“A significant number of petroleum geologists believe that we will reach the global maximum of petroleum extraction within this decade or that we have already reached it. Peak Oil happened in 1970 in America, when over half of our oil that we gained from the soil was exhausted…”
–Bill Clinton
Oil, powered by two new technologies, can continue to provide the world with cheap, abundant energy.
October 2, 2024 – Last night’s VP debate was mostly notable thanks to something that’s become a rarity in American politics: civility.
Ohio Senator J.D. Vance and Minnesota Governor Tim Walz both brought a down-home midwestern charm. More importantly, both talked policy and recognized plenty of places where most Americans are in agreement.
Vance did an excellent job of defending Donald Trump’s first term. Walz struggled a bit, but the Harris-Walz campaign is trying to position themselves as fresh-faced outsiders rather than a vote for the incumbent VP (and hence status quo).
Meanwhile, stocks are near all-time highs, even after Iran attacked Israel yesterday and a response looks likely in the coming days.
Gold keeps hitting new all-time highs. Cryptocurrencies are showing signs of life again.
Among these “risk-on” assets, energy remains the odd man out. Most of oil’s bump on Tuesday was based entirely on geopolitical events, rather than fundamentals.
And yet, we could be on the cusp of an energy renaissance.
There’s been increasing talk of employing nuclear power in recent months, if only to provide cheap and reliable power for AI data centers.
New reactor technologies are smaller, modular (meaning they can be scaled far better), and safer than older plants like the ones operating today.
But even those plants may see new signs of life. Microsoft is looking to reopen up Three Mile Island.
That’s where then-President Jimmy Carter, who just turned 100 yesterday, went in to allay fears about the dangers of nuclear power following the reactor’s meltdown.
There’s even talk about repurposing coal power plants into sites for nuclear power. The U.S. continues to move away from coal.
That covers baseload electric power generation. But we still need cheap, energy-dense fuels to power tools like cars, trucks, buses, airplanes, really any vehicle that you can think of.
Until we have more breakthroughs in the cost, range, and charging times of EVs, the rollout of that technology will remain slow. I expect we’ll get there in time, but investors today will have a slower ride than during 2020, when EV stocks soared.
Looking at the conventional side of the energy space today is our intrepid portfolio manager Andrew Packer, sharing his thoughts about a recent trip to one of today’s modern oil rigs in a remote corner of Colorado. Enjoy ~~ Addison
The Power of Combining Two World-Changing Technologies
Andrew Packer, Grey Swan Investment Fraternity
Weld County, Colorado
It’s late September in Colorado. The voice of Denver’s mayor greets me at the airport, suggesting I take in the fall foliage in the mountains.
But my final destination is in another direction. To the northeast of Denver isn’t the verdant green mountains. It’s the sparse scrubland of the prairie, at this time of year dry and parched. It’s also 93 degrees, warmer than my home in Florida.
Half an hour south of Wyoming, and less than an hour west of Nebraska, this part of Colorado isn’t picturesque enough to make the pages of the travel brochures.
It’s also a part of the state that wants to be anywhere else but Colorado. In 2013, the Weld County commissioners looked at seceding and creating a new state. In 2021, the county proposed that it join Wyoming.
Given that Weld County is home to about 330,000, such a move would increase Wyoming’s population by more than 50%.
Why is this part of the state so restless?
It’s likely because it’s sitting on top of some massive oil and natural gas formations.
Meanwhile, the state of Colorado, which was founded in part from a gold rush in 1858-1859, has created the most stringent environmental regulations in the country when it comes to mineral extraction.
It hasn’t banned oil and natural gas extraction. But it does require that resources are produced free of carbon emissions. The standards are so high that companies operating in Colorado often reach out to counterparts in Norway, which has a similar high level of environmental consideration.
So there’s a quiet transformation taking place in the Mile High State. And you wouldn’t know it driving by some flat, dusty and desolate roads in the prairie that marks the Eastern part of the state.
There’s no obvious candlestick flares like you might see at rigs in West Texas. And no gushers like in the opening of There Will Be Blood.
But it’s a combination of two tech trends unlike any other.
The Tech Trend Keeping Gas Prices Cheap
There’s been a massive boom underway over the past few years. Billions of dollars have been spent on a new technology that can revolutionize the way we look at the world. It’s making early investors fortunes.
That may sound like an elevator pitch for artificial intelligence. But it’s really just as applicable to fracking technology, especially horizontal fracking.
This technology allows oil and gas companies to drill for resources, and extract them over a range of miles.
Fracking technology unfolded in the early 2000s. The other part of the equation, creating the ability to create liquefied natural gas (LNG) for export, occurred in the early 2010s.
Both constituted a tech boom that we’re still benefiting from today. In total dollars it may not rival the AI or internet boom, but it’s keeping energy costs down and rethinking the scarcity mindset that has often prevailed.
The “peak oil” fearmongers, looking at production charts, failed to account for the possibility of a new technology that would render their models obsolete.
Yes, we’ll still have the occasional oil shortage, but for solvable, short-term reasons. But fundamentally, the more oil we’ve pumped out over the decades, the more we’ve found.
These advancements in the energy markets have been largely overlooked. Fracking allows oil fields to remain productive for decades after they would have been exhausted by conventional means. And America is swimming in natural gas, so being able to export it to Europe or Asia where demand (and prices) are higher has been a huge boom.
The site I visited, at (full disclosure) the invitation of Prairie Operating Company (PROP), estimated that the oil field they’re drilling for today will produce crude for 30 years, “at the current level of technology,” according to the site foreman.
Fracking technology has truly been a revolution, and it’s a boom that has a long lead time to play out. But there’s another technology that’s making each part of the process more efficient.
A Skeptic Converted
In June, Goldman Sachs released an Insight named: Gen AI, Too Much Spend, Too Little Impact?
The report raised a lot of concerns that could fall under the Grey Swan purview. Essentially, for all the billions being spent on AI technologies, where were the results?
It’s certainly too early to tell. Internet stocks peaked and crashed before we had streaming video, online banking, shared document drives, and other key tools we use today.
But the article has added to some recent skepticism, including my own.
Traveling over the past few weeks, however, I’ve seen how AI tools are being employed in everything from corporate document management to wealth advisory portfolio structures … and now to the oilfield.
Yes, AI has gotten into some pretty remote parts of the world. Today, AI can use seismographic and topographical data, oil company records dating back decades, and determine not just where to drill, but the best spot to drill to within a few feet.
When you’re tunneling through 6,500 feet of rock to get to oil, precision can lead to far better results than just being approximately right.
And with fracking, one vertical pipeline can split off into multiple horizontal pipelines, for as far as 2-3 miles out.
With AI, energy companies have truly moved past the costly trial-and-error stage of drilling that has ruined many a wildcatter.
And that’s the real power of AI. Not some big “here it is” moment. Or the creation of a single Skynet-like AI that decides humanity is a threat that needs to be eliminated.
Instead, the power of AI is a tool that allows companies to find ways to complete a process 5-10% better. And doing it across as many processes as possible.
There are hundreds of steps that need to happen even before the first hole is drilled. And afterwards, capping the site and restoring the environment to as much of its original state as possible.
Of course, not everything can be automated.
It’s hot work in the 93 degree heat, especially when you’re wearing full overalls, steel-toed boots, and a hard hat. The workers live on site, working 12 hours at a time (6AM to 6PM or vice versa) for 20 days, then get a full 10 days off. Then it happens again.
These are the unsung heroes of America’s energy revolution. But thanks to fracking and AI, America’s struggle with energy independence is won. And energy companies are taking advantage of every tool available to keep it that way.
Technology will keep the oil flowing. And right now, oil looks a little too cheap. It could be poised for an upside move, likely after the election. It may be time to allocate some money to this unloved commodity now. ~~Andrew Packer, Grey Swan Investment Fraternity
So it goes,
Addison Wiggin,
Grey Swan
P.S. Our paid-up members of the Grey Swan Investment Fraternity have access to our latest research, and our existing portfolio has some energy plays.
Given how low oil prices are right now and their potential to move higher, we expect further opportunities there in the months and even years ahead. Don’t count out oil and natural gas quite yet.
Meanwhile, Robert in Houston writes:
Mr Wiggin, perhaps we should look at the world from the perspective of the Deep State, its members and advocates:
The DS had quite a build-up from the Napoleonic Wars, through the US War of Succession, WW1 and WW2 highpoint. It rode the coat-tails of technology and productive society. Since that time however, it has slid considerably (at least in proportion): failed wars, popular and court rebellions and worst of all, loss of information control.
The current two wars the DS is ginning up don’t attract much popular fervor, no where near as much as the 9/11 false-flag. CBDCs have some promise to control if they don’t fall to competition, both internal and external.
Schemers gonna scheme. Can’t stop’em. They will cause damage, but people will avoid as much as they can.
We certainly agree … and we’re here to identify these schemes from their inception point, and find ways to insulate your wealth from them.
