Check It Out

Courier Article by Pam Locker
Sunday, October 24, 2004

Where's the Oil?

Watching the Presidential Town Hall debate, I found myself wishing that the diminutive but demonstrative Clara Peller of the 1980s Wendy's "Where's the Beef?" commercials would arise and stubbornly pose the question "Where's the Oil?"

Fortunately, some new books address this pivotal question.

The End of Oil: On the Edge of a Perilous New World by Paul Roberts (Houghton Mifflin, 2004).

Roberts, a regular contributor to "Harper's Magazine" on business and environmental issues, sketches the disruptive historical transitions from one primary energy source to another – from wood to coal to petroleum -- and speculates on how chaotic the upcoming next great transition will be.

Experts vary on their estimates of when worldwide oil production will peak and start to diminish. The most pessimistic forecast 2005; the most optimistic 2030.

Oil, the "perfect fuel," still exists in abundance deep in the earth but scientists have already extracted almost everything easily recoverable with current technology. New technologies take time; and implementation costs are high. In addition, the largest known reserves lie in areas of the world – the Persian Gulf, Africa, Venezuela, China -- that are either politically unstable or resistant to sharing with western governments.

The unfortunate complicating factor is that all six billion people in the world – and their governments – want the same oil that Americans both crave and require to provide 40 percent of our total energy supply and 97 percent of the fuel consumed by our enviable fleet of motor vehicles, planes, trains, and ships.

As huge countries such as China and India industrialize, worldwide demand for oil will far exceed production. Herein lies the crux of the dilemma.

Blood and Oil: the Dangers and Consequences of America's Growing Dependency on Imported Petroleum by Michael T. Klare (Metropolitan Books, 2004).

Klare begins his book by citing petroleum giant British Petroleum's 2003 "Statistical Review of World Energy" that lists five Persian Gulf countries -- Saudi Arabia, Iraq, the United Arab Emirates, Kuwait, and Iran (in that order) – as having 62.8 percent of the world's proven oil reserves.

Klare asserts that one can argue until blue in the face about humanitarianism, democratization, and weapons of mass destruction, but the fact remains that it has been in our best interests since the end of World War II to "securitize" that sensitive area of the world. In fact, this concern has led our foreign policy decisions no matter which political party controlled the White House.

The author winds up by confessing he began his research in a state of despair but concluded after talking to various scientists, entrepreneurs, and policy makers that the world can make a relatively peaceful transition to a postpetroleum economy if we all tighten our collective belts and make a concerted effort today (not tomorrow). European governments, as well as Japan, have shown the way in conserving energy. The United States with its vast intellectual and industrial resources can turn the tide.

The Oil Factor: Protect Yourself – and Profit – from the Coming Energy Crisis by Stephen and Donna Leeb (Warner Business Books, 2004).

One almost wonders if this book is for real – profiting from the energy crisis! But the authors are serious. Ph. D. Stephen Leeb, president of Leeb Capital Management, editor of a successful investment newsletter, and author of a series of investment books, penned it with his wife and longtime collaborator, business writer Donna Leeb, to advise investors.

Of course, they make the initial assumption that we do have an energy crisis, which some among us are still hesitant to believe. And they admit that they fervently hope that we will all be around to actually profit from our long-term investments.

At any rate, here are their recommendations for peak profits: major oil and gas companies (a no-brainer), gold (classic), alternative energy stocks (especially wind and such giants as GE which is expanding into wind), silver and platinum (vital for fuel cells and energy transmission), Toyota (the leader in automotive energy conservation), and defense contractors (again a no-brainer). They include a formula, the Oil Factor, for deciding when to shift funds.

This is an interesting overview of the world economy as well as an easy-to-read insight into how investment managers develop strategies.

Pam Locker is a librarian with the Evansville-Vanderburgh Public Library. The opinions expressed in this column are personal and do not reflect policies or official recommendations of EVPL.