3 stocks for a world running out of oil

By Jim Jubak

If you want to know what energy stocks to invest in over the long term to take advantage of the growing crisis in oil production, listen to the people who would convince you there is no oil crisis.

You might start with the National Petroleum Council, a federally chartered and privately funded oil-industry research group. This summer the group graciously agreed to a request from the U.S. Department of Energy to "study" claims that world oil production has peaked. Lee Raymond, former chairman of ExxonMobil (XOM, news, msgs) and current chairman of the National Petroleum Council, will chair the study, due in the summer of 2007, of "peak oil." Proponents of peak oil say that while the world isn't about to run out of oil tomorrow, global oil production has peaked, in 2005 possibly, or will soon peak, around 2010 possibly.

Talk about putting the fox in charge of the henhouse.

We can anticipate the study's conclusion from public comments made by ExxonMobil and Raymond. Mark Nolan, ExxonMobil's chief in Australia, told an oil-industry conference in September that "the end of oil is nowhere in sight." ExxonMobil officials are fond of citing the U.S. Geological Survey study that estimates that only 1 trillion barrels of a total 3 trillion barrels of conventional recoverable oil has been produced.

"I think there are a lot of misconceptions of what peak oil is," Raymond told The Wall Street Journal in September. During Raymond's time in the CEO's chair at ExxonMobil, the company expressed the belief that high oil prices were a temporary phenomenon that would be cured by increased production. Raymond, however, has promised that his well-known views won't dictate the results of the study. "I may learn something."

Hold your nose, focus on profits

Investors may learn something, too, if they swallow their outrage, hide their chagrin and subordinate their skepticism to their desire for profits. The critics of peak oil, in their attempts to discredit that theory, have given investors a very clear blueprint for how to allocate the energy share of their portfolio over the next decade.

You don't have to be much of a conspiracy theorist to understand why companies sitting on the biggest oil reserves would want to convince us all that oil production hasn't peaked. If the slide to crisis isn't gradual, it could set off alarm bells and lead to a crash program to develop alternatives to oil -- not a happy development for oil companies. A base price of $55 a barrel this year, $60 next year and $65 the year after that is certainly preferable to a sudden peak to $200 a barrel that leads to the vast investment in wind and solar power and alternatives to gasoline-powered vehicles. Too much investment in alternatives could drive down global demand for oil while oil owners still have a big supply of oil in their inventories. Better to convince consumers there's plenty of oil so they'll keep buying even as the price gradually increases.

Listen to state-owned Saudi Aramco's Chief Executive Abdallah Jum'ah make exactly this point at a speech in Vienna in September:

The world has produced only 18% of the earth-producible potential of 5.7 trillion barrels of oil, he said, using a resource estimate 90% above the U.S. Geological Survey's estimate. "That fact alone should discredit the argument that peak oil is imminent, and put our minds at ease concerning future petroleum supplies." The remaining 4.7 trillion barrels of oil is enough to last more than 140 years, he added.

In other words relax, do nothing and just keep buying our oil with your dollars.

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