Good Thoughts and an interesting argument.
I'm actually pulling facts from Marc Faber's latest book, "Tommorrow's Gold" printed December 2002, but it's obvious that some of the essays on his site were offered verbatim in part, as excerpts from the book, before it's release.... I'd highly recommend the book, since there is no way I can do it justice at this time...and my study is incomplete.
Unless i'm mistaken though, it appears to me that a large part of your argument is based on the fact that world oil production has peaked, or will peak in the next 5 years or so. Daniel Yergin from CERA sees that dynamic as being much more complex, and possibly not so certain....
....Right now, the most dramatic expansion is unfolding in the Russian oil industry, in what my colleague Thane Gustafson calls “the miracle in the Russian oil fields”. Over the past three years, Russian output has increased 25 per cent. Today Russia is the world’s second largest exporter, exceeded only by Saudi Arabia. The 1990s collapse in output that resulted from the implosion of the Soviet Union has been reversed. There are many reasons: a reformed industry, largely privatized, working towards world standards, introducing new technology. But the heart of the matter was summed up a few weeks ago by Mikhail Khodorkovsky, CEO of the Russian oil major, Yukos. “We now apply an economic test to every stage of what we do.”
A signal of the change was the announcement last month by BP and one of the other Russian oil majors, TNK, that they are establishing a multibillion dollar joint venture to accelerate development of Russian production. The thing to look for over the next year or two is the firming up of plans by Moscow for new pipelines that will carry Russian oil to China or elsewhere in Asia and, even more dramatically, to Murmansk, the ice-free port on the Arctic Ocean. During the Second World War, Murmansk is where the American freighters delivered the Lend-Lease goods that supported the Soviet battle against Hitler. A half-dozen years from now, the tankers may be sailing in the other direction.
A similar resurgence is taking place to the south, in the Caspian Sea and Central Asia. Output is increasing in Kazakhstan and Azerbaijan. As with Russia, the key is transportation. Railway tank cars will not suffice for the future volumes, and new pipelines are critical. Recently, Heidar Aliyev, the president of Azerbaijan, stood up in the ballroom of a hotel in Washington D.C. to tell the story of how it has taken eight years to get plans to gel for a pipeline to transport Azeri and possibly Kazakh oil to the world markets. But now one leg is built—and the Japanese-made pipe is being welded for the next segments of a huge pipeline that will move almost a million barrels a day from Baku through Georgia, down through Turkey, to the Mediterranean port of Ceyhan, which is accessible to super tankers. This new Baku-Ceyhan pipeline will be one of the linchpins of world supply and energy security in the years ahead.
Another growing source of oil will be West Africa, which by 2006 will overtake the North Sea in terms of output. But the real competition for market share looks to be between Russia and the Caspian on one side, and the Middle East on the other. The race will be affected by everything from governments’ investment policies to local activism. At this point, it looks as though Russia and the Caspian will be about even with the Middle East, each adding 4m-5m barrels a day.
People sometimes seem to think of “reserves” as a fixed amount of oil, laid down by nature. In fact, “reserves” are a more elastic concept, determined not only by geology, but also by the interaction of economics, politics and technology. After the First World War, fear of an “oil famine” gripped the world. But then fresh areas for exploration opened up, including the new nation of Iraq, which was cobbled together at the Versailles Conferences out of the three eastern provinces of the old Ottoman Turkish Empire. At the same time, the industry applied new technology. Building upon techniques used during the First World War for detecting enemy gun emplacements, it developed the seismic exploration championed by DeGolyer. This quickly became a critical tool for new oil exploration.
Today, a major technological revolution is unfolding, known as “DOFF”—the “digital oil field of the future”. This brings together a panoply of information and control technologies, remote sensing mechanisms, “intelligent drilling”, and highly accurate measurement tools to make exploration and production far more exact and targeted. The consequence will be to substantially lower costs. As a result, physical supplies that were previously too expensive or too difficult to produce will now become economically feasible. The impact of DOFF will be enormous. Over five years, DOFF could expand world oil reserves by 125bn barrels—more than the entire currently proved reserves of Iraq.
That is still in the future. In the meantime, although almost completely overlooked, something very important has just happened to supply. This past year saw the first major increase in world oil reserves since the mid-1980s when all the major Persian Gulf countries, with a stroke of the pen, announced that they were increasing their proven reserves by more than 50 per cent.
The new increase is some 175bn barrels. This is a lot of oil –50 per cent more than Iraq’s proven reserves and two-thirds that of Saudi Arabia’s. These new reserves, however, are not in the Middle East but in Canada. Advances in the technology for handling the oil sand deposits in the province of Alberta have, by cutting production costs almost in half, moved this enormous volume of potential supply into the economically recoverable “proven reserves” column. For the first time since Everette DeGolyer’s report to President Roosevelt, there has been a significant decline in the Persian Gulf’s share of total world oil reserves from 66 to 57 per cent.
The point here is that world oil supplies are not some finite constant sum. Rather, the picture is dynamic and changing. The reserve picture will continue to shift. It’s altogether possible that if and when a “new” Iraq sorts out its arrangements and reintegrates into the world economy, new exploration will substantially increase its reserves, once again pushing up the Persian Gulf’s share of the total.
What Everette DeGolyer foresaw 60 years ago is true—the resources of the Persian Gulf are a tremendous strategic asset for the world economy, one of the foundations for the standard of living in the developed world and a critical fuel for economic growth in the developing world. But what is also true is that if one is looking for oil, there are lots of other places to go.
How much from where? That will be determined not just by nature’s endowment, but also by technology, economics and, more so than most recognize, by the political choices that countries make about how they want to develop their resources and what they want to earn from the world economy.
cera.com
When comparing the possibility for China's growth to that of the 19th century U.S, Faber notes it's important to realize that in 1850 the U.S was well behind Europe in terms of industrialization, and still managed to grow industrial production 4.9% from 1875-1890...far outpacing both the U.K. and Germany...typical for an "emerging economy" From very humble beginnings is the theme...and fwiw China's per capita growth from 1978 to 1995 averaged more`than 5% while the world averaged 1.11% for the same time period...see pps.314-329.
I also believe both Faber, and Rogers, are considering the distinct possibility of some kind of acceleration, or enhancement, of the growth curve in this modern era for China due to technological advances currently being realized. In fact Faber does a pretty good job debunking the "widespread myth" that China and the rest of Asia still rely on western knowledge and technology, and are incapable of innovation and invention on a par equal to previous western advances. Regardless...the general consensus seems to be China will most probably be the next world leader, the question remains by how much?
i just don't see how the world's resources can support the kind of economic growth needed to make a nation of 1.3 billion currently skinny, hardworking people as fat and lazy as their Western counterparts.
That's just it...I don't believe success is defined by Rogers, Faber, or me for that matter, as realizing a state of obese laziness and complacency. Sadly enough that seems to be the case in this country now as we continue to grow our debts exponentially....financial and otherwise.
It's more a shifting of world dominance, economic and cultural, based on a set of circumstances already in place. Like these guys, I believe that the resources are available to fuel the economic growth for China into this century, and it will be one of the great future investment opportunities of our lifetimes.
The only thing that is certain is that things will undoubtedly change. I think the most informed and open minded investors will be the ones who will profit in the long run.
Thanks again for the very thought provoking stuff... |
