This is a guest post from Ed Rempel (CFP and CMA).  For those of you joining us recently, Ed has written a number of controversial articles for MDJ in the past.  Today’s article is about a hot topic in everyone’s life, the price of oil and the peak oil argument. This is part 1 of 2.

“No one goes there anymore - it’s too crowded.” – Yogi Berra

Tired of high gas prices? They have risen sharply because oil prices have shot up from $10/barrel in 1990 to $20/barrel in 2002 to $60/barrel in 2005 and now to $145/barrel in 2008. Is this just a temporary spike or just the beginning of a much larger rise in gas prices?

The most significant investment issue now is this big debate – is the huge rise in oil the beginning of a new reality or is it this decade’s version of the tech bubble? Which investments we would want to hold will be very different depending on which of these is true.

It is impossible to know for sure whether or not this is Peak Oil or an oil bubble, since the oil reserves claimed by many of the largest oil producing countries, especially OPEC countries in the Middle East, are widely considered to be unreliable and politically motivated.

Before you answer – let me say there are quite a few very smart people on both sides of this argument. Here are the arguments for both sides. Which do you believe?

Peak Oil

The theory of Peak oil states that when you have taken out half the oil from an oil deposit, then the rate at which you withdraw it peaks and only declines after that. It was discovered by King Hubbard and accurately predicted in 1956 that the peak of oil production in the US would happen by 1970. Since then, many other countries have hit their peak production.

If we are at Peak Oil, then we will still have oil for about 100 years, but the amount we can produce each year will decline. If demand continues to climb at the same time, then today’s sky-high price of oil – and gas at the pumps – is only in the early stages of a permanent rise.

The peak of oil is probably inevitable, but the big question is when. I read 2 in-depth books on this about 5 years ago (including “Out of Gas: The End of the Age of Oil” by David Goodstein) and the debate among oil experts was whether we were 10 years or 40 years from the peak. The Association for the Study of Peak Oil and Gas (ASPO) predicts it will happen in 2010, while Cambridge Energy Research Associates (CERA) predicts that we are at least several decades away.

Oil price increases in the past have lasted only a few years, followed by a crash. The recent spike in oil prices is unusual, though, because it is the first not caused primarily by a disruption in supply. Unlike the Arab Oil Embargo of 1973-1974, the Iranian Revolution of 1979 and the Gulf War of 1990-1991, the rise in oil prices from 2002 to the present primarily has been driven by growth in world demand, especially from China and India.

Arguments in favour of Peak Oil:

1. Peak Oil is inevitable, since oil was created millions of years ago and there is a finite quantity. Whatever amount of oil exists is all we have, since making new oil would take millions of years.
2. World oil production is declining by about 4% per year, since many existing oil fields have reached their peak. If conventional oil production is roughly 85 million barrels per day, then the first 3.4 million barrels of new daily production every year only serves to offset declines in existing fields.
3. New discoveries are increasingly rare and small. In the 1960s it was not uncommon to find 40 to 50 billion barrels per year of new oil reserves. Now, 10 to 15 billion barrels is considered a more typical exploration year.
4. New discoveries are from sources that are more much costly or environmentally unpopular, such as the tar sands and off-shore. Barrack Obama has said he may ban oil from the tar sands for environmental reasons and environmentalists claim that off-shore drilling would threaten ocean species.
5. Oil-producing countries seem unable to increase production. They claim they are trying to increase production, but so far they have been unable to do it.
6. Emerging markets demand growth is very strong, especially in China. In the last five years, yearly oil consumption in China has grown from 1.88 billion barrels to 2.80 billion, an increase of 920 million barrels a year, or about 37% of the total increase in world consumption over that time frame. China is obviously at a stage of its economic development where its thirst for oil is growing rapidly. India is following, and there is a long list of future emerging markets countries where development (and therefore oil demand) may take off in the coming years.
7. Oil price subsidies in many countries can help maintain this demand. The Chinese government also has been subsidizing oil prices, thus muting the effect of higher prices on Chinese consumers. Fuel subsidies, in fact, are widespread in emerging market nations. Morgan Stanley estimates that half the world’s population enjoys fuel subsidies, as almost a quarter of the world’s gasoline is sold at less than market prices. The cheapest gasoline is in Venezuela, at five cents per liter. Until very recently, Chinese motorists paid $0.79 per liter.
8. Governments have not responded either because they are “leaving it to the market” or are unable to do anything. The theory is that market prices will increase oil prices, which will result in alternative energies becoming profitable. However, the development of mass alternative energy sources will likely take years. Oil is a globally traded commodity, so individual country governments may not be able to do anything.
9. Oil industry analysts are just being conservative about long term prices when they assume $80-90/barrel when valuing oil companies. They have historically been slow to change their underlying assumptions.
10. Many investment experts believe in Peak Oil. Proponents of Peak Oil include Jeff Rubin (economist from CIBC who is predicting $200/barrel oil by 2012, possibly by 2009) and Eric Sprott (hedge fund manager that believes we are going back to 90% of our population being farmers with horses and plows by 2200).

Stay tuned, Ed Rempel will be back for tomorrows post regarding the oil bubble argument.  The peak oil argument looks fairly convincing.  What are your thoughts on the peak oil theory?

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It seems that after watching “The Secret“, I have been attracting attention from the main characters in the movie. First it was Joe Vitale with the book “The Key“, now John Assaraf with his newest piece, The Answer: Grow Any Business, Achieve Financial Freedom, and Live an Extraordinary Life.

Wait, before you discard this review as another law of attraction book, read through the review as this book even surprised me. Instead of focusing purely on “The Law of Attraction”, this hardcover book is about how to build the business of your dreams by changing it’s most limiting factor, you!

Most people blame their circumstances around them for their lack of success. People should be looking within and examine their thought process where most will find the underlying problem.

For those of you who read my review on The Key, this book has a similar idea but much better as it’s not spammy. In fact, I would go as far as saying that I recommend it to those who are serious about growing their business.

Lets get on with the nitty gritty.

Who is the Author?

This book is co authored by John Assaraf and Murray Smith. Who are these guys? According to the back of the book:

John Assaraf is a speaker, entrepreneur, and the internationally bestselling author of Having it all. Most of you will know John Assaraf from his appearance in the DVD and book The Secret. Over the last 20 years, he has built 4 multimillion dollar companies.

Murray Smith is a business-growth expert and entrepreneur who has launched or revived thirteen successful businesses and helped thousands of business owners increase revenues, profits, and value.

What’s this book about?

This hard cover book falls into the series of books that focuses on changing the way that you think rather than a “how to” book on how to make your business succeed. I would classify this book in the same category as “Think and Grow Rich” by Napoleon Hill and “The Science of Getting Rich” by Wallace D. Wattles (free).

The Answer is written by two authors, John Assaraf and Murray Smith. Both have complimentary points of view on how to create a successful business.  Mr. Assaraf is a big believer in the law of attraction and lives his life that way.  He explains why the law of attraction works, how our brain works, and how we can change our thoughts to be successful.  Mr. Smith, on the other hand, is more technical on the business side of things.  Combining their complementary skills, they have an enjoyable chapter dedicated to the case studies of actual companies that they have helped improve.

What Topics are Covered? Learn how to:

• Transform your business and life
• Attract more of the “right” customer of any business
• Find your own passions and achieve your business goals
• Use the law of attraction to create the business of your dreams
• Make the right decisions with confidence and certainty.
• Develop the mind-set of a mega-millionaire.

Final Thoughts

Even though my reviews of The Secret and The Key were not completely favorable, I really enjoyed reading this book even though it revolved around a similar topic. The authors found a way to explain the power of positive thinking in concrete terms that was easy to understand and believe.

Want a Free Copy?

• Simply leave a comment and you’ll automatically be entered in the draw for a free copy.
• Please only 1 comment entry / person (please enter a valid email address).
• Only those with a North American mailing address may enter (publisher rules, sorry).
• Contest will end Friday 5pm EST July 25, 2008 and the winner announced shortly afterwards!

Update:  Contest is now closed.

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With the price of gas at all time highs and my car getting older and older, I find myself doing research on energy efficient vehicles. When I first started my search, I came by the interesting concept of the air car. Seems like a really cheap way to run a car, but I think that the technology has a long way to go before it reaches North America.

The next logical step was to look at the feasibility of hybrid vehicles. As it turns out, they aren’t economically feasible at the moment due to their high prices relative to their gasoline counterparts.

Most recently, I stumbled upon the concept of a purely electric car. This car is being made by General Motors and due to be in production by 2010. They call it the GM-Volt (or Chevy Volt).

What is the GM-Volt?

The GM-Volt is a vehicle that propels itself using an electric motor that runs on battery power only. There are a few charging options which include using household power, an onboard small gasoline generator, and kinetic energy from using the brakes. If charging via household power, the batteries will charge in 6.5 hrs and can run for 40 miles/64 km straight before the gasoline charging generator will kick in to maintain 30% battery power. When the gasoline generator is used, the Chevy volt can achieve 50mpg or 4.7L/100km.

How is the GM-Volt concept different than a hybrid car?

As mentioned above, the GM-Volt runs an electric motor with battery power in addition to a small gasoline generator used to charge the battery when needed. Hybrids are a little more complex where they use a combustion engine in conjunction with a smaller electric motor. The smaller electric motor is used at lower speeds, with the combustion engine kicking in when more power is needed.

Cost Savings

Theoretically, if the driver uses the GM-Volt for less than 40 miles / day, the GM-Volt would achieve infinite MPG or 0L/100km! The savings in gasoline would begin to pay for the car quickly, especially with gasoline prices as high as they are (and rising).

Mind you, there is a cost of charging the vehicle overnight. According to the GM-Volt fan site, assuming that it costs $0.10/kwh in your area, charging the Chevy Volt would cost around $0.85/night (6.5hrs). For 64 kms worth of driving, it would be well worth it!

Lets look at an example. Assume 20,000 km driven / year, $1.50/L gasoline, average 10L/100km fuel economy. In this scenario, it would cost $3,000 / year in gasoline cost. With the GM Volt, assuming that you drive the same amount, but less than 64km/day, it would cost approximately $0.85 x 365 = $310 in electricity.

Final Thoughts

For certain driving habits/scenarios, like in city driving, I can see this vehicle being a very popular alternative to it’s gasoline cousin. There is huge green factor to this car also, however, one has to think about how electricity is produced in your region. If your region uses mainly fossil fuels to generate electricity, then it’s debatable how “green” the electric car is for your area.

Personally, I’m already excited about test driving the Chevy Volt in 2010.

Photo credit: jurvetson

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