If you’re watching this, whether you’re a fan of fossil fuels or not, there’s no denying that modern society is still immensely dependent on them — particularly oil. Look around you — practically everything you see required oil somewhere along the process of being mined, manufactured or transported to get to where you are. Even the food you ate today.
Oil is still the lifeblood of the global economy. Yet after hitting $120/barrel a year ago, its price has since dropped nearly in half.
For an update on what lies ahead with this essential fuel, as well as the global energy markets in general, we welcome petroleum geologist & energy industry analyst Art Berman back to the program.
Transcript
Art Berman 0:00
Geologically, I would say that sometime in the next decade, we should start to see a decline in world Well, we’ve already seen a decline in world production. But we still start to see, you know, what people would call peak oil began in earnest. Now, the idea is not going to be a collapse, okay.
Adam Taggart 0:32
Welcome to Wealthion and Wealthion founder, Adam Taggart, if you’re watching this, whether you’re a fan of fossil fuels or not, there’s no denying that modern society is still immensely dependent on them, particularly oil. Look around you. Practically everything you see required oil somewhere along the process of being mined, manufactured or transported, to get to where you are, even the food you ate today, oil is still the lifeblood of the global economy. Yet, after hitting $120 A barrel a year ago, its price has since dropped nearly in half for an update on what lies ahead with this essential fuel, as well as the global energy markets in general. We welcome petroleum geologists and energy industry analyst art Berman, back to the program, art, it’s a pleasure as always to see you. Thanks so much for joining us today.
Art Berman 1:21
Likewise, great to be here with you.
Adam Taggart 1:25
Art, it’s just it’s super fun to have you on this program. I’ve had a lot of people have late asking for an update on oil. So I know a lot of people have been really looking forward to this conversation. I gave a nod to this in the introduction, but just quickly, is it just a quick grounding? For those who haven’t watched our previous videos together in the past? Can you just comment on how important oil remains to the global economy?
Art Berman 1:53
Sure. It’s, you know, a company like 75% of the world’s primary energy use. And the headlines, of course, are full of renewable this solar that and hydrogen and all kinds of stuff. And I follow all that as carefully as I do oil, I’ve spent my life in oil, so I’m not going to claim to be as much of an expert on that other kind of energy is as I am well, but I’m, I’m pretty knowledgeable about it. And just for the record, I’m all for most of it. I mean, we’re going there anyway, so nobody cares if I’m forwarding it, but you know, it’s it is it’s a part of the the energy landscape, and it’s going to become more a part of it. That said, we’re just gonna have a heck of a time getting off of oil. As somebody recently said, oil is not just a hard act to follow, it’s impossible. And that, I think, you know, really, really kind of summarizes the predicament that our society is in. And it doesn’t even matter if you think that climate change is or is not a problem. I mean, there are actually, in my view, far greater problems that face the globe than climate change. You know, the, we just exceeded every kind of planetary boundary there is and we’re, you know, we’re not doing the ecosystem, any good. And eventually, that affects us, humans and our prosperity. So we’ve been here about, it’s not a matter of being a tree hugger, it’s just a matter about caring about your wealth. So anyway, bottom line is, we are hugely dependent on oil and other sources of fuels. And there’s just an awful lot of things that we absolutely require to keep our civilization going that we just don’t know how to make without fossil fuels right now. So that that is the situation and therein lies the predicament.
Adam Taggart 4:14
Okay, and there’s a chart here that you’ve shown in the past. And it’s a chart of GDP, the relationship between GDP and basically energy consumption as measured in BTUs. And it’s a ridiculously linear relationship. And so is it fairly fair to say that, you know, sort of as goes energy consumption as goes the economy?
Art Berman 4:42
Yeah. And so the chart you’re thinking about, it’s, you know, it’s instantaneous look. So for any given year, the correlation between energy consumption, and GDP is got an R squared of something like 95 I mean, it’s just ridiculous. But it’s as close to a statistically perfect calculation as you can get. And, and it makes sense, because the countries that have the biggest economies, use the most energy to make stuff and ship stuff and buy stuff and sell it. You know, energy, as I often say, energy is the economy. And, you know, we’ve discussed this before, but the you know, a lot of people think that money is what the economy runs on. And, of course, it is the, the, you know, the thing that we’re most comfortable with talking about, but I mean, money is really nothing but a claim on work. And work is just energy, you know, so, I mean, money is really just a proxy, it’s a proxy for energy on some level or others. So energy of the economy. And as long as we’re talking about entered economic growth, we can’t get there without energy growth. And so that’s what the slide here, the chart you’re thinking of talks about, and, you know, we can discuss later that they’re actually, you know, some other components to that. I mean, there’s, there’s DDT, there’s co2 emissions, and there’s populations. And all four of those things lay down right on top of each other. And so you can’t have one without the other three. And energy is primary, and the other three are secondary, add co2 emissions and population. So, you know, the idea that we can decrease co2 emissions, but continue using as much energy just defies what defies empirical facts can’t do it. You know, you want to, you want to D grow, you know, you want to somehow decrease GDP, there’s a bunch of people think that’s the solution to, you know, to our climate problems. Well, you know, okay, but you also got to say, well, that means that we have to do without the stuff you’ve talked about the stuff that we depend on every day that come from fossil fuels. And I’m not saying you know, it’s wrong. I’m just saying, most people just don’t understand how all this stuff complex, we interrelate. And what I’m trying to say is, it does. And there are no, you know, simple solutions. It’s like the, you know, the Django toy that my grandchildren play with, you know, you backup a bunch of blocks and, and you start pulling pieces out, and whoever collapses, the thing first loses? Well, you know, that’s what we’re trying to do, we’re trying to pull out co2 emissions, and somehow expect that the structure of our civilization isn’t going to fall down. And it will. So you got to be careful that would teach the pull out next. Or at least you have to be careful about understanding how does pulling that deep out affect other things that we don’t want to lose? And then you have to decide, is this really where I want to go? And that’s a whole nother topic. But, you know, my sense is that an awful lot of people who, you know, say they want climate change, if you told them they had to give up economic growth. They said, Well, wait a minute, I didn’t sign up for that. Well, I’m here to tell you get don’t get one without the other. Sorry. At least that’s, that’s what the data tells me. And it’s pretty darn clear.
Adam Taggart 8:50
Okay, and we might if there’s time, we can sort of talk about the promise of new technologies or new fuel sources or whatever, that might change the game. But I know from many of our past discussions are if we’re trying to transition off of the current dependence that we have on oil, there isn’t a clear bridge to a new energy future that doesn’t require maybe having to make some really important sacrifices along the way, if we really are decreasing our oil consumption, but specifically around oil. Now, you know, price sends a signal, right. And usually, I mentioned in the introduction, how the price of oil is has almost halved since June of last year. And usually, a price decline like that in oil is due to either lessening demand, right, which if you’re in a recession, oftentimes, you know oil prices go down in that or it can be reflective of a big increase in supply? Where are let me ask? Sorry, let me ask that question more generally, why has heavy oil prices declined as severely as they have over the past year?
Art Berman 10:12
Well, let me count the ways but to keep it simple, and in the framework that she’s just described, because the world has just exactly the right amount of oil that it needs right now. And of course, you can pick up you know, any, any newspaper, or particularly if you’re, you know, weighed in the something more financial, you know, like Bloomberg, or Wall Street Journal, or whatever, you’ll find out in a hurry that there are all kinds of loud voices, there is a no, no, no, you know, we so badly under invested in oil, that I mean, there’s going to be this huge Jordan, just around the corner. And we are, you know, we’re going to be hurtin and oil going to $100, or $120, or whatever. But what I’m saying, Adam, is that the market with its price signal, is telling all of us, including those bullish analysts, you know, what we’re pretty happy with where things are affecting now. We don’t, we don’t, or I don’t, or whatever the heck the market is, you know, not really sharing your sense of urgency about the future. And so there’s, there’s always guys that say, Oh, the markets wrong and well, okay, you know, the market market is what it is. But market just got a very different apparent opinion or perception in a lot of those guises. So, the simple answer is, when prices are lower than some people think they ought to be, it’s probably because that’s exactly where they want to be markets is cheap. Why should the market pay more for a barrel of oil than it thinks it needs to? Markets are efficient and not always right? They are ruthlessly effective. And market doesn’t want to pay any more than thinks it has to it? Will? It thinks it needs to. But right now, it’s not? Don’t think so. Okay,
Adam Taggart 12:21
so rewarding what you said, we’re kind of in the price sweet spot for oil right now. Right? Where basically, use your words, the world is sort of saying, Hey, we’ve got pretty much just what we need right now we’re good. And, you know, historically, when oil has gotten far above $70 a barrel, it really starts constraining growth. And when it gets too far below $70 a barrel, producers start having problems producing it profitably. Right. So this is sort of the Goldilocks range that we’re in right now. You have a chart that you sent over before this conversation that basically kind of indicates and I’m using, I believe your words here, that we’re we’re now sort of seeing investor flight from the oil markets. Talk about that. And if you can talk about what’s causing it.
Art Berman 13:20
Let me see if I can share my screen with you. So what I’m showing here, this is simply a representation of, of time theories of the commitment of traders, this is this, the trader movement on us, West Texas, international crude oil, and what’s being shown here, in light yellow, that’s just the price. And it’s kind of dated back because it’s interesting, but it’s not the main thing I want you to take a look at. And then we’ve got two other curves, the red one, that is open interest, that’s how many oil contracts are out there that have not yet closed. And the other one is the light blue curve. And that are those are net long positions. So that’s simply the difference between long positions and short positions. And what both of them show is that if we go up here to the upper left hand, part of the graph, we see, you know, May June 2018, things were kind of at a high they were dropping down COVID hit and the open interest went way up because you know, when oil negative $37 A barrel it isn’t going to go down anymore. But of course net longs is increased below two. So you know, people were no they were betting on the fact that was gonna come back. Well, as soon as it came back. You know, we had the post COVID rebound by June of 2021. And it just, you know, having for the seller ever since. So this, this chart says two really important things. And that is, you know, think what you will or what you read, but the people that actually put their money where their mouth is the traders, and this is this is hedge funds mostly are managed money. So, you know, theoretically not so much speculative. But that’s another discussion altogether. You know, people are, are generally shorter on oil than they are long, and they’re not interested in holding many contracts. And so what this says, or what it reflects to me is that, you know, oil was rising pretty high, from the great financial crisis, until the first part of the graph I talked about and mid 2018, people were throwing money at the oil market and everybody, not everybody, but an awful lot of people said, Wait a minute, you know, you oil companies have been given us lousy returns for a decade, you know, you suck. We don’t want, we don’t want to put our money anymore, we’re going somewhere else. And they did. And so with a few, you know, anomalous resurgences, that’s where we’re at what does this mean? It means that oil companies don’t have a lot of credit or capital available to them, that they don’t internally generate by cash flow. So they don’t have that blank check of go into the markets either for for credit, or, you know, selling secondary fair offering raises a couple of billion dollars in the morning, and having enough that, you know, the drill baby drill for the next six months, or 12 months or whatever. And this is a, this is a, this is a paradigm shift. I mean, this is something that the last time that we saw this, for any length of time was, you know, in the early 1980s. And of course, oil was depressed for well over 13 years after that. So this is kind of a big deal, at least it is to me, and if you don’t understand this piece of it, than everything else that’s going on in oil markets, and with oil prices is confusing. And so that’s the, that’s not the only piece of this, but this is this is, you know, like one on one, if you want to understand you can say the markets wrong, but the market has spoken very clearly I believe in graphics. You know, we
Adam Taggart 17:51
we do have a lot of people that have been on this channel saying, Hey, we’ve under invested in the sector for a long time. And even if economic growth sort of stays flat, going forward, we’re going to have shortages, because we’ve under invested in capex. There’s been a lot of people on the show recently to saying that they think the oil sectors, it was a darling last year, it’s now kind of a dog so far at the beginning of this year. You know, they’re saying that oil prices are pretty attractive now at this point in terms of things like PE ratios, and just, you know, historical fundamental valuations. So, kind of both of those narratives would say, investors should be probably looking, you know, attractively at the oil sector right now. But it seems like you’re looking at something that’s more secular here, which is sort of, you know, an abandonment of the sector by a lot of the people that used to provide capital to it. In the past. I guess first question is, from your own perspective, do you think these companies deserve more capital than they’re getting right now? Like, like, is this investor strike, for lack of a better word? Is it warranted? is the right thing to do? Or are we perhaps setting ourselves up for a higher probability of some of these, you know, production and supply shortages that people are worried about?
Art Berman 19:24
Right. Well, that, you know, that’s the million dollar question or maybe more AI? And the answer is, I certainly understand both sides of the argument, Adam. But having said that, I think there’s some there’s some important elements that perhaps some of the guests each add on on this channel, don’t fully understand. So when we say that there’s underinvestment or lack of investment, according to whom. Certainly not According to the oil company itself, they have drastically scaled back their investment because that’s what shareholders told them to do. Right? Okay. And oh, by the way, cash flows from oil company have never been higher in my in my career.
Adam Taggart 20:24
Right in Sorry, sorry to interrupt, but I just I just want you to address this in your answer. So what you’re talking about, right, there is sort of, you know, it’s a financial preference, right, where the company has made decisions for financial reasons. And I think part of the people that are concerned about the future, are more just sort of the reality of like, Hey, we’re just not going out there and exploring and drilling as much as we were, and that, regardless of what shareholders want, in the future, there may come a period where we’re just not getting enough out of the ground, or at least at the price, we want to feel the economic growth we want. So sorry to interject. But I just wanted you to address that in your answer.
Art Berman 21:08
No, I appreciate you adding that in. Yeah, it’s important that so so let me just say a few things. First of all, the oil industry is not a service sector. You know, the oil industry, hopefully provides or has provided for the needs of society quite well, over the many decades that I’ve been involved with it. But I mean, it’s not like it’s not a philanthropic organization. I mean, they’ve got shareholders that, that they have to they have to satisfy. So if there is under investment? I mean, whose fault is that? I guess it’s a question. And eventually, it comes back to the shareholders and the investors that have been sending this very strong message to, to the oil companies. But the second part of my answer, though, Adam is what are your assumptions? Right, and if your assumptions are, well, you know, we’re not spending the amount of money or we don’t have the number of rigs or, you know, fill in the blank. What I don’t think some people understand, at least on the financial side, is that the per Well, efficiency of an awful lot of these oil plays for Wells has increased tremendously, just you know, like, over the last two or three years. And so it’s simply take your read, and less capex to get the same amount of oil out of the ground. Now, we saw this, right after the Big Oil collapse, price collapse in 2014 2015. We have can’t remember, in the United States, I’m like 1200, rain, you know, oil directed rigs running all the time, and, and that that number dropped down again, I can’t remember to what it was, you know, something like half everybody was saying, Oh, my gosh, you know, we’re screwed now. I mean, look, what’s going to happen, except that we weren’t. Because what most of those rings that were, we call stacked, were old fashioned rigs. You know, they, they didn’t have the, you know, the the high power diesel engines, the top drives, they weren’t capable of drilling, the horizontal wells, and all that kind of stuff. And so the reality was, is that we got rid of a whole lot of rigs, we spent a whole lot less money, but we actually produced more. And what I’m telling you is that, to my surprise, right, you know, back in 2020 21, I was fully expecting we’re going to see a big drop in US production, because I couldn’t imagine that we’re going to see another paradigm shift like 2014 15. But we did. And whether that’s for favorable is another question. You know, is that just accelerates rate, you know, accelerating the rate, or is that actually finding new reserves? And we don’t really want to get into that right now. But what what I guess I’m saying is that this dairy thing that everybody sees looming, right around the corner, has not appeared and does not seem to worry the market that pays a lot more attention, some people think, to at least medium term supply. All right, that’s
Adam Taggart 24:47
that’s a fascinating topic. Particularly because over the years, aren’t you and I have sort of addressed concerns about peak oil and whatnot. But it sounds like you’re saying that the technology GE has really been changing the game even even in just recent years to, to make oil extraction a lot more efficient, and presumably, you know, higher output, lower cost. And I just read a report of yours that was talking specifically about the Permian Basin. And for those viewers who aren’t super up to speed in the oil industry, this is one of those US has big shale oil plays. And again, aren’t you and I’ve talked in past years about how shale oil fields deplete much more quickly than conventional oil fields. And the belief for a long time was, yeah, these fields are going to, they’re going to, they’re going to yield a lot of oil in the short term. But they’re all going to just deplete very quickly after that. And somebody might even been yourself said that America’s shale oil revolution is basically like, the big retirement party for the oil industry, right. But your report that I just read today, if I read it correctly, basically says the Permian output is remaining surprisingly resilient, and is probably going to be at least at sort of looking at current trajectories, probably going to be much more abundant for much longer than most people initially, were expecting out of this play. Did I read that report? Right?
Art Berman 26:34
Yeah, you did. And here’s the, here’s the subtext. That’s based on the geology. Okay, so the Permian geology, and so your, you know, your, your audience who is not 100%, you know, up to date on all this, I mean, the Permian Basin, has provided pretty much all of the oil growth in the world for the last four or five years. So it’s massively important. It’s hugely important. It’s critical for growth. And the other shale plays the evil for the BOC and etc. I mean, that, you know, they’re hardly going out of business, but they’re not growing, which is pretty much, you know, what I, what I anticipated. And so when I said a retirement party, I mean, just because somebody retires doesn’t mean that they, you know, go off and, you know, turn into a vegetable and die a few years later. I mean, you can have, you know, a long active retirement. And so it’s, it always was, I mean, I said that, because it was kind of cute, you know, caught people’s attention, they remember it, and what the heck, but, and it is true, but, but the reality is bad. We got we I mean, the public has this funny idea about the police. You know, they think that, you know, the police who the real problem, and maybe, you know, maybe it had to do a little bit with the peak oil, vibe, or literature back in the early 2000s. But, but the truth is that depletion is actually not yet a big problem, it will be believed me peak oil will come, I promise you, and I’m not invested in I mean, I’m talking, I’m talking financially here. But you know, I don’t really care if it comes or not, I just know that it’s a fundamentally sound idea we have we live on a finite planet, you know, we’re not making any moral. And we’re using a heck of a lot of it. But you know, I mean, and I’ve got, I’ve got a slide here, I’ll be glad to tell you, but this is the United States and began 50 years ago in 1981. And the blue are proved reserves. And the orange at the bottom is production. Right? So if you want to think about it, the right way. Depletion is reserved minus production. Right. And so if you’re worried about the police and without having to do the arithmetic, the production wedge at the bottom is a real tiny little thing compared to the reserved wedge and blue on top of it, isn’t it? And if you just divide to if you divide reserves by production rate, you end up with this black thing, which is the years of supply. How much do we have divided by how much do we use? going every year, and what to find out is that in 2021, or 2022, whatever the last date on this graph was, we had just about exactly 11 years of supply. And somebody might say, Well, geez, that’s not very much. I hope I’m alive more than 11 years. And so I, by the way, but the reality is that that 11 years, has been the average years and supply for the United States for the last 50 years. Why is that? Because you don’t want to over drill, you don’t want to spend too much Monday money finding something that you don’t leave. So you get the price signal. And that furthers more drilling. And that means more reserves. And so we look at what happens, you know, the peak oil period is kind of right here in the middle, we get to 2008, the great financial crisis, oil price jumps up to $100 a barrel in money if the day and stay there for like four years, what well did a lot of drilling and we added a heck of a lot of reserves, most of that were sale. So as long as you’re finding more than you’re producing this rate to the reserves divided by production, the years of supplies, pretty much stays the same. And again, don’t don’t misunderstand me, I’m not being a cornucopia here. I’m not saying that. Because it’s been that way for 50 years means it’s always going to be that way. Of course it wants. and at what price is another question? Clearly, it took some pretty high prices, particularly in the year after the great financial crisis. But nonetheless, I mean, I think that people, people confuse depletes in with chi, so well declines or modern, well declines really fast. That doesn’t mean that it’s fleeting. Or that doesn’t mean the field is fleeting. So, you know, it’s important to kind of, you know, every once in a while get calibrated with someone who actually knows the, you know, the truth on the ground and say, Well, you know, I some of these concern, they’re real, and I take them seriously, but they’re that, you know, it’s not a problem yet. That’s all I can say. Okay.
Adam Taggart 32:29
Sorry, bring that chart back up again, for a sec.
Art Berman 32:32
Yeah, sure. So is it
Adam Taggart 32:36
safe to say that the the dramatic rise in blue supply after the great financial crisis was really tapping into the shale fields?
Art Berman 32:49
Mostly. A lot of it was putting the deepwater Gulf of Mexico on production, which, I mean, that, that that period of exploration lag way back into the end of the 1990s. But, you know, clearly, clearly to me, maybe not so much, our audience, but, I mean, those are just phenomenally expensive wells and production platforms, you know, are a billion $2 billion in the data lake pipeline, that door, I mean, big, big investment. So it takes a long time to get from exploration to discovery to first oil. And so, you know, a piece certainly, of this big wedge was October Gulf of Mexico, but scale would be, I’d say, it’s probably, you know, 70%.
Adam Taggart 33:41
Okay, so mostly shale, but some, like the Gulf of Mexico, and that’s kind of where I was going with this question was, did the reserves that are shown here, are those is that all the oil we know of? Or is that sort of reasonably economically extractable reserves?
Art Berman 34:02
Okay. So reserve is discovered oil at a price. Okay, so in order to book a reserve in the United States, with the Securities and Exchange Commission, you have to approve that, that means it’s not something you think is there, you’ve drilled it, or you’ve drilled something close enough that you could demonstrate that, you know, a very high probability that it’s there and it’s commercial at whatever the SEC price was for the year it was booked. So an awful lot of these reserves. were booked that you know, $60 a barrel $50 A barrel $40 a barrel. Now when, for the for the the odd years where they were booked at $90 a barrel. When the SEC price goes down the next year, the company Have to take a write down. They have to say, well, we’re, no, we’re not going to take those proved reserves off the book. But we’re going to take, you know, we’re going to take a financial hit our quarterly earnings because that those reserves stop being commercial for, though in the US. It’s not a perfect system, don’t get me wrong, but we’ve got a, you know, a much more rigorous way of, of monitoring the how real these reserves are. And you know, it’s a Saudi Arabia with zero and many countries in between. So that’s part of the reason that I often rely on US centric data. It’s not because I ignore the rest of the world. It’s just the US data is for whatever reason, it’s awfully good. And it’s awfully current. I mean, you want to know something about European production or European consumption, you’re lucky to get a monthly piece of data that’s worth anything work with us and get it all weekly. You can watch more frequently.
Adam Taggart 36:10
Whatever was going with that here is an I think you’re corroborating this, but please clarify is the reserves we’re looking at here are relatively economically recoverable oil reserves, you know, at around the current price.
Art Berman 36:30
They absolutely are.
Adam Taggart 36:31
They absolutely are. So my point here is is
Art Berman 36:33
and let me add that not to interrupt. Well, I will interrupt at a 10% return. Oh, wow. Okay. Okay. So do you
Adam Taggart 36:42
have to be economically attractive? Yeah. Okay, so we’re going with this as should the price of oil March higher from here, we may then have additional reserve fields come on into the picture here, growing the reserve volume here, because all of a sudden, a play that’s not economical, or can’t give a 10% return at $70 oil? Well, maybe can at $90 a barrel oil, right, or you
Art Berman 37:12
know, exactly right. So there are approved reserves. I mean, they’re approved that they this, but they’re not proved they can be produced commercially at a 10% return. So they don’t make they don’t make the towel.
Adam Taggart 37:27
Okay, all right. So you know, the reason why I’m kind of sticking on this is, if what I hear you saying art is there are people that that have some very big concerns about resource depletion in general, but oil being a critical one, for all the reasons we talked about the beginning of this interview. And I hear you saying, hey, in the long scope, yes, we probably will have Peak Oil related issues. But it does not seem to be a immediate or near term concern of yours. And don’t put those words in your mouth. But one of the reasons why I’m bringing this up, too, is you and I have spoken for years before I started Wealthion. And, you know, I was working with people that wrote about the peak oil concerns. So I don’t want to say that you’re unring the bell. But maybe what you’re doing is you’re you’re you’re turning down the volume with which you’re ringing it saying yes, it’s going to be a big problem at some future decade, but probably not going to be in the driver’s seat much at least in the next couple of
Art Berman 38:37
years. fair way to put it, I would say Okay, so now we’re there’s two, there’s two separate than we have to talk about theologically and finances. theologically, we’re in 2023. Geologically, I would say that sometime in the next decade, we should start to see a decline in world Well, we’ve already seen a decline in world production, but it’s, we should start to see, you know, what people would call Peak Oil. begin in earnest. Now, the idea is not going to be a collapse, okay? It’s a long slow, you know, slide downwards. But if all we were talking about you got plenty of money, it’s just the always the I mean, what I told you before is, most of us shale plays are just on maintenance right now. They’re not declining, but they’re not growing. It’s stuck the Permian that’s holding everything up. All right. And even though I did say and you correctly interpreted my report to say, you know, there’s plenty of locations left to drill in the Permian, more than planned and a lot but it takes to a lot, keep the production level up. So I’m saying, in the short term in the next couple of years, I agree with you completely, you know, get out towards the end of the 2020s. I’m starting to get a little bit more concerned, you know, I might come back and revise what I’m saying, man. The other thing I want to say, and I say this with with the greatest of respect, is that so many of the people involved in the peak oil movement, that’s that’s the right word, have absolutely no experience in earth science. I mean, they were smart people. You know, I knew a lot. And I was involved with that. Right? But very few of them actually understood or could make the kinds of charts that I’m showing you right now. You know, I mean, the whole maximums kind of Twilight in the desert thing. I mean, if you go back and look at and he was really the most eloquent folks in our state for peak oil. But, you know, his hypothesis was, Well, what a thought he reserved aren’t as big as they say they are, and we got no way to know, right. And if they’re not, oops, then we’re in big trouble. And he was not wrong to say that. But, you know, we’ve subsequently got an audit of Saudi reserves that was put out in 2019, when they wanted to IPO a piece of Saudi Aramco and a very reputable reserve auditor Netherland and dual figures, Netherlands, oh, man might not have been picked up back. But somebody liked them that well, you know, basically what they said is pretty much the case. So, you know, that hypothesis sort of went out the window. And there’s still many requests in it. And there’s always people that say, Well, you know, reserve audits are corrupt and okay, whatever. But my point, my point is, is that there were, there were a lot of well, meaning very smart people who were speculating about things that they really had very little personal experience in doing. And if you go back to the beginning, you know, not so much M. King Hubbert. As, you know, Campbell and law are rare. I mean, those are the guys who wrote the, the 1994, or five Scientific American article that would titled The End of cheap oil. So their whole concept of peak oil wasn’t that we’re running out of it. It’s that we’re running out of cheaper. And they were 100%. Right about that. And if only, you know, all of these other guys who were so vocal in the peak oil movement, and stuck to the, you know, the right playbook, and didn’t get all fun off on trying to say, well, is the peak in A, B and C 1007? Or 2011? You know, they got they got distracted as humans awesome. Do I often do. But the bottom line is that, you know, if you look at the price of oil and 1995, or 2000, or 2005, and and compare it to the price of oil today, particularly in real dollars, there’s no question that oil is usually more expensive today. That was true the end of peak oil, and that’s an issue. But before I completely lose the thread, the geology is one thing. But what if there’s no no credit and no capital or not enough to grow production? I think that’s more of a concern, based on the first chart I started. And therefore, we may have plenty of oil left in the ground. And just not the the appetite, the financial appetite, to go drill it and get it out. Until Until perhaps there, there there is some kind of crisis.
Adam Taggart 44:14
Okay. And that that’s, that’s good from the oil standpoint, meaning we’re leaving more in the ground longer. But it’s probably bad for society standpoint where we want to grow and we can’t because we’re not able to get enough, at least economically out to fund the growth that we want. Right. And I guess that’s I’m going to revisit that earlier question I asked one more time, which is a how much of a concern is it for you that we may be
Art Berman 44:44
creating
Adam Taggart 44:47
that events with today’s approach, where you know, historically, or recently these companies are exploring less and just returning their high cash flows in the form of dividends to shareholders. And I’m going to couple that with my understanding of the tension between the oil industry and the current administration here in the US. That’s basically telling them we don’t want you around in the future. And therefore there’s a real disincentive to make big capital investments, because you’re just not sure you’re going to be allowed to enjoy the the returns on them. Because the government is basically giving your science we don’t we don’t want your industry to be in business still.
Art Berman 45:33
Yeah, well, fair point, I, I take the second part of that with several teaspoons or tablespoons or truckloads of salt. Because there’s my and this is a completely apolitical comment, by the way.
Adam Taggart 45:54
But and my question was intended to be a part of it, too. It’s just what a lot of people
Art Berman 45:58
will take it differently. But I mean, the truth is, is that this administration, or any other administration, is unable to stop oil companies from drilling except they on federal land. I mean, if you own a lease, somewhere in New Mexico, or Texas, in the Permian Basin, and you’ve got a lease agreement with whoever the mineral owner is, um, the federal government does not have any authority to come in and say, Well, you can’t drill here, unless they are the mineral owner, unless your contract with them, regulations in front of you. And you know, they can take away certain tax credits, and, you know,
Adam Taggart 46:53
or post taxes too.
Art Berman 46:56
They can do all kinds of stuff, okay. But and the oil companies, the industry will scream bloody murder about that. But, you know, I mean, I’ve been in this industry for more than 40 years. And when things are good, this industry makes a lot of money, and it’s making a lot of money right now. So that doesn’t mean that that that that makes up for the bad times, but I’m a little bit, I’m more skeptical about what the US government can do, versus what the great momentum of government and policy makers around the world, which in some way reflects their consistency. I’m more worried about that momentum. Because when you get right down to it, you know, for those who, you know, who pound the table about, darn it, we just got to stay on fossil fuels. I mean, you know, it’s renewable stuff is not, you know, for one reason or another. Well, you know, I don’t want to argue the pros and cons of that. But on some level, it kind of doesn’t matter. I mean, that train left the station, guys. I mean, you know, the I mean, the world, government leaders of the world are preparing for a much more renewable world, like it or not, whether it’s right or wrong, I can’t say. But that’s where we’re going. I mean, you ask the average person in the United States, whether they think climate change is a problem. And something like 65% or so yeah, I think it’s a problem. Now, is that as big a problem for them as the economy? No. But do they think that it’s right for the government to be doing things to protect the climate? They absolutely do. So I mean, that’s, that, and that’s a whole nother whole nother discussion. Is that right? And I think, you know, from the posts that I put out today that I mean, I think Net Zero is, you know, the is an absolute pipe dream. It’s not. I mean, it’s just, it doesn’t mean that its intention is is not. But, you know, it’s, it’s absolutely, it’s a fantasy, it’s an absolute sadnesses.
Adam Taggart 49:28
So let me let me jump in here. And I know we’re treading into sensitive territory where we probably will inflame certain viewers on one side of the spectrum or the other. And so we’ll try to navigate this as you know, diplomatically and as impartially as we can, and we don’t have a ton of time left either. So this is a tall order and then in the last couple of minutes we got going on here but um yeah, I think you said it well, where where we can we can separate the intention from the approach, right, or from the path that’s being charted. I think most people around the world would say, Look, if we could, if we can make energy in a more environmentally, or in a less environmentally impactful way. Hey, we should do that. Right? I mean, who, who wouldn’t want to do that? Right? And like, there are many people who are under throw environmental destruction for its own sake, train, right. So then you just have to ask yourself, Okay, you know, what will how? How, why is, once we’ve identified the mission, how, why is are we creating the process for pursuing it, and, you know, nothing’s perfect in the world. But we can certainly point to elements where it has been handled quite an elegantly, I’m going to mention Germany as an example of this, right, where, you know, they, they really advanced their transition, probably, you know, got ahead of their skis. And as a result, they ended up burning more coal, you know, in the past year and a half, and then I think they burned in any equivalent period in their history, right? So so there’s one thing which is like, are we just coming up with sort of unrealistic paths here, and it sounds like you think net zero isn’t being pursued in an intelligent way. The other thing I want to tack on to this before I let you respond is, you know, this happens. Almost in any kind of real movement, where a lot of money goes into the way that money’s been going into green energy, and ESG. And all that stuff right now, where what happens is people who benefit from those flows of money, they end up kind of running the movements. For their advantage, because there’s just so much darn money for them to be to be made, I make a inelegant equivalent here. Michael Shellenberger is work in the, with the homeless situation in San Francisco out in the Bay Area, San Francisco Bay area where I live, he’s really said that there are a lot of people in positions of power, who are running a lot of sort of these, these, you know, Homeless Advocacy groups, or, you know, they’re involved in making policy, partnering with the state to come up with policy to deal with homelessness. And he said, basically, a lot of them aren’t incented to solve the homeless problem, because they make so much money from the homeless problem, that and oftentimes, they fought a lot of what might be actually pretty good proposals, that could make a difference, because it’s become this self fulfilling, you know, money geyser for them, right? So you get this perversion, I guess, is what I’m saying. Where, you know, a lot of people actually get incented to not solve the problem. So I’m just curious. I guess I’m just gonna let you respond to that word, salad. I just paid there. But, but it seems like, you know, we can have a really good mission. But we can have a problem of both strategy and human talent that keep us from executing on that mission well.
Art Berman 53:17
Right. So let me just try to drill right into the center of that problem. And my opinion, my study view, is that most people in the world through no fault of their own, and this includes world leaders or energy blocks, they have absolutely no idea about how energy works, where it comes from, where it goes, what can be done with it. And again, that’s not a it’s not a criticism. This, it’s an empirical observation. And so the situation is as follows for the enlightenment of our audience, renewable energy, including nuclear, including solar, wind, geothermal, hydro, everything is good for one thing only. And that’s to generate electric power. Electric power accounts for less than 20% of total energy consumption in the world today. Okay, so we can do all the wonderful and noble and cool things we want with renewable energy of all flavors. And we have not yet attacked the 80% elephant in the room. The rest of all the energy we need and somebody will say But wait a minute. Electric Vehicle will take a huge proportion of transport fuel off the table. Right? So you’re wrong RT E, you’re missing a really well. So the first question is, you know, how long is that going to take? And you will get all kinds of figures about, you know, what percent of new car sales are EVs, and it’s an impressive number. But the bottom line truth is, is that in the United States, the number of EDs out there are something like one and a half percent of all vehicles in the United States. And so we’re not going to get to enough ie these no matter how impressive the new car sales are, to take very much gasoline and diesel off the market in decades is my dad, in the most aggressive and, and if you’re in favor of that, optimists dictate the way human beings work, you know, I’ve got a perfectly good gasoline or diesel powered car that I bought three years ago, it’ll probably last 15 or 20 years, I’ll be damned if I’m just gonna throw it on the junky so I can get an expensive, easy. That’s piece number one. The other piece is this idea of clean energy. It’s an absolutely ridiculous idea. Okay, it’s to predict it. And I say that, not to disparage the people who use the phrase, it’s like my stale was a retirement party, it’s a good phrase, you know, it gets people attention. All energy is lily white, squeaky clean until you use it. There is no such thing as clean or dirty energy, it’s all clean. When you convert it into work, it creates two byproducts. One is emissions and the other is heat. Every form of energy doesn’t. There’s no exceptions. This is physics, okay, this is the law. These are the laws of thermodynamics. Okay. And so if society is going to continue to consume energy, let’s say it’s the same, or nearly the same level that we are right now, it really doesn’t matter what your sources of energy input are, you’re gonna produce weight, and heat as part of that process. And by the way, co2 is nothing more than weight. Okay, it’s tailpipe for the whole human enterprise. All right, it’s one of many. And so you just can’t get there from here, you can’t keep consuming what were consuming in terms of end use with any kind of renewable, non renewable, clean, dirty technology without producing pretty much the same amount of waste and heat that you are right now. And that’s because you’re easy Eevee or your solar panel, or, you know, your wind turbine, have a whole supply chain and lifecycle of work involved. I mean, you got to track the minerals from the ground, you’ve got to put them on a boat and send it somewhere, manufacture it into something, you got to send it on a boat somewhere else, it gets picked up on a truck, it gets taken to Amazon’s warehouse, it comes to you. And there are four things that society civilization cannot stand stand up without steel, cement, plastic, and fertilizers all for? We have no idea how to make any of those for without fossil fuels. The people say I saw recently the city of Amsterdam recently said no more fossil fuels by 2030. Okay, great guys. Now, did you include in that statement that there will be no more steel? No more cement, no more plastic and no more fertilizer, which means there’ll be no construction. There’ll be no computers, there’ll be no hospitals and health care, which are one of the principal consumers of plastic, and there won’t be any fertilizer in the countryside to produce food. Well, no, we didn’t say that. Well, that’s what the mean, isn’t it? Now again, I’m not I’m not disparaging the, you know, the, the good people of Amsterdam, I’m saying they’re energy blind. They don’t get it. They don’t understand that this is a complex web. You can’t take out one piece of the Jenga puzzle. Without eventually it’s going to fall down. We do not know how to smelt steel, out of iron ore in any any kind of scale, without coal dirty, stinking cold, we just don’t know how to do. And I don’t know when we ever will. And by the way, a nuclear fusion will not solve the problem. We’ll leave it there. But you know, we, we as human being, you know, just think there must be some box of hope somewhere, somebody’s going to figure it out. There’s some technology, I’m here to tell you. I dare your hopefulness. But it ain’t gonna happen. Not going to happen in my lifetime, it’s not going to happen in your lifetime. If we believe that there is a predicament with the ecosystem and climate change, then we don’t have the time it takes to figure those things out. And so we cannot, our society will collapse without feel demand plastic and fertilizer. And so if you want to pull out that piece, you want to pull out that Jenga piece of fossil fuels. Go ahead and do it, you’re going to lose the game. I’m not advocating that, you know, we go the other direction and go berserk on fossil fuels. I’m just trying to describe the problem. It’s a big problem.
Adam Taggart 1:01:14
It’s a big problem. And what’s interesting to me about this conversation art is we’ve talked for, like I said, many many years. Yeah, and I feel like I’ve gotten from this conversation that you’re actually a little less worried in the short term, and maybe a little more worried and long term.
Art Berman 1:01:31
You have absolutely nailed it, Adam. Yeah, I’m I’m real worried in the long term. I’m real worried in the medium term. In the short term. I’m a whole lot more worried about a collapse of the financial system and nuclear war than I am any of the things that we’re talking about right now. I mean, those things could put everything into, you know, an absolute tailspin, you know, anytime between next week and the next couple of years now, you know, I hope that’s not the case. But realistically, I mean, those are those are real risks that are out there. And you certainly know about them as well as I do. Yeah, so
Adam Taggart 1:02:21
hopefully, those crises don’t arise, or at least hopefully, definitely the, the nuclear one doesn’t arise. But they’re not they’re not dismissible by any stretch and, and they do merit our full attention. But but almost kind of like you know, whenever I talk to Lacey hunt, on the economic side, he says luck, the Fed has to kill the inflation dragon that is its immediate foe, it’s got to vanquish. But don’t forget the second it does kill that dragon, it’s then going to turn around and start attacking the much bigger deflation dragon that it was fighting before and had to put it sword down to kill the inflationary. So in other words, we have this, this multiple nested set of, you know, crises, many of them, existential. And you know, I think when we’re talking about here, it’s largely an existential crisis, certainly, at least for our way of life. Again, not on tomorrow’s doorstep. But but you know, in a decade or so, yeah, maybe actually, it starts really getting real. You also doesn’t sound that doesn’t sound like you’ve got a ton of hope that we’ve got like the brain trust on the problem here, as you categorize most of the politicians that are driving regulation around this right now, our initiatives around this right now as being energy blind. So that’s not super confidence inspiring. So I’m going to have to wrap it up here. But maybe this is such a big and important question. And I know that there going to be many viewers here, who each have their individual questions that have been raised by the last sort of 15 minutes of discussion here, that are going to be frustrated that we’re closing things off here. So I love it. If at some point, you might be open to coming on and doing a live session with me, where I can largely be just fielding questions from the audience around this energy transition topic that we’ve been talking about. Is that something you’d be open to?
Art Berman 1:04:11
I’d love to do it, Adam, and let me just say, for the benefit of, you know, those people that are freaking out on the other side of this conversation, you know, I’m not I’m not depressed, I’m not pessimistic. I’m not bummed out. I mean, you know, I’m, I’m just, I mean, I’m a scientist, I, my, my job is to describe the current situation, that doesn’t mean that it’s, you know, it’s going to make me want to go kill myself or anything. I think life is pretty darn good. And I think it will be, you know, it’ll be surprisingly good for those that are psychologically prepared for some kind of change. And we’ve got, I mean, what I’m saying is, is there will be an adjustment in our standards of living Oh, for some period in the future, hopefully it’ll be slower than it will be longer. But, you know, that doesn’t. Understanding what’s in front of me doesn’t depress, it’s getting surprised by something that I didn’t expect, it really bums me out. So, you know, I don’t want people to take from what I’m saying, Oh, my God, you know, give up. Now, what I like to do is learn more and understand better, but I can tell you that the path that we are on, is it. Everybody’s just so darn focused on one thing, you know, we got to solve the submission problem, well, you know, we’re just going to put the problem somewhere else. That’s, that, that may be what a politician has to do. But that’s not going to work. That’s all I’m saying. So hopefully, some people that are listening, we’ll endeavor to be to become a little bit less energy blind so that they can they can understand where I’m coming from, and maybe feel a little better about things.
Adam Taggart 1:06:03
All right, great. Well, I appreciate that, that intent to calm folks a little bit to say, hey, look, you’re not putting your head in the oven after this conversation. Although just to reiterate your point there about what we’re doing as a society right now, it seems like we’re real intent on solving the less than 20% part of our energy consumption, which, hey, maybe that’s something we should do. But we should also be really dedicating a lot of energy to the 80% part of the challenge as well, which you’re saying we’re maybe not looking at nearly as closely. So very unfairly, before I get to my last question, can you just give us 62nd? Two minute short answer on where if anywhere? Do you see the opportunity right now, and again, we have investors and mostly people who are, you know, they’re not crazy speculators who are going to be investing in like wild catting. But, you know, are are looking for, you know, opportunities to invest at least a portion of their portfolio? In things that make sense. Are there particular sectors or types of companies right now? Or are certain energy related commodities that you’re sanguine on?
Art Berman 1:07:18
Who are well, let’s talk quickly about oil, well managed oil company are, you know, they are good investments, or should be good investments in times of high prices, low prices, ESG, whatever. And, you know, I would, I don’t want to push particular names, but, you know, certain major Well, I mean, certain companies like Chevron, like, you know, like Exxon, like, like oxy that have, you know, really well managed portfolios, mostly around the world, but also in the Permian Basin, where growth is, you know, those, those have been consistent for exons been up and down a little bit. But, you know, it was a few years ago, but I mean, those are always, I think, very sound investment. The other thing is, is that we’re, we’re going to see consolidation, you know, mergers and acquisitions. And so, you know, there’s, there’s been a persistent rumor that, you know, Exxon, or Chevron, or somebody’s going to buy pioneer natural resource, which, by the way, is also a very strong company. But you know, if you look carefully, at who are the throng, smaller companies, somewhat smaller companies that are likely to get acquired and make a ton of money, you may lose money on whoever buys them, at least in the short term, but you make a ton of money on whoever whoever gets bought, you know, the Canadian oil companies are, I mean, he had the labor under, you know, much more difficult physical structure and price structure than us and there are companies out there that, you know, just consistently deliver strong returns now on the the alternative energy side, all you really need to do that don’t get beguiled by all the tech no BS. Okay. Just Just look at where the money’s going. Look at where the US government, you know, the, you know, the this latest bit of legislation, you know, huge windfall for all these renewable companies. I mean, that is, that’s just money in the bank, at least in the short term. Just find out, you know, where the, I mean, it was an article on the, you know, in, in Wall Street with the Wall Street Journal, Wall Street Journal Monday, talking about Dr. Gah, hoo, who personally run $400 billion worth of government money in a couple of his companies, you know, I mean, it should kind of be really hard. I don’t know thing about a company. So, um, you know, and I’m never given financial advice, because that’s not my job. But, you know, I mean, follow the money, the government is guaranteeing that those companies are going to make money. That’s, like it or not, you know, right or wrong. That’s what’s happening. So I mean, I, I think is I think as people get less energy blind, a lot of what I’m saying is gonna start to change. And if you’re ahead of that game, you’re gonna make some money.
Adam Taggart 1:10:31
And I’m curious on that part, we started this conversation with sort of the investor strike going on in the oil markets, as people become less energy blind, do you see more capital than flowing back into the fossil fuel space,
Art Berman 1:10:47
a different class of investors, I don’t expect very many of those left in 2018 to come back, I may be wrong. But there will be a new class of investor that recognizes what perhaps they didn’t or don’t, somebody’s going to move into the space. Okay. And and the space is not vacant, by any means. It just doesn’t have the same access to the capital and credit that it did several years ago. Okay,
Adam Taggart 1:11:18
but again, nobody put words in your mouth, did you see that? Their world waking back up to the essential reality of fossil fuels in the difficulties in moving off of them in any speedy way, given that they are responsible for the vast majority of the energy consumption mix, capital that otherwise maybe today is saying, well, that’s not green, I don’t want to be there. It may say, alright, you know, that stuff’s gonna need to be around, it’s gonna give off good returns for the long haul. I’m gonna put some more capital to work in that space.
Art Berman 1:11:47
Exactly. Right. That’s my All right.
Adam Taggart 1:11:50
All right. Well, as always, art, I hate to wrap these up, because you and I can have many times talk for hours. For folks that have enjoyed this conversation, and would like to follow you and your work from here, where should they go?
Art Berman 1:12:03
If you go to art berman.com everything on my website today is free. I have ended all my scripts and services, because there’s too much of a pain in the neck to manage. So everything new that goes out there, and just about everything new for six months has been free, go to art berman.com. If you want more, you know, moment by moment brain dump at AE Berman 12. On Twitter, I’m on LinkedIn as well. Those are places where you can find me and you can interact with me or you can send me a note on my website. But that’s, that’s where I am. And as I say, I’m, I’m not in this for the money. I’m in the I love doing it. And for people that want to know more, maybe they’ll say, oh, you know, you’re full of it, man. You know, if you think what I have to offer is useful. It’s out there. And it’s great.
Adam Taggart 1:13:09
All right, well, I think folks should be able to know by now, but I absolutely think it’s incredibly useful. I think the fact that you’re now just giving it to the world, songs, subscription is a true gift. And I love your mission art, how I interpreted is just trying to make the world a little less energy blind. So super appreciative that you are out there doing that. So anyways, our IT folks, if there’s enough interest, like I said, in in doing a live event with art, if you’re interested in that, let me know in the comment section below, if indeed there is enough interest, or it’ll reach back out to you. And hopefully we’ll be able to schedule one of those relatively soon. Alright, folks, if you want to take advantage of of, you know, applying some of the insights that aren’t shared here in terms of putting that to work in your investment portfolio, as always, highly recommend you do that under the experience of a professional financial advisor in general, but specifically, when that takes into account all of the issues that art has talked with us about here. To be honest, there aren’t that many that really understand all that. But if you’ve got to go when he’s doing that for you, great, you should really stick with him. If you don’t, though, or if you’d like a second opinion. For one who does, feel free to talk to one of the financial advisors that Wealthion endorses and just set up a free consultation with them. To do that. Just go to wealthion.com Fill out the short form there. These consultations totally free they don’t cost you anything. There’s no commitment to work with these guys just a public service. They offer to help people prudently position and hopefully in advance for some of the things that aren’t talked about here. And if you’d like to see art come back on this channel again soon whether it’s in the live format or just coming back on when he lets me know he’s got something important he wants to share. Please do me a favor and voice your support for that by hitting the like button, then clicking on the red subscribe button below, as well as that little bell icon right next to it art can’t thank you enough. Thanks so much for joining us today and giving us so much of your time and expertise.
Art Berman 1:15:06
Always a pleasure to talk to you, Adam. Thanks for having me back.
Adam Taggart 1:15:09
All right, thanks so much art everyone else. Thanks so much for watching.
