I spent yesterday at the Association of the Study of Peak
Oil (ASPO) conference in Washington
D.C. As you may know,
Profits economist Gregor
Macdonald was speaking as part of a panel on how to
invest in the peak oil age.
Gregor’s talk was about the renewed adoption of coal as the
primary energy source for the global economy. Oil first surpassed coal in
1965. And now, 45 years later, coal use is about to move ahead of oil
The reasons are pretty clear. As Gregor states, you can’t
fund growth with an energy source that’s not increasing. Oil supplies are not
increasing. (Sure there are new discoveries, but none large enough to replace
depleted supply at declining oil fields.)
In other words, oil is expensive. Coal is cheap, and
plentiful. China is currently
moving to exploit new coal reserves in Indonesia and Mongolia.
Coal use hasn’t
risen above oil use yet, but Gregor’s research shows that it will do so in
the next couple of years.
Gregor told the conference attendees that the ascension of
coal is an environmental disaster. His contacts in China say that the Chinese government is very
worried about its aging population, and even more worried about its aging
population that could have health problems due to environmental
Of course, that’s not enough to slow the growth in coal use.
Instead, China is turning to
clean coal technology that it hopes can mitigate the effects of burning coal.
So keep your eye out for clean coal technology.
I don’t know how
well Gregor’s research on coal is playing to mainstream investors. I suspect
no one would be pleased to hear that coal use is increasing at an alarming
But from an investment perspective, coal stocks should do
well, especially ones with exposure to China‘s massive coal demands. I think we have a
pretty good one in the
Energy World Profits portfolio.
Another presenter made the astute observation that not many oil companies can actually
increase their oil reserves. At present, the number is perhaps around 30% of
oil companies. In 5 years, it could be as low as 15% of oil companies that
can actually increase their reserves.
Clearly, we have a distinct advantage over most investors if
we accept the fact that there is not enough new oil being discovered to
replace declining reserves at existing fields.
There can be no doubt that oil prices will rise steadily.
And it is critical for investors to identify the areas of the world where
there is potential for increased supply, and where there are companies we can
The Canadian oil sands is one such region. And so is the
Bakken oil pool.