Great article. It posed a great question.
So how do we adapt?
We look at what the big boys do, IMO. Specifically, Exxon, whose oil reserves have shrunk but somehow continues to be the single largest entity in the world. Its profits have surged as its production and its reserves have declined. Moreover, its exploration budget has shrunk. It is not looking very hard for new oil. It has a few large projects in Russia and Indonesia but I think its experience in Venezuela has tempered its appetite for acquiring reserves in places where political reversals can cause huge losses.
How does Exxon plan to stay at the top of the heap?
By being extremely far-sighted. And not being stupid.
A look at what it has done to prepare to dominate the future of energy indicates that it has tons of cash. Although it distributes a lot of it to shareholders, it also historically has bought back huge amounts of shares it keeps as treasury stock to use in making really big acquisitions. This is of course how the company became known as ExxonMobil.
Using treasury shares to make acquisitions is really smart, IMO.
Its latest huge acquisition in this regard was Exchange Oil and Gas (XTO), a natgas producer. Read this to see where XOM is going:
nytimes.com
Note that there are next to no investments in politically dicey places and that the demand for natural gas has gone up in relation to the demand for oil.
So, yes, though Rubin's article was very good, it ignored natural gas, whose price has been going down thanks to enormous discoveries of it.
See this, too.
oilandglory.foreignpolicy.com
When the world slowly turns to natural gas, as it eventually and inexorably will, it is going to find the familiar Exxon logo staring at it again. But it will be known then less as an oil play than as a natural gas behemoth.
The USA's dependence on foreign oil can be very substantially diminished by using more natural gas in the transportation sector. It is cleaner and a more efficient use of energy than electric cars. A lot of electricity is already generated by natural gas and it therefore makes no sense to use gas to make electricity then power vehicles electrically. Why not simply use natural gas as the fuel in the first place? This IMO will happen. Electric vehicles IMO are DOA.
An interesting chart:
ferc.gov
Natural gas prices IMO are low in the US because there is so much of it. But more important, the 'substitute gas for oil' game has not really started. Once a lot of oil-using stuff starts using natural gas, the price should go up. As oil goes higher, the substitution game will be an increasingly significant factor.
It's all about energy, folks. It would be a mistake IMO to reflexively count out the US economy when it has a sure, clean and relatively inexpensive source of energy.
We'd really be in good shape if the political class were as farsighted as Exxon management.
The other place with lots of gas is Russia. Unfortunately, it is becoming more and more of a criminal country - what do you expect of a place ruled by a former KGB officer?
The Europeans have very little of it, and will have to depend on the Russians. Don't know much about China's gas supplies.
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