September 27, 2012, Bob Brinker's Guest: Charlie Maxwell

September 27, 2012....I have a treat for you. Usually, David Korn says that Bob Brinker's guest-speakers are not worth covering, but he did a great review of Charlie Maxwell who was on Moneytalk last Sunday.  Posted with David's permission. David Korn wrote the following including editorial comments (EC):

MONEYTALK GUEST ­ CHARLES MAXWELL

Introduction:  Bob had on one of his favorite guests, Charlie Maxwell, Senior Energy Analyst for Weedon & Co.  Charlie was educated at Princeton and then Oxford.  He has been working in the oil industry since the 1950s. In the 1960s he became an analyst on Wall Street and has been rated the #1 energy and oil analyst on many occasions.   Bob heaped heavy praise on Charlie as the best of the best in terms of energy analysts and mandatory listening for Moneytalk trekkies.  I summarized the interview below.

Brinker/Maxwell:  Bob asked Charlie his thoughts on the politics of oil. Charlie said the politics of oil play out all around the world.  It is very important as we move toward the peak production years of the oil business that we understand this is not just a geological situation but also a political situation.  Charlie added that our older fields are now beginning to run out of the gas pressures that drive oil. Oil does not produce itself. It is produced by the pressure of gas supplies behind it which is critical to how fast the oil flows and how long it continues to flow before the gas supplies become so weak that it no longer can force out the oil. "Peak oil" means the emerging fields we find each year are equal to the loss of volume from the old fields that are being depleted.  When will this peak oil occur and how will it impact all of us?  Experience would teach us that this leads to competition for oil supplies which we have begun to see as the Chinese are going around the world purchasing fields in anticipation of this coming peak oil.  It also implies that prices will be higher and higher down the road. We may have to be content with flat supplies for a few years and then beyond peak oil, diminishing supplies which would put pressure on other energy sources.  Peak Oil will likely come first among the great fuels we use and will put terrible pricing pressure on oil itself and spread that pricing pressure to other fuels.

EC:  Charlie is on record stating that agrees with the viewpoint of the renown Shell geologist, Dr. Marion King Hubbert, who predicted that the world oil production would reach a peak and then rapidly decline.  Hubbert said the amount of oil given to our planet when it was formed is finite. When an individual field has produced 50% of its oil, you cannot force it to produce more oil on a daily basis.  Charlie thinks the we are not far away from when more countries have declining production versus those that have rising production. 

Maxwell:  Over the last decade, we have been using oil and producing it for that use at the rate of about 27 billion barrels per year but now we have been making available new oil of about 12 billion barrels per year. That is a juxtaposition of the two numbers that count for us and it obviously doesn't make sense and shows we must be using up our surplus barrels that we found in the past.  And that is exactly what is happening.  Charlie says he thinks in the next 7-10 years we will reach Peak Oil.

EC:  Charlie said he gets his data from the U.S. Energy Information Administration at this url:

http://www.eia.gov/

Brinker/Maxwell:  Talk to us about the Middle East.  Charlie says the supplies to the Middle East are critical to our lifestyle.  About 20% of the oil passes through the Strait of Hormuz.  If Israel decides to bomb Iran (which is a matter of consistent debate right now), the Iranians have said they will block the Strait of Hormuz.  It would take about 30-40 days before the effect of that would be felt  because it takes the tankers that long to get around, but the consequences would be dramatic and would probably set a world wide recession or depression into place if it was not curtailed. Charlie says he has heard that Iran will haul out old tankers and put them in the strait and sink them.  The tankers would then project off the ocean floor to engage the bottom of the tankers and stop them from passing. Charlie says he hopes the US military could stop that but who knows.

EC:  The Strait of Hormuz is the only sea passage to the open ocean for large areas of the Persian Gulf.  According to the U.S. Energy Information Administration an average of about 15 tankers carrying about 17 million barrels of crude oil pass through every day.  This represents 40% of the world's seaborne oil shipments and 20% of all world oil shipments. It is important! 

http://en.wikipedia.org/wiki/Aphrodite_gas_field

Brinker/Maxwell:  Charlie discussed the incredible finds of trillions of cubic feet of gas about 50 miles off of the Israeli coast and then a similar find nearby.  Charlie talked about how the area is in the eastern Mediterranean in contested waters claimed by Israel, the Republic of Cyprus and Turkey.  

EC:  Read the story, "Israel's Offshore Gas Reserves ­ Bonanza or Security Threat" at this url:

http://oilprice.com/Energy/Natural-Gas/Israels-Offshore-Gas-Reserves-Bonanza-or-Security-Threat.html

Brinker/Maxwell:  Bob said he is angry the President has not approved the Keystone Pipeline and asked what Charlie thought.  Charlie said we have a vast reserve of oil in Canada, larger than the oil in Saudi Arabia.  We are in the process of connecting those reserves in Canada and into the United States to our refining centers in the South so we can process this crude and get the gasoline, diesel and heating oil consumers need.  Charlie said we need this pipeline to get the oil, especially as fall back position so we can get that oil down quickly in the event of a serious Middle East conflict.  Charlie said we are already taking all the oil we can from Canada.  We are big buyers of Canadian oil and want more, but we need the pipelines to get more.  We can use all of the oil Canada produces and if we don't, Canada will sell the oil to other countries.

Caller:  When do you think oil will actually be gone from the earth? Charlie says it is a controversial question.  Charlie pointed out that Exxon says we won¹t have peak oil, just higher and higher prices.  Charlie says we will probably have some supplies over the next 1000 to 2000 years.  There will always be new finds of oil. The problem is we use more than we find. Charlie says he thinks Peak Oil will come around 2019-2020.   Charlie says he had forecast earlier, but the great recession delayed that.

Caller: Do you think we could see an Israel strike on Iran soon and see a disruption in oil?  Charlie says he doesn¹t think anything will happen on that front until after the elections.  If President Obama is reelected, he will have to pick up this argument with Israel and address whether the sanctions will work by bringing down the regime or does there need to be a surgical strike by Americans or Israel. The big problem is we don¹t have a way of ridding ourselves of this we can only delay it.  Iran has dug in so deep that many of our bombs will fall on the top layer, but not impact the work going on underground which will only be modestly be impacted by our bombs.  But there will be collateral damage if we send bombs and then we will be held to task by the rest of the world if we nuked the Iranians.  We will probably remain dependent on sanctions which are beginning to hurt the Iranians.

Caller:  Is the coal industry going to come back and if so when?  Charlie
pointed out that there has been a great technological revolution in the natural gas industry which is producing so much natural gas that the price of natural gas has come down so far it has hurt the coal industry. However, Charlie thinks that by 2014 the price of natural gas will move higher and that coal will enjoy a rebound.

Brinker/Maxwell:  Bob asked Charlie to comment on nuclear energy.  Charlie said that the Fukushima Daiichi nuclear disaster in Japan have put a huge dent in the growth of nuclear power.  Charlie said many nuclear plants in the world that are located near an ocean (which many are due to the cooling needs) but now countries fear that a tsunamis, particularly over the Pacific oceans, could produce a similar incident. Spain, Italy, Germany, Switzerland, Japan and a few other countries have said no more new nuclear plants for the time being.  This means that we are going to have reduced power coming from nuclear energy as a percentage of total energy output in the coming generation.
  
EC:  I always enjoy it when Charlie Maxwell is on the show.  He is a real class act.  Charles Maxwell's bio is at this link:

http://www.weedenco.com/research/charles-maxwell.php

David Korn's Stock Market Commentary, Interpretation of Moneytalk (Bob Brinker Host), Financial Education, Helpful Links, Guest Editorials, and Special Alert E-Mail Service.  Copyright David Korn, L.L.C. 2012

Honey here: David Korn writes a newsletter with a weekly summary of Bob Brinker's Moneytalk included. You can get a complimentary issue of it and also The Retirement Advisor that David and Kirk Lindstrom publish together at this LINK

READ AND POST COMMENTS