In our Spring 2006 edition of Wealth & Health (yes almost eight years ago!), we included an article discussing a quote from an episode of 60 Minutes that stated “(the) world demand for oil will outstrip supply as early as 2015.”  This is what is known as Peak Oil and with only around eighteen months left until that deadline, we wanted to revisit these claims and provide an update on the “Peak Oil” theory.  In the original article, we predicted the petrol prices would continue to rise and that it would be wise to consider lifestyle changes and looking into alternative fuel sources.

In 2006, the price of petrol in Australia averaged around 124 cents per litre and today in Sydney the average price has been hovering anywhere between 140 to 155 cents per litre.  Even in 2006, many Australians were already feeling the pressure of rising fuel prices, with over half of Australians polled in an AC Nielsen survey indicating that they were beginning to use their vehicles less.  However, today around 60 per cent of Australians still drive to work every day and over 80 per cent of us use a car for other daily activities.  Car insurance provider Budget Direct has recently released reports saying that petrol prices would have to climb well above $2.00 per litre before motorists would seriously consider alternative methods of transportation.

Whilst it doesn’t appear as if a drastic lifestyle change is taking place, research into alternative fuel sources continues.  The US has made great strides in what is being called “The Shale Boom.”  Advancements in technology have allowed previously unusable resources of shale oil to be efficiently mined and refined for commercial use.  For the US, investing in the production of Shale Oil could very well tip the scales on a global level and see the US becoming a net exporter of Shale Oil.

As shown below, Shale Oil has drastically increased the overall production of oil in the United States since 2009.

Peak Oil - Shale oil Production in the US

(Image Source:  The Shale Explosion – US energy Independence)

As it currently stands, China is one of the fastest growing consumers of crude oil (upwards of 90 million barrels per day in 2011/12) as the country continues to rapidly develop.  This is far surpassing their domestic production and could present a unique opportunity for the US to begin exporting Shale Oil.  Even though China has 32 billion barrels of recoverable shale oil, the infrastructure needed to successfully mine these stores is not as readily available.  The geology of US soil coupled with a long history of drilling will also play a large role in the potential boom of Shale Oil production and export in the US.

Peak Oil - Chinese Consumption of Crude Oil
(Image Source:  The Shale Explosion – US energy Independence)

Despite the predictions of 2006, it doesn’t appear as if crude oil supplies are actually running out anytime soon.  The combination of improved crude oil refining technologies and the development of cleaner energy sources will see the Peak Oil Theory timeline greatly extended.

Andrew Heaven recently attended a presentation from Arnhem Investment Management on the increase of gas production in the United States as an alternative fuel source and what affects this may have on global oil prices in the not too distant future. It is becoming apparent that a mixture of fuel sources will need to be used globally as our demand for these resources continues to increase.  As it currently stands, China is one of the fastest growing consumers of crude oil (upwards of 9 million barrels per day in 2011/12) as the country continues to rapidly develop.  This is far surpassing their domestic production and could present a unique opportunity for the US to begin exporting Shale Oil.

We are headed into an exciting time for global innovation and this will lead to a wide range of investment opportunities.   Please contact your WealthPartners advisor if you would like to discuss the opportunities that may be available and how they work with your investment objectives.

 

 

 

Sources:

Aussies changing driving habits to cope with fuel prices

Two in three Australians drive to work

Why the world isn’t running out of oil

Arnhem – The Shale Explosion