Tuesday 25th October 2011
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Good investment requires challenging widely held views, which often turn out to be wrong.
Therefore it is interesting to note that energy industry expert Daniel Yergin - author of a superb history of the oil industry 'The Prize' and the more recent book “The Quest” - does not believe the world is running out of oil. Supply is growing, not shrinking, he says. This is due not only to new discoveries but to an even more important source: additional oil found in existing fields. “The world is clearly not running out of oil. Far from it.”
He is a critic of the peak oil theory, which says world gas and oil production may soon decline permanently.
Yergin notes that such fears have cropped up before.
“This is not the first time the world has run out of oil, it is the fifth.”
Supply is growing, not shrinking, Yergin says. This is due not only to new discoveries but to an even more important source: additional oil found in existing fields. The big question is not whether the oil is there but whether the right political and economic conditions will exist to encourage the many trillions of dollars needed to extract it.
He picks world production is likely to grow about 20% over the next two decades and that a plateau “is a more appropriate image for what is ahead than the peak”.
If he is right, and a scan of his books might be required to make a decision here, then investors need to be cautious about investing in energy shares or, at the very least, making sure they don’t pay too much for them.
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