Pockets of Promise in Natural Gas and Oil

TER: Given what you just said, you are a contrarian to the peak oil pundits?

PS: Absolutely. Peak oil is an economic impossibility and so it kind of makes me chuckle. It’s the kind of story told to get people to pay way too much for oil resources, as they’ve been doing over the last decade. For example, Chesapeake Energy Corp. paid way too much for its natural gas resources precisely because its CEO is a complete believer in peak oil. Chesapeake Energy is going to do terribly over the next 10 years and will, I believe, go bankrupt.

TER: Why do you describe peak oil as an economic impossibility rather than a supply impossibility?

PS: It was the same way when people worried that the national phone networks would never survive the incredible demand for copper, because surely we couldn’t find enough copper to string telecommunications networks over the entire world. Okay, maybe there isn’t enough copper for that-but about 40 years ago people figured out how to use fiber optics instead of copper. Even before that, people figured out how to communicate wirelessly.

Oil is a valuable commodity because it provides us with energy. Energy is really the key issue. It does not naturally follow that a limited supply of oil would limit our production of energy. The idea that we would lose the ability to create energy in an economic way, in my mind, is absurd. The entire history of the human population is nothing but falling prices for valuable commodities-not measured in dollars, but measured in real terms. I have no doubt in my mind that by the time I’m dead the price of energy in real terms will be far less than it is today.

The people who are afraid of running out of oil, in my mind, are afraid of a ghost. Even if we were to run out of oil, it wouldn’t mean we’re going to have higher energy prices. And by the way, we’re not going to run out of oil. There is a lot of oil out there. We have tremendous amounts of oil reserves.

In fact, if you look globally at the known oil reserves, they have basically kept pace with production for the entire lifetime of the entire oil industry with the exception of maybe the last 10 years. Everyone’s fear was that we wouldn’t be able to find enough oil for the reserves to keep pace with demand. I don’t believe that’s the case. We’re now finding huge new reservoirs of oil and global demand for oil is falling. Things are coming back into balance.

IBT