downstream prospects.

We have raised our earnings estimates to reflect a higher commodity-price deck. Our new 2008 and 2009 EPS estimates are $11.55 and $12.15, up from $11.10 and $11.45 before, respectively.

Can anybody help me out here?

Is it just the power of TV propaganda that keeps these insane stock markets going? I can't understand why these markets seem to thrive on nothing but bad news, and the more of it the better. Bankrupt financials anyone?

I think Task & Blodget had it right on Yahoo Finance a few days ago (can't reach it now, site seems to be down, but you can find it at and going to the podcasts for 6/9): They called it whistling past the graveyard...during a slow-motion train wreck...waiting for the other shoe to drop...and other mixed metaphors.

Can anyone recommend a research approach to developing a good overview of the amount of reserves each small and big oil company holds?

Also, doesn't the value of the reserves booked by various oil companies vary enormously in terms of profit potential both in terms of physical costs of extraction and also royalty costs? How to compare oil companies given these variations in costs?

Great comments, perhaps the best overall discussion I've read in 5 years of studying this topic. I'd just stress that the devaluation of fiat currencies is something many if not most PO investors miss. As oil and commodities rise, governments first respond by inflating their currencies. This can go on for years until everyone begins to wise up. You already see the producers catching on a bit with many switching to sales in the euro vs dollar. Next however, they may really get a clue and begin converting profits to precious metals and commodities. Even if the oil producers themselves don't catch on to inflation, most investors eventually will. I agree that refiners are a bad play considering how many incredible opportunities there are nowadays. Same goes for producing companies - can you believe Exxon was DOWN for the year as recently as May? One more thing that is rarely discussed is the danger of overleveraging in the futures market. Personally I only invest in futures at this point, but you can get wiped out easily if you listen to the brokers who tell you to overleverage. I never leverage more than 2 to 1 and that saved me a lot of stress in 2006. Lastly, to get an interesting overview of PO and especially the monetary system check out "lorax2013" on youtube.