Leeb, Stephen - The Coming Economic Collapse

[Dennis M. Scott]

Subtitle: How You Can Thrive When Oil Costs $200 a Barrel. Leeb's previous book, written in 2004, says by 2010 we will see $100 a barrel oil. In the face of those who insist oil will return to $30-35, he now predicts by 2010 oil will surpass $200, and gas will hit $10 a US gallon. His premise is that while worldwide demand for oil is increasing now at about 3% annually, some of the world's largest pools have now been more than 50% depleted. Consequently, demand will soon exceed supply. His call is for alternative energy source development - especially wind, whose technology is now available. Lists several seemingly viable alternatives. He is not a tree-hugger, and says fossil fuel coal is still the most readily available energy producer in the US.

In the short run, he suggests investing in oil because profits are going to soar. In the longer run, his pick is for the broader energy companies who are right now expanding into alternatives. The fastest growing market for energy is that of India and China, countries developing quickly with huge populations. Development requires energy, and right now the fossil fuels are the most readily available. Retooling needs to happen fast. He suggests that the transition will cost a trillion dollars.

This book is copyrighted 2006, noting $3 US per gallon gas prices, and $60 US a barrel for oil. Yesterday (8/6/06) they closed Prudhoe Bay, and oil is at $76.33. Leeb doesn't expect it to fall dramatically. While Saudi Arabia is the western world's friendliest and largest source of middle east oil, some now say their fields may be as much as 2/3 depleted.

It will be interesting to watch. This is an easy read.

[Dave McClung]

Subtitle: How You Can Thrive When Oil Costs $200 a Barrel. Leeb's previous book, written in 2004, says by 2010 we will see $100 a barrel oil.

It helps to have lived through the "oil crisis" of the 1970's. Back then, the same kind of reasoning caused us to start building lots of new coal-fired power plants. The economic models all showed the demand for electricity to soaring and the coast of natural gas going through the sky. The economists were predicting serious power shortages all across the U.S.

Well, the models didn't take into account the laws of supply and demand. When prices go up demand decreases. Demand for electricity has not come anywhere close to the predictions. There are about a dozen partially completed coal-fired power plants sitting idle.

Leeb's fault is the same as that made by the electric energy people in the 1970's. He assumes that trends will continue. If we have learned anything in the last 40 years, it should be that trends don't last very long. Conclusions reached on the basis of current trends continuing for long periods of time are likely to be wrong.

What do I think will happen? Sure, energy prices will increase, but don't count the oil companies out too soon. The natural gas shortages of the 1970 were shortages only at the current price. When the price went up, so did the supply. The same thing will happen with oil. As prices increase, so will the supply.

Incidentally, there is a lot of oil shale in western Colorado. We have the technology to get the oil out. The only barrier is that the cost of producing it is more than the current price of oil. When the price gets high enough, all of that supply will become available. The same goes for vast quantities of oil shale in northern Canada.

So, I agree with his suggestion that those who invest should own some interest in oil companies, but I don't agree with his conclusion about switching in the near future. I have less than 10% of my retirement fund in Vanguard Energy Fund, but it has done very well. (up 17.5% for the year to date). I intend to leave it there for the foreseeable future.

[Dennis M. Scott]

Leeb proposes that the worst response the Feds could have would be to mess with the "law of supply and demand." Government subsidy in addition to artificially keeping prices low gives a false sense of security, lulling us into non-response. When demand takes prices to a more "natural" level, there will be sufficient incentive to move toward alternatives - one of which he proposes to be shale oil.

Leeb has a chapter on comparing the present situation with that of the 70's. Then oil went from $3 to as high as $39. If that happened again now, where would that put oil? Admittedly, inflation isn't the issue it was in the 70's. But those who had oil stocks during that decade remember how good it was. China and India weren't especially significant players in the oil consumption market then, but they are major and growing consumers now. Their energy consumption is growing at about three times that of Europe and North America. Some things are similar, and some are different. US oil production peaked in about 1970, and except for a few years after Alaska sources came online, has been declining since. Domestic oil production is now at about 1950 levels, but energy consumption has continued to increase.

Leeb's doctorate is in psychology, and this book's premise is that the public has been lulled into what he calls "groupthink", wherein most people can look at the obvious but see what they've always been accustomed to. My observation is that he's also somewhat of an historian, and he makes some interesting observations.