A Bull on Energy, A Bear on Nearly Everything Else

Interview with Eric Sprott, CEO, Sprott Asset Management

Barron’s: You’re a believer in the peak-oil thesis, which says that global oil production has topped out. How much time do we have left before the supply dries up?

Sprott: We aren’t going to run out of oil in the next 100 years, but it will keep getting harder and more expensive to obtain. Most people don’t even realize that production is falling. In 1956, M. King Hubbert, an analyst at Shell Oil, said that production in the lower 48 states would go down by 1970. Sure enough, 14 years later, it started going down. And it’s kept sliding since then. We’ve found over 50% of everything we are going to find here. Once you find 50%, you naturally go into a decline. And here we are, 38 years later, and, my God, think about the amount of money that’s been spent trying to find more! We spend more every year and get no more net production. And the list of countries whose oil production has peaked keeps growing, including Russia, which for eight consecutive months has had year-over-year declines. Companies have the same problem. The latest results from Exxon showed that its production was down about 3%.


Barron’s: But don’t all the new oil-finding and drilling technologies help?

Sprott: We’ve made great strides in technology; it’s true. Every year, there’s something new. We see people get some stripper oil well to go from seven barrels a day to 15, by using sonic-resonance or water-flow technology or nitrogen injection, or whatever. But technology can simply speed up the depletion rate. A big fear is that the largest oil field in the world, Saudi Arabia’s Gowar, which brings us just above 4 million barrels a day — 5% of global oil — is being depleted. They put 6 million to 7 million barrels of water into the formation every day. Oil floats in water, so as the water level moves up, the oil rises to the top. Someday, the water level will go above where they are producing the oil, and they’ll just get water. There’s not going to be a slow decline rate at Gowar. When it finally goes, there’s going to be a very quick decline.

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