The Oil Drum

In terms of investments, isn't the best safe haven from Peak Oil, uh, oil? There are many Oil and Gas trusts both here and in Canada that will let you buy reserves. An example is Penn West Energy trust (PWE) that has 1P + 2P reserves of 2 bbl/share, with a share going for $31. Yes, they're depleting, but unit holders get the revenues, and Peak Oil awareness is coming faster than the depletion.

Perhaps an even better safe have are trusts heavy in natural gas reserves - natural gas is not up to where its historical ratio vs oil should be, and sooner or later it will revert as peak oil awareness comes.

In a Peak Oil future, the only commodity or asset that counts for anything is oil and its proxies.

Regarding the SA production chart: somebody (can't remember if it was you) said he thought the fall in SA output y/y was too fast to be natural. IMO the chart you post shows that the decline in 01/02 was much more rapid. It would be interesting to see past declines, those which we now agree were voluntary, and compare the decline rate in those periods with the current one. IMO when SA decides to cut output the decline is almost immediate... how long, after all, does it take to turn off the tap?

Regarding gold: it is easy to place a value on something, eg gold, in line with one's own thoughts of intrisic value. What is the value of lipstick? Quite a few billions are spent on them each year. What about post peak? Well, gold and cosmetics were big items before oil was discovered in PA, both in the distant past (plenty of both were found in Tut's tomb) as well as throughout modern history. On what basis would the future be different from the past? Imagine for a moment a future with very expensive oil and little faith in fiat currencies. What might an oil seller demand for his dwindling supply? Food and protection, of course, but what after that?

Investors have shunned gold since the peak in Jan 1980, and with good reason - gold has performed poorly against nearly anything you can compare it with, from oil to silver, from wheat to land. HIstorically, investors buy gold when they fear inflation, ie the rate of increase in the cpi is greater than short term interest rates (which may be true now, gov statistics are suspect) and/or when investors lose faith in a major currency (which is certainly true now.) Gold took off exactly one year ago, when the dollar decline accelerated. GOld is up 25% as the dollar is down 12.5% vs the Euro (a more modest 7% trade weighted, likely meaning we will buy less from Europe, and sell them more, while trade with asia, mostly pegged to the dollar, will remain relatively stagnant.)

Last year investors were said to have bought 10 tons of the 1600 mined, this year it is 300 tons, with the result that price is up 25%. How high might it go? Oil is close to the inflation adjusted peak, which would supposedly be around $106/b; if SA does not produce much more oil end year we are likely to reach this level soon. For gold to reach its inflation adjusted peak it would have to go to ~$2500/oz. IMO the only question is, will the dollar slide stop soon and, if so, why?

Resource companies leverage the resource price... small changes in price have a much larger change in net and, usually, share price. I like the US firm AUY best.

I thought that this was a very interesting story when it came out. It doesn't appear to be in dispute that the Saudis are short of natural gas. I have related a report that I am aware of that they are going to have to divert 500,000 bpd of liquids production to power plants and desalination plants in 2007 and 2008, because of shortfalls in natural gas production (which is apparently reflected in Rembrandt's estimate that Saudi liquids consumption is up at over 9% from 2006).

It is true that coal is cheaper that oil, but I assume that the Saudis will have to modify their power plants and desalination plants to handle coal, instead of natural gas, NGL's or petroleum.

Which raises an interesting question. If they have so much surplus liquids capacity, why go to the expense of modifying power plants and desalination plants to handle coal?

http://www.gasandoil.com/goc/news/ntm73016.htm
Arab energy giants eye coal imports

28-06-07 They hold over 30% of global oil and nearly 8% of gas reserves, but at least four Gulf Arab states are considering importing coal for power generation as they struggle to meet domestic demand.

Saudi Arabia, the United Arab Emirates, Oman and Bahrain are all looking at the possibility of building coal-fired power plants, analysts and industry sources said. The region's electricity needs are soaring as petrodollars feed rapid economic expansion.

"It's absurd in a way but there is not enough gas," said Mark Lewis, Managing Director of Energy Market Consultants.

"They have a serious problem in power generation and are having difficulties balancing their systems. Coal is a well known technology and could be built fairly quickly. It's probably quicker than the lead times for importing gas."

RE: gold and silver. I don't thing anyone has mentioned the gold/silver 'carry trade' with respect to these precious metals. I don't think a similar situation exists with any other commodity. If someone know of one, I'd like to hear about it.

In the mid-eighties it seems some bankers got the bright idea to set up a gold and silver leasing scheme involving gold and silver producers. At first it seemed like a great idea. The banks, with tons of financially non-performing bullion in vaults could 'lease' this metal to mining companies who need to be able to guarantee a steady supply to the market in spite of the vagaries of the mining industry. A win-win situation, right? Well, at the ridiculously low lease rate, typically 1% or so, it didn't take long for other deep-pocketed players to realize that they could 'lease' a ton of gold, sell it into the market, invest the money and get 5%, 8%, 10% 'free' money. It also didn't take long for same gold/silver lessors to realize that if the spot price of the metal was lower (or at least, no higher) when they had to pay back the bullion, this was additional gravy. The result of all this was a de-facto conspiracy to both keep the price of gold and silver down and to empty both bank and government coffers of the precious metals. The other result is a potential time-bomb of a price spike when the actual supply wall gets hit. This is especially true of silver that is actually consumed and is actually more scarce in refined form than gold right now.

Just another way a given commodity's market price can get screwed up beyond reason and be far away from what most of us might consider to be rational fundamentals.