Doug Casey, chairman of Casey Research and expert on crisis investing, is on the search for real wealth – not investments in companies that push around paper. In this exclusive interview with The Energy Report, Casey shares his pragmatic take on what's next for oil, gas, and nuclear power.
The Energy Report: There will be a Casey Research Summit on Navigating the Politicized Economy in Carlsbad, California, in September. At the last conference, Porter Stansberry caused some excitement with his argument that oil could go to $40/barrel (bbl). What's your view?
Doug Casey: We like to have a range of defensible views represented at our conferences. But personally, I don't think it's realistic to suggest oil prices will drop as low as $40/bbl.
I am of the opinion that the Hubbert peak-oil theory is correct. In the 1950s, M. King Hubbert projected that US oil production would start declining in the 1970s, and he was accurate. Then he projected that in the mid-2000s, the world's production of light, sweet crude would start declining. He was quite correct about that, too.
There will always be plenty of oil at some given price, but to produce oil – even conventional, shallow, light sweet crude – now costs close to $40/bbl in many places.
It's extremely expensive to produce oil through unconventional techniques like horizontal drilling and fracking. Producing oil from tar sands is very expensive and problematical.
Drilling 15,000 feet under the ocean is very expensive and has a lot of risk.
Drilling in politically unstable jurisdictions with sparse infrastructure is neither cheap nor fun. We're talking about production costs of at least $80/bbl in many cases.
I don't think oil is going down much from here.
Let's not, in addition, forget that it's the most political commodity in the world, and that most of it still comes from the Middle East, where tensions will remain high.
I'm neutral to bullish on oil. I'm not bearish at all.
TER: How will US natural gas impact oil prices?
DC: The thing with natural gas is that it's almost an entirely local market. Oil is very transportable, very fungible – it's a world market. Oil prices are relatively consistent – say within 20-30% worldwide. But the price of gas differs by hundreds of percent around the globe because it's not very transportable. It doesn't seem that's going to change in the near future.
The price of gas is going to stay low in the US for some time because of new technologies, namely horizontal drilling and fracking, which allow the exploitation of vast new deposits. These deposits can produce large amounts of hydrocarbons, albeit at relatively high cost. As soon as prices start to rise, however, wells that have been shut because of low prices will start producing again – and that will keep a lid on gas prices for some time to come.
TER: Do you see potential for the US to become a natural-gas exporter at some point in the future?
DC: The problem with gas is that, unlike oil, it's hard to move and inconvenient to export. There are basically two ways that you can move gas. One is via pipelines. That doesn't work very well across oceans. The second is by liquefying it and putting it in liquefied natural gas (LNG) tankers and then transporting it to some place where it is re-gasified again, but that is expensive and it's actually quite dangerous because the LNG tankers are almost like floating bombs.
I'm not convinced that gas is ever going to become a truly international commodity – at least not until it's much more expensive.
The idea of the US becoming a huge gas exporter is a politically driven fantasy. The government throws ideas out if it makes them look good. We bat them back when we weigh up the realities, then it's up to the reader to decide. It's why I think our summits and the world-shaping topics we discuss are so important.
TER: Can we assume that you're not as bullish on gas as you are on oil?
DC: Yes. I'm much more bullish on oil. Oil is a much more concentrated energy than gas. Oil is needed for cars. It's needed for airplanes. It's needed for everything. Gas is mostly used for utilities and heating. Oil is both a much denser energy and a much more important form of energy.
TER: Speaking of concentrated types of energies, you have called nuclear "the safest, cheapest, and cleanest form of mass power generation," yet we still haven't seen the uranium price return. What's your view on the future of uranium?
DC: I have to be bullish simply because of reality. It really is the safest, cheapest, and cleanest form of mass power, but unfortunately it's also the object of mass political hysteria. Many misinformed but well-funded nongovernmental organizations simply hate uranium, for purely ideological reasons.
Actually, thorium would be an even better form of nuclear power than uranium. We've been using uranium primarily because you can't make nuclear bombs out of thorium, and the US was building up its nuclear arsenal from World War II on. This is how uranium came to be used for nuclear power plants instead of thorium, but that's a whole different discussion.
Of course, now the disaster at Fukushima is held up as proof that nuclear isn't viable; the Japanese and German governments are panicking and shutting down their nuclear plants as quickly as they can. But doing so is extremely foolish.
To start, Fukushima used 50-year-old technology. That plant was – like most plants in the world today – an antique, two generations behind current designs. It was also poorly located. It should never have been put right on the ocean. Other design mistakes were made. Still, even over the next decade, only a few people will die from radiation released, whereas at least 20,000 died from the earthquake and tsunami.
But the real question is: if nuclear is not going to be used for mass power generation, where is the power going to come from?
Most of the world's power is generated by coal, but coal is extremely dirty and dangerous in every way possible – in the production process, and in the residues that it leaves both on the land and in the air.
In an industrial world with seven billion people, the only energy source that makes sense is nuclear power. Sure, you can use wind and solar from time to time and in certain places. But those technologies are extremely expensive, and they absolutely can't solve the world's energy problems. Certainly not when electrical grids start going down, as they did in India last month. That's why India and China will be building scores of nuclear plants in the years to come.
TER: Doug, thanks for sharing your insights. I greatly appreciate it.
DC: Thanks for having me. I encourage your readers to attend the Navigating the Politicized Economy Summit. If you can't make it, the audio collection is a great way to benefit from the information the conference's 28 expert presenters will be sharing – and if you preorder, you can save $100. It's a great deal.
One part of this conversation that seems to always go really under discussed is the effect prices have on the exploration companies' ability or desire to continue to explore for either natural gas or crude oil. Every non-conventional resource in this country is expensive by any measure of conventional exploration efforts. Simply put, it would take so little for the price of crude oil (like natural gas has done) to drop in base price per energy unit to cause exploration companies to abandon the current level of exploration activity. From the energy companies' prospective, we will drill when the risk versus reward makes sense. We will shift to the type of exploration activity that meets the greatest yield per dollar invested. If drilling slows down due to political pressures or commodity price erosion, we still win! What we have already discovered or we are currently producing will be worth double or triple its current value. No different that the internet E-commerce world or any other comparable industry. It is Economic 101 folks. The energy industry does not print money but we are funded by the same capital sources as the rest of the world. We have to dance like Peacocks to draw the attention of the money Gods. Wells drilled today cost three to seven times the cost of similar wells from a decade ago. Exploration today requires energy companies’ to drill deeper, more expensive, longer time intervals between spud versus extraction, and in more remote parts of the country or world. Prices for crude oil and natural gas can move by 50-75% either direction (up or down) by virtue or perception of the capital provider’s opinion of their willingness to supply new money. If you think I am wrong, watch how quickly non-conventional fields shut down if oil drops below $70 a barrel for ETI or gas stays below $2.50 for longer than 90 days sustained! Then, how fast it rallies in value –(six months –twelve months to prices higher than the starting point of the decline.
There are 1800 square miles of radioactive wasteland surrounding the destroyed Chernobyl nuclear reactor and 200 square miles of uninhabitable cities and farmland surrounding the destroyed reactors at Fukushima. The 100,000 Japanese made homeless by the disaster at Fukushima do not think nuclear power is so "safe" and clean".
One nuclear disaster can ruin the economy of a country, which is why Japan and Germany are abandoning nuclear power.
Yes, the reactors at Fukushima used unsafe and dangerous reactor designs. We have 23 such reactors, of exactly the same type, now operating in the US -- and all of their spent fuel ponds contain much more high-level nuclear waste than do the ponds at Fukushima. ,None of the spent fuel ponds at US nuclear reactors are located inside primary containment,and each one has 5 to 10 times more radioactivity than is in the reactor core. Each pond contains more cesium-137 than was released by all atmospheric nuclear weapons tests combined. These are certainly targets for terrorists, since they contain enough long-lived radionuclides to make an area the size of South Carolina uninhabitable for centuries.
No private investors will back nuclear power plants; the industry has to rely on massive government subsidies and construction-work-in-progress rate payer funding to stay in business. Oh yes, and the Price-Anderson Act, which limits the liability of the nuclear industry in the event of a catastrophic release of radioactivity.
Check your policy, you aren't covered.
just dumb rhetoric
laughable @ the gov shill that wrote the first review! Obama go away and never come back
All innovation is not possible without governmental development support and assistance for natural gas enablement. Major development is required to enable:
Federal tax
Anti-ethanol subsistence tax
Road repair tax
Bridge repair tax
Supplier tax
Pipeline delivery tax
Local delivery tax
Surcharges
State tax – sales tax
Safety inspection of filling station tax
Anti-inhalant additive (bath salts syndrome)
Police, emergency and fire first responder training (not a tax)
There is more but I will be polite on this holiday week end.
Have a great day!
V
This is the shame of it all. Natural Gas can be the new economic savior of the US. A conversion from oil to natural gas would: Take away the energy dependancey of foreign oil. Especially from unfriendly countries in the middle east. It would also help us achieve the lower carbon emissions we seek for the future. Now all we have to do get the environmental wachos and the politicians on board and it will solve so many problems in the US that I couldn't even begin to imagine. The US needs to go back to becoming innovators. The price of oil would be far less then $40 a barrel.
According to Houston Chronicle 9.01.12, green gouse gas emissions for long-haul trucks per 100,000 miles of operation are 523 metric tons for diesel and 424 tons for LNG gas. Savings per 100,000 miles of operation are about 15000$ using LNG.
I think Nat Gas will average 3.5 $ per 1 million btus in 2013.
We kinda agree, while we do call for $500 a barrel oil in the not to distant future we still think we need to trade cluster support at around $58.32.
$33.20 is not totally off the table, but 58.32 is doable. In fact it will make us even more bullish on $500.
LOL, really this is a knee-slapper. $500/barrel, eh? Heck, you might as well predict WW4 while you're at it!
$500 oil means world wide economic calamity. Gas prices would be $20 per gallon; diesel even more. Gas prices in Europe would be over $100 per gallon. Food prices would triple if not more. Construction costs would double. You must live in an oil bubble (pun intended) if you think $500 oil makes any economic sense.
Could we spike to $500 oil with a Middle East war? Maybe, my crystal ball is a little fuzzy. 🙂 If oil stays above $100, the conversion to a natural gas fueled economy will keep marching forward. Utilities are converting to gas every week, truck fleets are being converted, passenger cars are next....before too long, the oil industry will lose the US market.
Are you predicting decimation of the US dollar? The price of oil in US dollars *might* hit $500 if the government continues "fixing" the economy with easy money. Is that your prediction? Either way, this would be economic calamity too.
$40 a barrel? yeah right, those low of prices will never happen, those carefree times are over...