I keep hearing about peak oil. We are running out of oil. The price can only go one way - up. US production peaked in the 1970s, and as fields decline, they're producing less and less (the average decline in production is 9% a year once a field has passed its peak). No one is finding any new oil, reserves are running down, it's time to panic and within ten years we'll be living in an apocalyptic wasteland reminiscent of Mad Max and the Thunderdome.
Yeah right. Actually there are some very big problems with the peak oil scenario. One is that it's usually the new mantra for those people who in 2007 were telling me that UK residential property could only go up in value because 'They're not making land any more'. No, they're not making land any more - and a good thing too, because if you were making it right now, you'd probably be going bust. Or at least you'd have fired half the staff you had two years ago! Sorry, but peak oil does not guarantee that putting your money in oil stocks is a one-way street. And here's why.
First of all, let's look at the supply side of the equation. There are some very significant untapped fields. There's the Falkland Islands, which could be a major field - whoever it actually belongs to. There's West Africa which has only been partly explored. There's the huge southward and northward extension of the Siberian basin. So it's not as if every field that might be productive has already been tapped.
More importantly, some of the 'exhausted' fields from the 1950s to 1970s are now coming back into production. Technology moves onwards, and the fact that you couldn't get the oil out of a field sixty years ago doesn't mean you can't do it now. Particularly with oil prices around USD 70, fields that were abandoned because they were technically too difficult or not economic at a USD 10 oil price can be quite productive now. True, this opportunity has mainly been exploited by smaller producers and is a drop in the ocean rather than a huge flow of the black stuff - but the opportunity is definitely there.
Then there are new technologies which are making a huge difference to productivity, and…
