Editor’s note: This
week, we’re talking to Casey Research founder Doug Casey about his interest in
science, technology, politics, and history.
Yesterday, Doug told us
about the impossibility of an oil shortage – despite panic in the mainstream
media. And in today’s Conversations With Casey, Doug offers his thoughts on the
alternative energy sector…
Read
on below for Doug’s take on the political hacks who are destroying green energy
with “incessant propaganda”…
Daily
Dispatch: So Doug, you’ve spoken to us about the theory and
background for oil exploration and production. The practical question is
whether oil is cheap or expensive right now at around $55?
Doug Casey: The
price has been dropping of late, because of the coronavirus, and fears it will
greatly reduce consumption. Around 70% of oil is fuel for travel – cars,
planes, boats and trains. I suspect it’s something that will burn out and blow
over, like SARS and the others. Mass hysteria does a lot more damage than the
virus itself. But who knows? The next war will undoubtedly feature bioweapons.
But it’s important to note that all commodities tend to rotate around
their production cost. Today, the average production cost of oil varies greatly. It’s
not just the cost of actually pumping the marginal extra barrel of oil, either.
There are infrastructure, transportation, financing, tax, regulatory,
administrative, and numerous other costs. But at this point, oil, in most
places in the world, is a marginal business at best. It’s profitable for good
operators, but far from a bonanza. In fact, most small producers are on the
edge of bankruptcy. Gas producers are all running at a loss with gas under $2.
Myths, Lies and Oil WarsF.
William EngdahlBest Price: $33.55Buy New $7.93(as
of 08:30 EST - Details)
Technology
always works to both drive down costs and increase production. Most people
aren’t aware of the fact that even when an oil well is capped, and is no longer
produced, there is still lots of oil left in the well. There’s just not enough
pressure to get the oil up. Of course, there are secondary – mostly water
flooding – and tertiary ways to recover more oil. But even under the best
circumstances you can’t, today, get more than about 40% of the oil in the
deposit up above ground.
When
technology improves further with better tertiary recovery methods, producers
will be able to go back to exploit many of these old capped oil wells. It’s a
huge resource, already discovered, laying and waiting for the technology to
liberate it.
Who
can say exactly when that will happen? But if the oil price increases,
innovators and capitalists will develop new ways to recover the oil in those
wells. The bottom line is: Don’t worry about running out of oil.
Daily
Dispatch: In that case, what’s your take on alternative energy?
Sounds like it may be a waste of time if we’re never going to run out of oil.
Doug Casey: Although
the world’s supply of oil will never run out, that doesn’t mean I’m against the
idea of alternative energy sources. In fact, I completely support their
development and the technology behind them.
The
oil price and the cost of producing oil are key to how quickly alternative
energy sources are developed. Right now, at around $50, oil is a very marginal
business – and so are alternative sources. But if oil goes to $100 or $150,
then oil companies are going to be absolutely coining money – and lots of
resources will go into alternatives.
If
for some reason it goes back down to $25, which is unlikely, then a lot of oil
companies will go bankrupt. What observations can we make from that?
How about
this: Oil is perhaps the most political of all commodities. Of course, all
commodities – very unfortunately – are political in one way or another. But oil
is probably the most political, even more than gold, wheat, or uranium. That’s
because it’s the major source of income for a number of countries – especially
in the Middle East and Africa. In Venezuela and Russia, the main source of
government income is oil.
And as we know, something like 25% of
the world’s oil passes through the Straits of Hormuz. So
it can be cut off. And if it is cut off, the price of oil is going to explode.
The price fluctuates very much with political events. It’s controlled by
governments directly and indirectly. That makes me tend to be a bull.
Daily
Dispatch: That all makes sense. But what’s your take on the relationship
between capital investment in fossil fuels and in alternative energy sources?
How will governments, politics, and lobbyists affect this?
We’ll
try to give you an example here… As you know, there’s a lot of political and
social pressure for capital to divert from fossil fuels to so-called “green
energy,” even if the “green energy” is less efficient than fossil fuels.
If it was only about energy efficiency,
then that capital would probably go into oil or maybe even coal or natural gas.
But because of the political pressure, it goes towards investments in “green
energy.” That means it takes capital away from something that is efficient and
more cost-effective, and directs it into something else which may not be as
efficient or cost-effective. This may, in turn, be another reason why
the oil price is so high. It limits or reduces the investment in new
technologies in the oil or fossil fuel sector. What’s your take on that?
Doug Casey: Yes.
Well, you’re absolutely right. This is another reason, among many, why politics
is the enemy of the average man. Politics, by its very nature, directs capital
away from its most efficient use – where it could create more capital and make
the world wealthier – and it directs it into inefficient uses, where you’re
actually getting poorer.
Governments
might take a dollar of capital, and pay some company to create a widget. They
typically do that because the “investment” is politically productive – not
because it’s economically productive. Government isn’t interested in
making money, as business is; it’s interested in controlling people. But
making money – which is becoming a rather despised concept – is actually about
creating new wealth.
I’m all for wind and solar, as I’ve
explained previously. But technologies that are subsidized don’t create wealth.
They misallocate it, or even destroy it. This is how things have been with
solar and wind power for decades. They’ve been stupid political boondoggles,
destroying wealth. That’s only now beginning to change.
Daily
Dispatch: Yes, perhaps you can explain what you mean. Solar and wind
power are the alternative energy sources that seem to have the most backing
from the green lobby groups.
Doug Casey: Remember,
all power – except nuclear – comes from the sun, directly or indirectly.
Everything – coal, wood, oil, wind, solar, tidal, geothermal, whatever. By
trying to get power directly from wind and solar, it’s like we’re cutting out
the middleman, which very nicely over hundreds of millions of years has
concentrated that power for us. It’s foolish not to take advantage of that.
That
said, solar and wind efficiency have been getting better and better for decades.
Which is both wonderful and inevitable. And they’ve actually been practical for
remote special applications for years. But as a form of mass power, base load
power, they still don’t make good economic sense.
They’d make even less
economic sense if it wasn’t for subsidies, which waste capital, and are always
destructive. They’re destructive, because they direct capital to things that
make political sense, but rarely economic sense. When government tries to act
as a venture capitalist, things almost always go badly.
Daily
Dispatch: An example?
Doug Casey: Probably
the most famous example was Solyndra, which came to light in the 2012
elections. There was apparently lots of fraud – which is not unexpected when
the government has $535 million on offer. Cronies are always first in line at
the trough. But it was also just a bad bet in a rapidly evolving area of
technology.
A
more recent example is the Crescent Dunes solar project near Tonopah, Nevada. The
U.S. guaranteed a $750 million loan for the plant, which is now bankrupt, shut
down as uneconomic, and being sold as scrap. I thought it was an interesting
large-scale science project – but only the government would waste that kind of
capital because it seemed like a good idea at the time.
Daily Dispatch: What about solar’s claimed environmental
credentials?
Doug Casey: Contrary to the
incessant propaganda, solar isn’t an environmental issue; it’s not about saving
the planet from carbon, the newly christened enemy element. These people forget
that in order to create solar collectors and windmills, it takes an immense amount
of metals, plastics, petrochemicals, energy, and other non-green ingredients to
build them.
The only way you can know if solar and
wind make sense is if they make money. I’m confident they will in the near
future. But they should be funded by venture capitalists, not bureaucrats and
political hacks.
Reprinted with permission
from Casey
Research.
Doug
Casey (send
him mail) is a best-selling author and chairman of Casey Research,
LLC., publishers of Casey’s International Speculator.
Copyright
© Casey
Research
