Oil Forecasting Legend Paints Dire Energy Picture  

Resource Investor has a fairly lengthy article on peak oil as seen by Henry Groppe. He ignores the wider implications for the economy, but sees a lot of value in Canadian tar sands - whether or not he fully understands the linkage to natural gas depletion isn't clear.

Does anyone know if a tar sands extraction process that feeds on itself been put into production yet ? I hope not, but it wouldn't surprise me.

While Matt Simmons’ work is recently more widely publicized, Henry Groppe has been accurately forecasting oil price trends for the last 55 years. His latest views agree with those of Mr. Simmons, and paint a dire picture of a “permanently changed situation”. Indeed, Groppe says, “We think we're headed for an energy crisis.”

Henry Groppe founded Groppe, Long & Littell in 1955. The company’s clients include some of the largest oil & gas, integrated, chemical, financial, oilfield services, and pipeline utilities in the world – not to mention several world governments. Some more recent examples of their successful forecasting track record include:

1. Calling the top for oil in 1980 when everyone thought prices were going to $100 per barrel.
2. Calling a persistent gas bubble in 1986 when the consensus was that it would be over within 12 months.
3. Predicting long term gas prices rising to $4-$5 per MMBTU in the early 1990’s as the Department of Energy said prices would be steady to lower, in the $1 per MMBTU range.
4. Between 1998 and 2000, successfully forecasting both the drop in oil prices to the $10 per barrel range, and their subsequent quick ride back to $30 per barrel.

Groppe says that we are at "a major turning point for world oil and north American natural gas.” According to this veteran, “We've been down a long road of exploration and exploitation and found everything easy. We've reached the point where all the major initial discoveries have reached their peaks and are declining. The newer ones are too small to offset it, and North American natural gas production has clearly peaked and is irreversibly declining. We think were at that turning point for world oil. From now on we’re in a new era where the key question is what prices will be required to cause consumption to decline to match an irreversible decline in supply?"

An interesting point for investors is that, Groppe says that as a result of the Iranian Revolution, “something like 30% of the value of the S & P in 1980 was the energy sector, and today its more like 6%-7%, and significantly last year the energy sector generated 23% of all of the earnings of the S & P 500.” “We expect it to rise to the 15%-20% range” in the future.

Going right along with this bullishness on the energy sector, and historical low point for the weighting of the energy group in the S & P, Groppe says, “I think the easy oil has been found, but in general, in our work, we conclude that oil and gas assets are still significantly undervalued based on the long term price outlook that we see.”