helicopter money triggered rampant inflation and widespread economic hardship. Let's take a look at some of these examples in the light of today:

Crushed by World War One's debt, the Weimar republic kept printing money and giving it directly to consumers and businesses to buy votes and help them cope with ever increasing prices.

Within a few years the Mark had devaluated so much that a postage stamp cost fifty billion Mark and everyone's life savings had been wiped out. Mark bills were worth less than the paper they were printed on. As the famous picture above illustrates, in the face of galloping energy prices, it had become cheaper to heat one's house by burning money than coal. Although one US dollar is still worth more than the paper it is printed on, as of 2008 one US penny contains 2 cents worth of metal.

Although oil prices seem high today, they are kept artificially low because many oil-producing nations such as Saudi Arabia peg their currencies to the US dollar. When the dollar is devaluated, these countries currencies and national economies are threatened by inflation and this is an incentive for them to let their currencies float and appreciate. In 2006 Kuwait unpegged its currency from the US dollar and as other oil-producing nations follow suit, expect energy prices to rise.

Currently oil is bought and sold on the world market in dollars, so everyone needs to first buy dollars in order to buy oil. We have reported on a trend for oil-producing countries to sell oil in Euros instead of Dollars. As more oil-producing nations fear the dollar is becoming "funny money" and demand payment in Euros, the world's need for Dollars will be greatly reduced. This is basic supply/demand economics.

Simply put, the average American household is already too much in debt and this scares banks from lending any money. Giving $700B to these banks will not change the fact that lending to bad debtors is a risky venture. It is safer for banks to invest this money in commodities (oil and gold) which do keep up with inflation than to issue loans that cannot be repaid. So expect this bailout package to give a speculative boost to oil prices.

There will be no new refineries by Giuseppe Marconi - 2008/07/23

Oil companies won't be building more refineries, because there won't be enough oil left to refine by the time new refineries could pay for themselves.
There hasn't been a new refinery built in the US since 1976. In 1982, there were 301 operable refineries in the U.S and they produced about 17.9 million barrels of oil per day. Today there are only 149 refineries, and they're producing 17.4 million barrels. This increase in efficiency is impressive but not a miracle. As with everything these outputs are carefully calculated to optimize profitability. Let me explain.
Truth be told, new refineries require tremendous financial commitments which take anywhere from 15 to 25 years to amortize. With record oil prices it would make perfect sense to invest in a few refineries today, except... for the lack of oil to be refined 20 years from now.
Trends have predicted that peak oil production, where the production of oil starts to decline, will be reached around 2007-2010. After that, there will be less and less oil to refine no matter where drillers look. In this context, building expensive new refineries does not make a lot of sense as existing ones will be sufficient to process whatever little oil is left. So forget about new refineries, except for a few in the northern midwest to process the heavy oil from Canada.

Crude oil is a finite resource more and more depleted. As such, an increasing demand put on this finite supply necessitates careful management in order to stretch its lifespan and profitability.

Enters Big Oil 2.0: China North East Petroleum (CNEH)
Combining political savvy and business sense CNEH leases oilfields from the Chinese government in exchange for selling all oil extracted to PetroChina at a fixed, below-market price and... the exclusive right to drill more!

This tradeoff is what sets CNEH appart from Big Oil: betting on China's insatiable thirst for oil CNEH has re-invested earnings into drilling and achieved a 400% quarterly growth. Already traded and soon to be listed on AMEX, CNEH thrives with an unconventional business model adapted to today's geopolitical reality of drilling for oil.

The Iranian Oil Bourse establishing Euro-based pricing of oil is set to open on February 17th 2008 and could have devastating effects on the US dollar.

Currently all three major oil markets (WTI, NYMEX, IPE) trade barrels of oil in US dollars. Consequently any country buying oil needs dollars to pay for it. This enables the US Federal Reserve to issue huge volumes of dollars to meet increasing demand for oil. In return oil producing nations invest dollar proceeds in US treasury bills, allowing for the current US budget deficit.

But this balance may become unsettled after a fourth major oil market opens this month, trading in Euros: the Iranian Oil Bourse (IOB).

Unlike other bourses, the IOB relies on a peer-to-peer trading model, using the Internet. IOB has been in the works for several years and encountered many hurdles on the way, the last of which are severed underwater internet cables creating an Internet outage throughout the Middle East days before the IOB's opening and prompting conspiracy theories. In recent years the US has outfitted some of its submarines with the capability to splice optical fiber underwater so these theories may not be far-fetched.

Having the world's second largest oil reserves of 136 gigabarrels, Iran will likely extend its influence on financial markets when the IOB opens. Although under-reported by the media, this historical shift and its consequences should be watched closely.

Companies in the Oil Business For the Long Haul by Giuseppe Marconi - 2008/02/01

Companies that anticipate a long presence in the energy market are those involved with oilfield services. It's now January of 2008, and it's an understatement to say that the stock market is uncertain. To add to the general anxiety caused by the collapse of the housing market, oil prices keep going up. Since demand continues to rise, and production is falling off, high prices aren't going to end soon.

With all this uncertainty, even healthy and profitable businesses are experiencing a temporary loss in stock value, which include the oilfield services companies. These companies provide a wide range of technology and project management, contracting with international oil companies, independent oil and gas companies, and national oil companies for building new oil rigs, both on and off-shore, as well as finding new prospects and providing reservoir management. Within recent years, they have become the companies developing new technologies, rather than Big Oil. These technologies include reservoir imaging, monitoring, and development, with seismic crews and data processing centers using seismic libraries. Imaging services range from 3D and time-lapse (4D) seismic surveys to cutting-edge surveys for finding new oil prospects. There's been speculation that the Big Oil companies have stopped spending money looking for new oil, since there's not much left, and they wouldn't be able to control it as in the good old days. Rather, they're spending huge amounts of money buying up the shares of their own companies, in order to have future control of the oil reserves they still own.

Also unlike the Big Oil companies, oilfield services companies don't insist on owning a big share of the oil reservoirs they find, but only on getting paid for the work that they do. Because of this, they are the go-to companies for countries who want to control their own oil and economies. Companies like Schlumberger Ltd. have become popular with third world countries, because part of their contract is to train future executives and workers within the local population, which they are doing successfully throughout the world.

There's a variety of viable oilfield services companies for investors to concentrate on, and it would be worth their while to investigate them.

Factoid by Giuseppe Marconi - 2008/01/31

In December of 2007, 2290 oil rigs were in operation in North America, 37 less than a year before.

The break-even price is the first thing oil companies establish in order to determine if drilling a new well makes financial sense. From the break even price, profitability can easily be determined with the following formula:

Profitability = (Price of Oil - Break Even Price) / Break Even Price

For example with oil at $100 and a break even price of $50, profitability is 100%. But with oil at $60 and the same break even price, profitability drops to 20%
By dialing their target profitability first, oil companies then determine if a new drilling project is feasible. Needless to say, with oil retailing now at $100, more wells will be drilled in deeper, harder to reach places than were previously profitable.

The following table provided by the Bank of Kuwait gathers current reported break-even prices of major oil producing nations:

Oil Break-Even Prices
Nation	US$/Barrel
Bahrain	40
Kuwait	17
Saudi Arabia	30
U.A.E.	25
Oman	40
Qatar	30
Canada's oil sands	33

Based on the formula, profitability of these countries' oil operations are in order:

Profitability at $100/barrel oil
Nation	Break-Even Price	Profitability
Kuwait	17	488%
U.A.E.	25	300%
Saudi Arabia	30	233%
Qatar	30	233%
Canada's oil sands	33	203%
Bahrain	40	150%
Oman	40	150%

This level of profitability explains the recent $7.5 billion placement in troubled Citibank from the Abu Dhabi Investment Authority, the $1.8 billion investment in UBS by a strategic Middle East investor and the 20 percent acquisition of the London Stock Exchange by the tiny nation of Qatar.
High oil prices have allowed Gulf Cooperation Council (GCC) countries to boost their foreign assets to more than one trillion dollars during the 2002-2006 period. With a looming recession (read "western assets on sale") and high oil prices we can expect this trend to increase.

One area that will be heavily explored to help avert an impending crisis in the near future will be Heavy oil. It's much thicker than the conventional type of oil that gushes out of oil rigs using conventional pumps. It has more of the consistency of molasses, and so is much harder to pump out of the ground.


However, because of the continuing and growing international demand for oil, large-scale pumping operations are now considered to be cost effective. Attention is centered on the Alberta heavy oil fields in Canada, and the heavy oil Orinoco Fields in Venezuela. 90% of heavy oil is found in the Western Hemisphere, with additional fields found in Mexico, California, Brazil, and Alaska.

The heavy oil fields in Venezuela are less dense than those in Canada, and so more easily pumped out of the ground. However, many international companies are more interested in doing business in the more politically stable country of Canada, where for the foreseeable future private companies won't have to be concerned about being nationalized by the government.

There are several different types of technologies which are being used to extract heavy oil, depending on its consistency and several accessibility factors. Each extraction method is still being improved, and oil companies foresee greater efficiency and lower costs as the market expands.

Recently, Canada and the US had a mini-oil-summit, where it was agreed that Canada would soon increase its heavy oil production by fivefold. This means that Canada would be exporting 5 million barrels of oil a day to the US, which would comprise almost half of all US oil imports.

European countries have already made a switch to biofuels and are beginning to feel the effects and complications. While it hasn’t resulted in direct food shortages, biodiesel is already causing shortages of vegetable oils.

Will countries like China and India follow this trend in energy conversion? It is difficult to imagine any country with enormous population would make such a move. This conversion could result in massive world food shortages as never experienced. Both countries realize this and are pursuing aggressive oil exploration.
Some American environmentalists believe that it is possible to make a complete switch from crude oil to alternatives by 2050. This is very unrealistic as crude oil provides us with more than just a form of energy. It is a raw source of chemicals for manufacturing drugs, plastics, chemicals, and fabrics.

So what is the realistic solution with the arrival of peak oil? Canada, USA, and Venezuela sit on more unconventional oil than all historical conventional crude and present reserves that are available. Peak oil does not mean an abrupt end to oil. It does mean that demand of conventional oil will exceed supplies of conventional crude. This spells the end to cheap crude.

Extracting oil out of America’s huge oil shale deposits is once again drawing attention. It will be successful as new technology comes on stream. With higher crude prices there will be decent returns in revenue. It will inspire more interest and new ideas. Oil companies’ attention will once again be drawn to this area.

This is the era for non-conventional oils. Needs, economics and unrealistic alternatives will make us realize that the world can adapt to and meet these challenges. Non-conventional supplies of crude oil will play an important role in the generations to come.

The Green River Shale Formation encompassing the States of Colorado, Utah and Wyoming was first discovered in 1924. This famous shale formation covers tens of thousands of square miles. It is found in three different ancient lake basins. The layers of sediment in this formation stretch undisturbed for many miles.

This shale is a soft sedimentary rock that readily fractures into layers, composed of minute particles of clay, which may easily be removed. It was formed from multi layers through erosion. There are 40 million layers in one part of this formation. Deposits within these layers are fossilized plant, animal life and algae, which has turned over millions of years into kerogen. Some claims have been made that this was formed from the Great Flood of Biblical times. Geologists say that this formation was formed through countless floods perhaps through 500 to 700 millions of years.

There are two conventional approaches to oil shale processing. In one, the shale is fractured and heated to obtain gases and liquids by wells. The second is by mining, transporting, and heating the shale to about 450oC, adding hydrogen to the resulting product, and disposing of and stabilizing the waste. Both processes use considerable water. The total energy and water requirements together with environmental and monetary costs have so far made production uneconomic. During the oil crisis of the 1970’s, major oil companies spent several billion dollars in various unsuccessful attempts to commercially extract shale oil.

After initial attempts proved to be too expensive and were shelved some ten years ago, a host of energy companies are revisiting technologies to successfully extract kerogen from shale and economically turn it into crude oil. Participating giant Shell Oil representative, Terry O'Cannon states, "We try to keep them from speculating too much and keep expectations low because we don't know if this technology will be successful and viable in the long term."

Did you know? by JeriCan - 2006/12/28

In 1878 Thomas Edison invented the first electric light bulb. This single invention proved to be so popular that it caused a major recession in the oil industry. Since 1856 kerosene lamps were used in homes and street lamps. Historians state that the introduction of kerosene initiated the oil industry. Sales and production of kerosene trickled to a standstill as electricity and the electric light bulbs caught on quickly.

In 1908 Henry Ford’s mass produced automobile started a demand for gasoline and initiated an oil boom. Oil Pipelines were built from oilfields in Texas to refineries in the eastern US. With the introduction and public acceptance of mass-produced automobiles the Modern Era of Petroleum began.

Clearly this was the biggest positive news to hit the American business world. Potential of this oil discovery could jolt the American economy and possibly lift a financial burden due to costly oil imports. Commodity markets reacted quickly. There was an immediate ripple effect on global oil prices.

Hoopla came to a quick end when knowledgeable oil people scrutinized this new oil find. First and foremost, a successful test well does not prove how much oil is actually in the ground. Determining an in-place reserve takes a highly skilled team of petroleum geologists more than just several months to calculate.

When drawing oil from extreme depths under the ocean bottom, problems arise from high pressures. Oil being pumped to the surface is very hot. It must be cooled before it is pumped onto a tanker vessel. Along with the hot pressurized crude there is a mix of natural gas. This must be separated and somehow stored, or shipped two hundred miles to the mainland. This is not an easy feat as natural gas is lightweight, bulky and not easy to compress.

Environmentalists immediately expressed their major concern. Jack Field is located in the midst of a direct path of category 3 and 4 hurricanes. The closest inland shore is 200 miles away. If a serious hurricane strikes it could be a multi-million dollar disaster

Financial analysts looked at the very high costs of developing this field. What will the production costs end up at? No one can be certain that this new oil find will be a profitable success even at current high crude prices.

Lets assume that all issues are addressed and there really is a potential reserve of 15 billion barrels of crude in Jack Field. Today the U.S. consumes about 22 MMbbls/day. By 2010, America will likely be consuming about 25 MMbbls/day. At that consumption rate, those 15 billion barrels of crude would only give the United States a 21 month supply!

In the late 1700s sperm whale oil was popular for lamp oils and candles because it burned with less odor and smoke than most fuels. However, sperm oil was very expensive. A gallon in the early 1800s cost about $2.00, which in modern values equates slightly over $200 a gallon.

The demand for whale oil took a tremendous toll on whales, and some species were driven to the very brink of extinction. In the Early 1800s whales were killed at a rate of about 15,000 per year. Sources estimated that there were 50,000 of various species of whales remaining in 1850.

Invention of the kerosene lamp had an immediate impact on the whale industry. Kerosene was easy to produce, cheap, smelled better than animal-based fuels when burned, and did not spoil on the shelf as whale oil did. Most people could afford kerosene; it sold for less than 7 cents a gallon.

The public abandoned whale oil lamps almost overnight. If it had not been for the invention of kerosene lamp and abundance of cheap kerosene the whales would soon have become extinct.

Chevron Corp. and partners Devon Energy Corp. and Statoil ASA have initiated this new technology to explore further into the Gulf of Mexico. Located 270 miles southwest of New Orleans, is the region of exploration by the Consortium, named Jack Field. It is a 300-mile-wide swath of the Gulf that lies below miles of water and deep within a bed of ancient rocks.

Using newly designed floating oil rig platforms, which can withstand the regores of Gulf storms and drill deeper than their predecessors, they have met success. On September 6, 2006 the Consortium announced that they might have discovered America’s biggest source of oil since the discovery of Alaska’s North Slope more than a generation ago.

Below 7,000 feet of water the drill bit went through a total of 28,175 feet, or a distance of 6.6 miles from surface of the drilling platform. The Consortium stated that the well sustained a flow rate of more than 6,000 barrels of crude oil a day during the production test.

The Jack 1 and Jack 2 are among the world’s deepest off shore production wells. The costs according to industry officials is a staggering $100 million! According to one company official, “Without current price of oil this project would have never been affordable.”

Oil wells drilled in the Southern United States have an initial recovery rate of 20 percent. Enhanced recovery techniques such as water flooding and carbon dioxide flooding are then employed to extract an additional 40 percent of the oil. The remaining 40 percent of the resource is still untapped. This may seem insignificant until one looks at actual number of barrels of crude.

American researchers in Mississippi hope to tap into the 40 percent of which remains in most petroleum reservoirs after use of standard production techniques. What is really interesting about their research is the method to be used. It is environmentally friendly and initial costs seem to be very affordable.

Indigenous bacteria are injected into the oil-bearing formation. The particular bacterium flourishes in this environment and eventually changes the pathway of water injection. This forces oil into new channels and accumulations of oil. Coupled with carbon dioxide flooding this will result in much greater recovery of oil than either previous technology alone.

It will be interesting to see how successful this experimental project is. Researchers are hoping for high recovery rates. At the current price of crude even a small increase in recovery can be very significant.