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E-M:/ The smart money looking at implications of end of cheap energy
- Subject: E-M:/ The smart money looking at implications of end of cheap energy
- From: jmgear <email@example.com>
- Date: Thu, 15 Dec 2005 23:39:18 -0500
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Enviro-Mich message from jmgear <email@example.com>
INVESTOR'S GUIDE 2006
The Rainwater Prophecy
Richard Rainwater made billions by knowing how to profit from a crisis. Now
he foresees the biggest one yet.
Tuesday, December 13, 2005
By Oliver Ryan
Richard Rainwater doesn't want to sound like a kook. But he's about as
worried as a happily married guy with more than $2 billion and a home in
Pebble Beach can get. Americans are "in the kind of trouble people
shouldn't find themselves in," he says. He's just wary about being the one
to sound the alarm.
. . . when he gets worked up, he says some
pretty far-out things that could easily be taken out of context. Such as:
An economic tsunami is about to hit the global economy as the world runs
out of oil. Or a coalition of communist and Islamic states may decide to
stop selling their precious crude to Americans any day now.
The next blowup, however, looms so large that it scares and confuses him.
For the past few months he's been holed up in hard-core research
modereading books, academic studies, and, yes, blogs. Every morning he
rises before dawn at one of his houses in Texas or South Carolina or
California (he actually owns a piece of Pebble Beach Resorts) and spends
four or five hours reading sites like LifeAftertheOilCrash.net or
DieOff.org, obsessively following links and sifting through data. How
worried is he? He has some $500 million of his $2.5 billion fortune in
cash, more than ever before. "I'm long oil and I'm liquid," he says. "I've
put myself in a position that if the end of the world came tomorrow I'd
kind of be prepared." He's also ready to move fast if he spots an opening.
. . .
"This is a nonrecurring event," he says. "The 100-year flood in Houston
real estate was one, the ability to buy oil and gas really cheap was
another, and now there's the opportunity to do something based on a
shortage of natural resources. Can you make money? Well, yeah. One way is
to just stay long domestic oil. But there may be something more important
than making money. This is the first scenario I've seen where I question
the survivability of mankind. I don't want the world to wake up one day and
say, 'How come some doofus billionaire in Texas made all this money by
being aware of this, and why didn't someone tell us?'"
. . .
"Peak oil" theorists posit that global production is at or near its
historic ceiling and will begin a long, inexorable decline. They worry that
America is not ready for the downturn, for skyrocketing prices and even
shortages. Savinar's site's opening line is, "Civilization as we know it is
coming to an end." Rainwater has been checking it every morning since
September, when his personal anxiety alert level moved to orange. "I can
almost pinpoint the date," says Moore. "It was right after he read that book."
In August a friend gave Rainwater a copy of The Long Emergency, a dystopic
view of the future written by ex-Rolling Stone writer James Kunstler,
otherwise known for his passionate dislike of suburbia. Taking peak oil as
a given, Kunstler argues that Americans have been "sleepwalking" through
the end of a "100-year fossil fuel fiesta." The problem, he points out, is
not that the world will run out of oil tomorrow, but rather that the lack
of growth in oil production will wreak havoc on a global economic system
predicated on perpetual expansion. Kunstler's "long emergency" is a
decidedly unpleasant interval during which the world and Americans in
particular must adapt to a post-oil regime of scarce energy and economic
stagnation, a time of likely wars and the disappearance of all-American
things like Wal-Mart and cul-de-sac homes 45 minutes by minivan from the
Rainwater doesn't completely buy into Kunstler's doom and gloom. "It's the
Z scenario," he says. But at the same time, he worries that Kunstler isn't
wrong enough, and he's been buying extra copies of the book and passing
them around to the many titans of capitalism who are his protégés. It's not
the first doomsday book in Rainwater's life: His big bet on oil in the late
'90s was kicked off by a work called Beyond the Limits, the sequel to a
'70s sensation called The Limits of Growth. Written by three professors
armed with an MIT-bred computer called World3, the Limits books projected
that, left unchecked, human population would, within 100 years, overshoot
the capacity of the planet to serve up sufficient vitamins and mineralslet
alone absorb all the waste and pollutionto keep everyone healthy.
Rainwater took the book to heart. "Right after I read it, I said, 'They've
figured it out, I'm going to follow this thing.' "
. . .
In the 1940s and 1950s, a Shell geologist named M. King Hubbert observed
that the production from any given oil field follows a bell curve, with
annual volumes increasing until half the oil in the field is depleted, and
declining thereafter. Basically, the bottom oil is harder to extract. King
reasoned that production from all U.S. fields would follow a similar curve
and predicted in 1956 that total U.S. oil production would peak in the
early 1970s. His analysis caused a furor and was widely disparaged, but
proved correct. "Hubbert's Peak" entered the lexicon of oil analysisone of
the great geological I-told-you-so's. Forty-nine years later, a growing
number of noted geologists and industry analysts suggest that the global
oil supply may now be topping out, a claim that has been met by skepticism
from yet other geologists and economists who say higher prices will spawn
both more discovery and improved recovery from existing fields.
Rainwater sides with the imminent peak crowd, and can rattle off facts to
back up his argument. "In 1988 there were 15 million barrels a day of
shut-in production" meaning surplus that could be tapped "and the world was
using about 55 million barrels of oil. Today the world is using over 80
million, and there's no shut-in production left. We've used it up, through
the combination of depletion and growth." In other words, the spigot can't
be opened any wider.
What concerns him most is the conflict that he thinks an oil shortage will
That morning Rainwater had been surfing the web, researching greenhouses in
his quest to further ensure a steady flow of food through the winter. At
his prodding, Moore has installed an emergency generator and 500-gallon
storage tanks for diesel fuel and water. When Rainwater says that he's
thinking about opening a for-profit survivability center, it's not entirely
clear that he's joking.
. . .
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