Peak Oil? Hardly. Bigger Challenge: Right Kind Of Oil -- February 18, 2019

Decades ago when I first started investing in publicly traded oil companies, I did not know to what extent reserves played in how analysts valued an oil company. I might have blogged about that; I'm sure I did.

But times are changing. This report from Bloomberg via Rigzone: energy companies are at increasing risk of "over-investing." To correct that, some majors are rewarding their CEOs on "bang-for-buck" rather than for success in increasing reserves.

Peak oil? What peak oil?

I remember all the hand-wringing in 2014 or thereabouts that oil companies were not investing enough in conventional exploration, that shale oil could not make up the difference, and by 2020, there would be a relative shortage of oil.

The tea leaves suggest there will be no shortage of oil in 2020.

The problem will be the "right" kind of oil. The oil companies had that figured out years ago when they went forward with the Keystone XL. Unfortunately, now the perfect storm:

• Canada's western Canadian oil sands (heavy oil) remains land-locked
• the Keystone XL is dead;
• TransMountain is on life support; and,
• Enbridge Line 3, is intensive care but likely to survive; however, it won't be nearly enough to make up the shortfall
• fortunately, CBR is scalable
• it will be interesting to see if BNSF will be allowed to "assist" in Canadian CBR (I doubt it; I'm sure there are rules and regulations; if not, politics will impede)
• Venezuela, heavy oil -- we all know that story
• Mexico, heavy oil -- some think Pemex is doomed and based on policies taken by their newly-elected president, that may be correct
• Saudi Arabia, heavy-enough oil -- cutting back because it can't make it on $65-oil; needs $80-oil as a minimum; probably $100-oil when you get right down to it

Me? Not a bit worried. The refiners will take a hit on margins and the price of gasoline might go up, but "they" will find ways of getting heavy oil if they need it.

Interestingly enough, in the global hierarchy, the tea leaves suggest that of the three, the UK is in the worst situation for heavy oil; the EU is next; and, finally, the US -- however, the latter will do just fine.

The issue of the "right kind of oil" is nothing new. It's been discussed often on the blog.