Peak Prosperity - The Return of Peak Oil: Why It Matters and What’s Next

Episode Date: March 14, 2025

Peak oil concerns are resurfacing as U.S. shale production nears its limits, prompting discussions on future energy strategies and potential economic impacts due to finite oil resources.Click Here for Part 2

The following is the audio version of a video released at peakprosperity.com. Visit peakprosperity.com to watch the video and to find other insightful content such as articles, discussion forums, and exclusive subscriber-only content. Today we're going to talk about something where if you know about it, man the world's your oyster, but if you don't know about it, you are going to be blindsided. The future is gonna be unkind. This is one of these things where if you know, you know, and if you don't know, you're scroomed. Hello everyone, Dr. Chris Martinson of Peak Prosperity here back with you.

Today we're gonna be talking about one of my old subjects, my favorite of subjects, peak oil. It's back. Hey, it's a concept that says, you know, oil goes up, oil goes down, it's a finite resource, but we've been diluting ourselves in this country for a long time. Now, we just saw the Energy Secretary Chris Wright comes out and says, hey, you know what shale oil shale could Hold on a second. Let me get my little um Let's see how about a pen yes shale oil could Boost production even at $50 per barrel no can't it just't. And here's why. So let's go into that.

This big thing just happened this week. So you see the date down there and I'll get my highlighter so that we can all follow along together. March 13th, today being the 14th. So this just came out in Bloomberg yesterday at the time of this recording. And CIRA is this huge gathering of industry insiders. The headline is specter of peak oil production looms once again Protip it never actually went anywhere. It just took a little bit of a hiatus and we're gonna talk about that hate is no Remember it was so just December 2024 when we were getting headlines in Forbes like this US US energy dominance continues. Another annual oil production record, a testament,

testament to resilience and innovation. It is, and it doesn't change the dynamic that oil is a finite resource. Geological limits are real. If you understand this, you understand where the future's going. If you don't understand this, it is gonna be a big wet blanket on most of your hopes

And dreams this is a really important topic now for those of you who don't believe in this Just turn this off right now tune out. This isn't about beliefs This is about the data and it's about logic and it's about making sense of the world as it actually is not as we wish it to be so From that Bloomberg article, they said here, this is their opening three paragraphs, paragraph one, quote, the topic of peak oil production is back in vogue. Never left vogue for me.

After a prolonged hiatus, if remarks from executives attending the key energy conference in Houston this week are any indication, the idea that global petroleum production would be on the cusp of a downhill slide was all the rage at industry events, environmental conferences, and an academic debate during debates during the first decade of the century. But as the shale oil boom took off in places like North Dakota and then Texas those worries vanished as a point of conversation. And we saw charts like this. You see these in particular Reddit.

We'll throw things up at the EIA. Even the energy information agency puts charts out like this. Get my laser pointer. Look, this was the peak of production in 1970 led to all kinds of giant monstrous errors. And then this little bump right here, that's, that little bump, that's Alaska and the Gulf of Mexico. But then it was coming down and ha ha, look, peak oil is off the menu folks, right? And they just put it like this. This is a chart crime to just, you know, even squeeze it like, oh my gosh, look, that means

that it could just keep doing that forever, right? It's going to keep going up forever. The answer is no, no, that means that it could just keep doing that forever, right? It's gonna keep going up forever. The answer is no, no, it won't first. We get our first insight by looking at oil. If we decompose it into conventional oil where you drill a hole straight in the ground and there's oil under pressure and a sort of a pooled form down there, not quite, but close enough for this work. And also the blue and the yellow Gulf of Mexico and Alaska

both of those are very conventional types of oil one offshore one onshore okay there was a peak in 1970 notice the first thing we're gonna notice none of these things no matter how much drilling we've done has conventional oil come back and hit a new peak we did get to a new peak because we brought on this red stuff. That's tight oil. Tight oil, too, is limited. We figured out how to unlock what's called the parent rocks in this geological structure. The parent rocks are the ones that hold sort of like the loose molecules in a sort of a slate-like aggregate, but it, you know, eh.

Once you've drilled those, there are no grandparent rocks in the story that's it you were drilling the source rocks we figured out how to unlock it super awesome less awesome was we didn't figure out that those two would run out and we told ourselves story like energy dominance like Forbes was just saying right so carrying on with that Bloomberg article folks this is so important this is really important those with ears to hear Listen, your ears are gonna perk right up your eyes are gonna open if you can see this for what it is This is explaining the beginning of the end of US energy dominance in oil. That means we're gonna have to Start winding down that part of the project, but we're gonna have to start winding up other parts of this project

This is one of the two things one of the project, but we're going to have to start winding up other parts of this project. This is one of the two things, one of the biggest investment risks out there and one of the biggest investment opportunities out there. If you know where the puck is going in this story, carrying on quote, some of the biggest voices in the shale patch are now talking about it. Peak oil in this year at zero week by S&P Global. It's coming up because the top tier of crude targets is largely exhausted after roughly 15 years of intensive drilling. People, 15 years is a snap of my fingers. It's just such a tiny geological

piece of time. 50, 15 years, it was a good 15 years. But what? Kind of over now? This is amazing, the next 15 years, everything just changed, okay? Not because we have new data, we've had this data the whole time, we always knew that the amount of drillable acres

was a finite number. We always knew that finite numbers have an ending point when you're drilling through them at a pace. We always knew that finite numbers have an ending point when you're drilling through them at a pace. We always knew that. What's gonna change here is the most important thing of them all which is the narrative structure of what we're telling ourselves. It's not the data. Data doesn't change anything in 99.5% of people's minds. Data irrelevant. What matters is the narrative. The narrative was for 15 years, peak oil is a broken concept. We don't have to worry about it. It's really far in the future. Oops, time

to change the narrative structure. And that's what you're seeing right here. This is about to become common knowledge over the next couple of years. You're getting about a two to three year head start and everybody else. Congratulations. If you like head starts, you're going to love this particular episode. Curing on quote, we don't have many oil plays left in this country. Scott Sheffield, one of shales pioneers said in a Bloomberg TV interview, and I've got a piece from him on that in just a second. Um, the inventory is getting worse naturally because we drill so many wells. You're fighting the inventory deterioration at the same time. You're trying to improve efficiencies

Inventories getting worse means due to run it out of drillable acres But also they drill the best acres first they break them into tiers tier one tier two tier three Tier one's the best almost out of that stuff. That's where you get good returns high amounts of oil back for your effort tier two Still get oil but not quite as much for your effort tier three worse than that That's what he's saying. I mean we the inventory is getting worse We're moving out of tier one getting squeezed into tier two and by the way when we talk about shale plays there They are everything in colored is shale. There's There's a little bit more in a couple other, but these are the big ones, right?

You got the Bakken up there in North Dakota, a little bit in Montana. You got the Niobrara in Colorado and up into Wyoming. You got the Anadarko down here in Oklahoma. The Permian, this is the big boy right here. The Eagleford, is it oil, is it gas? Kind of in between. These two, Appalachia with the Haynes, sorry, with the Appalachian play up here and the

Haynesville play down here and also the Barnett in here, these are all actually gas plays, right? So that's, yeah, the Marcellus is beautiful. I wish we had pipelines coming into Massachusetts, but my green senators won't allow the pipeline. So instead, this stuff has to be drilled, shipped all the way down to here, converted into LNG, shipped over here, briefly flag switched in Puerto Rico

because of the Jones Act, and then sailed all the way up here where it's offloaded in Boston. It's the stupidest thing ever, but that's an aside. Now, carrying on from that Bloomberg article here, because it's that important, they said here, quote, Occidental Petroleum, one of the biggest shale operators is bracing for a topping out of domestic crude production sometime in the next five years. I think we're going to do that in this next year, year and a half.oco Phillips CEO Ryan Lance expects

Nationwide oil output to plateau this decade and hold flat for an undefined period of time as Like no like zero more time after that And he says it's gonna be a slow decline beyond that because there's a lot of resource left to drill Yeah, sort of but tell you what I've been in this oil space long enough to tell you that when the price of oil goes higher you get more out of the ground, and when the price of oil goes down you get less of it out of the ground. So this could get painful because if OPEC decides to open its spigots and drive the price down, it's not going

to be a slow decline, it's going to be a super rapid decline in US output because we can't afford to drill at 50 a barrel It just doesn't work and what does even a plateau for a few years look like remember that earlier chart I showed you with the red was tight oil using my very best Snag it skills. I hand scrawled in what this might look like That's a decade-long topping process right there more or less, and then it goes down What this might look like that's a decade-long topping process right there more or less, and then it goes down That's the future we're facing This is a very very different future from the one anybody grew up in and it's gonna be an enormous deal peak oil doesn't mean Running out well eventually it does

It means you're going after more and more expensive oil and getting less and less out of the ground. That's two exponential pressures on one thing, which is our prosperity. There's this chart right here. If it comes to pass like this is presaging an extraordinary host of brand new winners and a whole host of brand new losers in this story. That's why I wanted you to be aware of it early and often. So I said I'd get back to this pioneer Sheffield on March 11th was in an article said hey You really got a hunker down. He said during a Bloomberg TV interview He said you may have to lay off some people So we're looking for a bust in the shale space the bus are legendary the booms are legendary if you haven't watched land man

by Taylor Sheridan You really should awesome. So you're he's really like everything Taylor Sheridan does just amazing you've got to focus on your best prospects he said we'll see what happens over the next two or three years but he expects crude prices to drop into the 50 60 range as other countries increase output while demand from China peaks out now China's gonna peak out because they're having economic difficulties right now. And you use more oil when you want more economy

and when your economy is smaller, you tend to use less oil. He says, it's really hard to make money at $50 oil. Oh, it sure is. It is impossible, in fact, on a lot of that tier two, tier three acreage. They'll tell you they can make it money at that, but they're not being honest. When you look at the all in sustaining costs, the AISC, because you've got to include everything for the company.

What's the cost of all the interest and all the debt you took out when you were losing money in the 2010 to 2018? What about all the cost of acquisitions? You took that debt on the books and you have goodwill. What about the depreciation for all of your equipment that you have? What about the actual cost of all your SG&A, selling general and administrative in your C-suites and all of that? Their expenses, if you just look at just the well and just the drilling and just what comes

out of it, sometimes you can get down to 50, but not when you're being honest Now what's fascinating is the information energy agency IEA? They've been talking about this peak oil demand for years and every year they bump it a little further out into the future They just keep bumping it out. Oh, we're gonna have this peak oil demand Next year next year next year next year this even though it's showing slightly less demand each year is showing incremental new demand Every year going out to 2028 from when that chart was put together And then we just saw recently in January of this year of 2025 the Brussels Times reported that over one and half million Vans were registered in the EU. These are diesel vans and as an as al-haji was pointing out here quote Diesel engines remain the preferred choice for new van buyers in 2024 diesel markets share

Rose by 1.7 percentage points whoo to eighty four and a half percent in contrast electric vehicles saw a significant decrease of nine point one percent reducing their market share from 7.2 to 6.1% in one year. And, quote, notice the difference between 6.1% market share and 84.5% market share. So diesel's market share is going up and EVs is going down. This is not consistent with peak oil demand. We're not going to see it for its part. Goldman Sachs doesn't see any real peak in demand until you're not going to see it. For its part, Goldman Sachs

doesn't see any real peak in demand until, I don't know, you got to get out to like 2035 and even then it's fairly flat. Um, so listen between here and 2035 for sure we're going to see peak oil demand continue. Pro tip, it's going to continue after that as well, unless there is a supply shortage that prevents that oil from being sold because we don't have it Other than that guess what people spoil or alert humans like oil We use it and we want to use more of it next year than this year and that's been the story for decades I don't see anything changing that the United States for all the people gluing their hands to things and going on about Peak oil and I mean sorry going on about climate change and all of that.

We just saw that oil demand hit a brand new peak in 2024. Looks like it's coming in hot for 2025. And so there's no peak oil demand in the US yet. No demand peak. Now, I talked about all of this just a month and a half ago with Adam Rosen schwag of garing and Rosentschwag their third quarter 2024 output here this market report they put out on title is copper and uranium the coming divergence that's interesting but most importantly I've highlighted it

they had put together something called the depletion paradox and this is a really important story. I'm just going to repeat a tiny piece of it here today because it's that important to discuss this again, has everything to do with peak oil. So they said here in the report page eight, quote, consider the case of conventional us crude production in the 1970s production peaked in November 1970 at 10 million barrels a day. And with oil priced at just $3 and 18 cents a barrel if you can imagine

At that time the industry operated a modest 302 rigs drilling for oil now the first OPEC oil crisis in 1973 sparked a response from President Nixon in the form of project independence a sweeping initiative aimed at reversing the decline in US output through deregulation, expedited permitting. Wow, drill baby drill. They called it project independence. Today we call it drill baby drill. Will it work?

You need to understand this thesis because maybe not. And here's why. Much like today, optimism abounded among oil producers who believed that higher prices would unleash a drilling boom and restore U.S. production growth. They were confident they knew where to drill. All they needed was the right price signal. That is exactly 100% analogous to today.

We know we're all the tier two, tier three acreages. We just need a price that will unlock it. When the price of oil goes up, more comes out of the ground. When the price goes down, less comes out of the ground. That's kind of the general rule. Not so fast. So get this, this is astonishing history. Prices soared from $3.18 a barrel in 1973 to $34 a barrel by 1981.

What? That's a 10, 11 fold increase. Can you imagine if oil went from $60 today to $600? Yeah, tons more would come out of the ground, of course. Producers true to their promises responded with vigor. The rig count climbed from 993 in 1973 to a staggering 4,500 drill rigs, maybe even punching holes everywhere, by light 1981 yet Despite this unprecedented surge in drilling activity us oil production steadily declined throughout the 1970s and by the end of 1981

Production had fallen to eight and a half million barrels a day if you can imagine Far below the peak achieved a decade earlier and lower than when Nixon announced his ambitious goals So with all of this drilling remember this bump here is the Gulf of Mexico and it's Alaska two giant giant plays that got unleashed and despite going from 993 to 4500 rigs despite price going up like an enormous amount despite despite finding huge, huge, huge fines, we still didn't achieve the old peak. That's what's going to happen with the shale space as well.

To understand this better, you need to understand the entirety of the depletion paradox. It's a fairly nuanced, fairly sophisticated argument. You can find that in this podcast I did with Adam Rosentrag. The title is Oil Peaks and Crime, The Hidden Connection Explained. And so, just to carry this on, but the EIA, our own, not to confuse it with the IEA, which is the International Energy Agency,

this is the Energy Information Agency, this is under the Department of Energy, this is the US part. So the EIA, normally very, very bullish. They always see more coming out of the ground for some reason. But in their own short-term energy outlook now, they are calling for US production in this dark blue overall over the next year to be pretty much dead flat, tiny bit up, but not this.

This is a steep upward slope. This part here from 19 to 20 was an upward slope. This is kind of flat, like this is like not a lot happening here from say January 24 to January 25 to January 26. That's two years of like, that's what a top looks like. It starts to peak out in top, okay? So by the way, for all of you thinking, and I know there's a few objections out there right now like, Chris, we don't need oil.

We'll just shift to alternative energy. I would direct you to this amazing report. I just came across it. It came out on March 4th, 2025 from JP Morgan. It's coming from their private banking center and this is from the chairman of market and investment strategy at JP Morgan a Michael a symbolist Title is heliocentrism Objects may be further away than they appear. Here's the punchline from their abstract

after nine trillion globally over the last decade spent on wind solar electric vehicles and energy storage Electrified heat and power grids The renewable transition is still a linear one. Uh-oh, the renewable share of final energy consumption is slowly advancing at.3% to.6% per year. Ouch. Linear just isn't gonna cut it. We do not have time for a linear transition. And this report's kinda interesting because they know, they, oh, look at all these exponentially

growing amounts of wind and solar and just solar up here and all of that. And, you know, every forecast which thought it was gonna go like this has been blown away. Tons and tons and tons of solar. So solar really ought to be making a lot of additions, but somehow we find it's actually only 0.3% to 0.6% per year across everything. The solar really ought to be making a lot of additions, but somehow we find it's actually only point three percent to point six Percent per year across everything wind solar electric vehicle storage all of it Everything is still just less than about it's call it a half a percent per year, but it's growing exponentially What's happening? What's happening is you can see it in the co2 numbers right here

the world's still putting in coal and natural gas. You know why? Because they work and they're cheap. So that's where we are in this particular story. So no alternative energy isn't going to do anything for us. Yes, the United States is hitting a flattening period right now of oil production. The oil industry executives are telling us that we are at peak at this point in time and what we have to concern ourselves with is

What happens we're entering this period right here, which I'm showing this period We're entering the flattening top and then decline and we had better be ready for it Because this has every implication in the world if we don't get this right Wars get started for stuff like this. I believe this begins to explain why we're gonna have to start thinking about hemispherical Influences, right? It's not Canada the u.s. Venezuela It's kind of the three of us together trying to figure out how to supply enough hydrocarbons with you know, Mexico thrown into the mix For our region. This is a really big deal out how to supply enough hydrocarbons with you know Mexico thrown into the mix for our

region. This is a really big deal. This changes everything now that they're talking about it openly. Well that's a big deal. So at Cira places like Cira. So here are my primary conclusions for today. First peak oil dude has come into the US a little sooner than is generally understood because you're listening to this.

You are ahead of the game. That's why I do what I do at Peak Prosperity, is I help people get ahead of the game. It's the service I provide, and I've got a huge killer part two report for this, this for my subscribers, which you might wanna check out because there's something just as magnificently,

extraordinarily large as this, around AI that you have to understand is coming the shock to the system, right? It's gonna be into our national psyche. It's gonna be enormous, right because our national psyche is landman can-do Roughneck clever engineers will unlock more we might but the depletion paradox says well We could throw ourselves at this we could quadruple the rigs. We could have oil prices climb by a factor of two, three, four, five, six,

and still more may not come out of the ground. Not because we're not trying, not because we don't care, not because we don't want to, not because we're lazy, but because that's the depletion paradox. When the geology runs out on you, that's the depletion paradox when the geology runs out on you That's the story This is just one of many shocks happening all at once. We have obviously economic shocks We're gonna have a debt and a crisis debt crisis shock happening soon I think gold and silver are starting to signal that to you for people who again have ears to hear These are big momentous times. You can't have your head in the sand folks

You're gonna have to understand the larger context. And you're going to have to make decisions on imperfect information. It's tough. But you got to do it. We're not ready for peak oil in this country. Not even close. I'm disappointed that Chris Wright is out there saying something that I'm not even sure he believes. What we need is a crash program in nuclear energy, specifically small modular nuclear reactors that are very safe, can be scaled up very quickly in robotic manufacturing centers,

and they could be distributed all over the place. We're going to need them. We're going to need them really bad. We need electricity. That is the lifeblood of an economy. Out of everything, if we had abundant cheap electricity, the rest we could sort out, but we're not ready for that in the United States. Grid isn't there, electricity production isn't there, our nuclear program isn't there, we are not ready for this. We're not. So it's gonna

have market impacts. Now you should prepare for I think wickedly high oil prices. What do I mean? Two, three, four, five hundred a barrel. That's what I'm talking about. And this is coming in the next I don't know x number of years And it's going to take time to adjust but this impacts everything it's going to distress bond markets Because they're predicated on a forever sense of that growth is a forever thing Pequoil is wrapping your head around the idea that now we can't grow anymore like we used to in fact We might have experienced what economists call Negative growth because they don't even have

a conceptual term for things doing anything other than going up and to the right. Financial instability, scarcities could result, right? Impossible social unrest. At the low end of social unrest, desperate people steal things, right? So your car gets broken into, you have to start locking your house, stuff like that.

At the far end Whole regions fail because they just don't have the necessary energy to support the complexity as they go through that collapse Well people get rowdy about that kind of stuff. And then finally I'm predicting all of this stuff is this all these things Analytically, it's just child's play I'm not burdened with a belief system that requires me to either before or against peak oil On any belief way it just is what it is. It's just numbers somehow my brain Processes that well and so I understand it It this is like looking at this and seeing what's coming not hard just as it wasn't hard to see what was gonna happen with gold Silver and what's the conclusion to all this stuff?

hard assets, but That's another story for another day in the meantime check this out. This is part two. This is for my subscribers We've got to talk about something that just happened. It happened in January of this year of 2025 AI has jumped the shark in Unfortunately, it's it's not in a cage It's it's not in a cage. It's out and about and so now we're just going to have to deal with the implications. This is an extraordinary story.

Something that everybody, this one really blew my mind. This for me, this is a huge story and I'm still processing it. So we're going to talk about this with my subscribers back at Peak Prosperity for everybody else. Thank you so much for listening. Peak Oil, it's back on the menu. Wrap your mind and belief systems around it early and often because it changes everything. With that, thank you very much and I'll see all my subscribers back at peak Music