Email of the day (4)
Comment of the Day

March 25 2011

Commentary by David Fuller

Email of the day (4)

On Israel's shale-oil:
"First I want to thank and applaud you for your daily updates. In a world of hyperbole, it is a pleasant island of sanity.

"I referred yesterday's [Tuesday's] piece concerning non-conventional oil in Israel to a friend who has spent the last 30 years studying the gas and oil industry.
This was his reply:

" I hope that you are not taken in.

You realize that the article is not discussing hydrofracking tight shale formations but "cooking" Kerogen, a oil precursor? The issues being glossed over are so serious as to be laughable.

Among them:
EROEI- even more important than the cost in dollars is the cost in energy input.
Scale-- Peak Oil not about deposits but about flows.
Water. There are no mining or oil extraction processes that produce clean water. Though the idea of this to people who live in a desert is very appealing. The fact that the local aquifers are below the shales being considered will alone make this a non-starter.

Let's just say that this is a mirage and leave it at that.

David Fuller's view Thanks for your thoughtful comments and for running this story past your knowledgeable friend. Additional input is good because we can be certain that reports concerning new ways to extract fossil fuels will always be controversial.

With potential technology breakthroughs we really do need to become interpreters of interpretations, as James Delingpole put it, and you may recall some very pessimistic and sensational reports concerning the future of shale-gas in the USA not all that long ago. Additionally, during the last ten years I can recall venerable oil industry types telling us that Peak Oil was inevitable, the Saudi's were fabricating their reserves, oil was being lost forever due to falling pressure in the wells, and horizontal drilling would not work.

Here is what we do know.

Following the success with shale-gas, US oil companies have begun to produce crude from shale-oil. Dr Harold Vinegar, as the former chief scientist at Royal Dutch Shell and now chief scientist for Israel Energy Initiatives, is neither a neophyte nor a likely energy quack. Israel has vast shale-oil deposits. The challenge is to extract it without poisoning the aquifers below. Dr Vinegar's project is still experimental and he is not forecasting commercial production before the end of this decade. Necessity remains the mother of invention and I would not bet against this project succeeding, possibly within his time schedule.

Meanwhile, there are vast shale-gas and shale-oil deposits to be developed worldwide, using and adapting technologies developed in the USA. Fullermoney expects the world to be awash in crude oil and LNG by 2025, with crude below today's Brent price of $115 in real terms.

One of the best way to play this, I maintain, is by investing in global GDP growth, which brings us back to Fullermoney themes. Here they are:

Fullermoney Themes (Secular):

Asian-led emerging (progressing) markets
Central and South American-led resources markets
Precious metals
Industrial resources
Supply inelasticity themes such as energy and water.
Global infrastructure development
Information technology
Western multinational leaders leveraged to the Asian-led global economy
Dividend 'aristocrats

I also have a secular trading theme:

Short US T-Bonds (preferably on rallies in futures prices and cover on declines

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