Over the past two weeks I’ve taken the time to read over a new, 68 page Peak Oil report from Paul Sankey at Deutsche Bank, entitled, The Peak Oil Market. What’s notable about this report is its holistic, comprehensive treatment of the global oil system as a moving and dynamic interplay between supply, demand, and technological mitigation. With the exception of some work done over the years at Goldman Sachs, I don’t believe I’ve seen such an aggressive confrontation of this difficult subject from any of the other major investment houses. Indeed, most of the comprehensive work done in this area tends to still come from the scholarly community. What’s eye-opening is that Sankey appears to accept that the peak of Non-OPEC production is now in place, that a final peak of global production will arrive sometime in the 2015 period, and, he is offering this viewpoint to the mainstream investment community. Generally, this is a community that remains ignorant of–if not dispositionally hostile to–oil and energy depletion issues.
To this point I was unsurprised to read Jeremy Grantham’s passing lament in his latest Quarterly Letter, that, his previous remarks on resource depletion went almost completely unnoticed, as though his words “had disappeared down a black hole” (see page 5). This is amusing to me personally, because, on the day that particular letter was released from Grantham’s GMO this Summer, I hurriedly sent it around to my fellow energy and economics gurus with the brief tag-line, “Grantham gets it.” Later in July I noted this event in my Gregor.us Monthly newsletter, The Burden of Transition, as I immediately regarded Grantham’s discussion of net energy and net resource decline as a signal that these ideas, much discussed in the energy community this decade, were now moving into the broader world of investment.
Of course, the investment world has always been interested in energy equities. But that is a much smaller domain than the whole-system problem of diminishing energy resources–not only in nominal, but in real terms. This larger system approach was addressed both at the ASPO Denver Conference which I attend 10-13 October, and, at the SUNY-ESF 2nd Annual Biophysical Economics Conference later the same week in Syracuse, NY. I would suggest as others have, to those like Mr. Grantham who have attempted to proffer these ideas, that the audience at this point in history is still very much steeped in an economic paradigm that unknowingly derives its assumptions from the era of energy abundance. The modern economist is not likely to understand or even care, therefore, about the power density of oil–and that this makes his theories possible.
Generally, however, it is only those in the investment community who evidence broad intellectual interests–those like Jeremy Grantham, Peter Thiel, Eric Janszen and a few others–that have opened up to the larger issues surrounding energy transition. Mostly, American money management remains quite stuck in a bunch of antiquated, regressive viewpoints about the world, most of which are American-centric and offer cheerleading in the place of science, and the hard work involved in understanding these subjects. Just today for example I was surprised (and not surprised) to see one well known money manager include the following hoary, head-banger phrase to partially explain the state of our oil supply in the United States: As my friend likes to say in his speeches, “All the oil in America is in four states: Texas, Louisiana, Mississippi and Alabama, and the dipsticks are in Washington.” When you read dumb stuff like that it reminds that maybe it’s time you asked your money manager: do you understand energy, or do you even care to do the work to understand energy? In the years ahead, the answer to that question will likely be crucial to a money manager’s performance, regardless of which asset class is their specialty.
Further Reading: Chris Nelder, The Narrow Ledge of Oil Prices. | The New York Times: New School of Thought Brings Energy to ‘the Dismal Science’