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Tuesday, November 08, 2011

The Energy Equation is changing fast.

I dont know where to start and dont know where to end it. We all have just seen a price hike in India for "Petrol" to around Rs 72 per liter. An american Gallon is 3.78 liters which means in India we pay close to Indian Rupees: 272.16 per gallon of "Gas" which assuming Rs 50 per Dollar is 5.44 Dollars per Gallon of Gas.

Again the question is not about the Price of oil but Peak oil.
- Peak oil means world has reached a peak (maximum) barrels of oil production. and this number will never exceed.
- Peak oil does not mean there will be no more oil .. but oil will be "MORE" expensive to produce.
- Food is the largest consumer of Oil Resource followed by Transportation and then Housing.
- According to published data "Peak oil " production was: 74.82 Million barrels per day on July 2008.

This is an old image with data from 2009 as the latest data.
If you see the chart "Peaks" are preceded or followed by "Drop" in production which basically means some of this is carry forward oil. (planning for Winter requirements or Peak driving periods)

Here is a more recent data provided by US EIA (Energy Information Administration).

Here also we can see new peaks but again preceded and followed by slump .. which means its more due to preparation for projected demand. Its better to look at yearly avg production.

Another important point of view worth pointing out is the "7 Month Data" looking from a different perspective. We are looking at countries which are still increasing production and countries which have a fall in production of crude.

Increase In Production: Persian Gulf Nations, Canada, China, Russia, United States and World
Decrease in Production: Egypt, Mexico, Norway, United Kingdom, Total Non OPEC.

- This is production figures for crude oil, does not include natural gas and plant liquids.
- China and US are increasing production based on Shale Oil??
- Canada is producing based on Tar Sands??
- Total Non OPEC is down which means without OPEC at World level we are producing less oil.

Again we are getting carried away in the details..
- India with annual fuel production of 500-700,000 barrels per day and imports of 1,500,000 barrels per day is in a very bad position.
- India with large production capacity of food, fruits, vegetables, milk is favorably placed to take care of the basic needs of  the population.
- Fertilizer's and pesticides require Oil.
- Energy requirements are also there for communication, transportation.
- Population control is a must to keep a population size that is sustainable.
- Debate about Peak oil and alternative society structures to build sustainable communities is very important.
- Ayurveda, Unani, Homeopathy traditional medicine should be encouraged for general well being.
- Off the GRID setup like Biogas, Solar and transportation are urgent requirements.
- learn important trade skills for a future with "Peak oil"
- Instead of debating Fuel Price hike we should be debating Peak oil and the required changes in social structure.
- Personal transportation is a strict No-No. Reduce unnecessary use of fuel guzzlers. Use public transport.

Conclusion: Stock market no longer seems to be a long term area for investment. Very Very stock specific investments will have to be made and keep in mind Peak oil and energy footprint of companies. Auto, transportation, Airlines, travel, are a strict No-No for investment ideas. Also real estate investment is a big risk. Banks (No). Mind you these are long term themes and we could see short term spikes.

EIA Monthly Data 
The Oil Drum 


Anonymous said...

why do you think Real estate is a big NO?

Infact I came to the Indian Reality after t ough lessons.

I bought most of my properties around expressways considering traveling time not distance. Wakeup call came with the bust, when core areas did not crash at all as there is improvement in services(no need to travel) and Public transport improved in the area. My thinking was it will become a Hell with all the Nano's around, but ppl still flocked these areas for above reasons (savings on gas)

I am passing up lot of enticing options around this expressway now, As Petrol is 76 in Hyd. I think it can even touch 100.

Even upper middle class are struggling to maintain their cars.

So I think clustering will continue in RE and we should focus on buying RE where there are metro's coming up or long distance train station/Bus station is coming up. Also look at employment centre, even if its a manufacturing industry ppl now want to stay close to their work/school


What'sUp Prahalad said...


The problem is that with the level of energy available for each user decreases.. there is less of spare money/energy for investment and growth..

right now US GDP has crossed 13.35 Trillion (pre crash level of 2007) but unemployment levels are still very high compared to 2007.. due to a shift in type of jobs.. and energy efficiency

So even though the economy is growing we will see a drop in employment.. and hence things like recreational activities, transportation will falter..

Real estate is all about location and the prices are pretty high at central locations.. like close to office/educational institutes...

Also I am talking about real-estate companies.. which have to continuously create new demand .. not individual house..

a lot of people have also bought houses with price appreciation in mind.. but with higher unemployment we will see prices crash.. (my fear..)

Hope I answered your question..

=happy investing

Anonymous said...

Agree with your analysis, Only difference In my thinking is.

What comes first?
1. Reduction of savings and hence economy crashing

2. Increase in Petrol prices, Indian Psychology kicks in and ppl will flock to core areas, Rooms get smaller, more houses demolished to become apartments.

I am tilting to 2nd scenario, you seem to be on 1.
My reasoning is again observing behavior here in Hyd. Lot of my friends started buying diesel cars, even though its 1-2 lakh costlier and they will never recover even interest cost.

I do agree that spending patterns and traveling patterns have visibly changed with these increases.


What'sUp Prahalad said...


I think the "Peak oil" problem will hit individuals and companies in general.. Both are going to adjust ..

General public will reside where travel times will minimize even accepting some discomfort of a smaller house..
and companies will adjust by reducing expansion plans and efficient use of personnel (I see a drop in employment headcount.. energy efficiency)

=happy investing