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September 11, 2006

Dean Of Energy Analysts On Our Oil Future Peak Oil

80-year-old Henry Groppe, Jr., an "elder statesman" of the oil industry and one of its most successful forecasters of oil price trends, on our near-term energy future (Houston Chronicle, via OilDrum):

Houston was rocking and rolling in 1980, with oil at $40 a barrel and some people in the industry predicting it would soar to $100.

One of the few dissenting voices, Henry Groppe Jr., forecasted that by 1985 oil would fall to $15.

"This guy's a nut," Houston energy analyst Matt Simmons recalled an oil executive telling him then. "He ought to be locked up in a straitjacket." [...]

After oil plunged to $14 in 1986, Groppe was "treated like a prophet with a crystal ball," Simmons recalled.

Groppe, whose name rhymes with copy, has no crystal ball but does claim to see the future and has, in fact, an excellent record on long-term energy forecasts, according to people in the industry.

"We are entering an unprecedented event in world economic history," he said. Oil production is straining to meet demand at a time when China and India are developing huge consumer classes relatively overnight, and hundreds of millions more people will have vastly increased demands for energy.

In the future, he said, "perhaps the biggest geopolitical conflicts will involve the U.S. against the rest of the developing world, including China and India, over oil."

Groppe sees oil hovering in a range of no less than $55 to $65 a barrel for the next 10 years and likely much more because unforeseeable political unrest and weather will drive prices up.

He has hung his hat — he always wears a hat when outdoors — for more than 50 years at Groppe, Long & Littell, a firm that has, he says, "successfully forecasted every change of direction [in the oil markets] in the last 30 to 40 years."

His clients have included Shell Oil Co., Chevron Corp. and Apache Corp.

"He has as deep and broad an understanding of the global energy picture as anybody on the planet," said Donald Evans, former secretary of commerce under President George W. Bush and CEO of the trade association Financial Services Forum. "He has been directionally correct on energy prices since I have known him."

"Historically, he's been very accurate," said Gary Petersen, a partner at EnCap Investments, a firm that manages money for major U.S. institutions with investments earmarked for the oil and gas business.

Peterson described Groppe as "a senior statesman for the industry." [...]

Working with others, he is playing a key role in establishing the Energy Institute at the University of Texas, which will have a mission of fostering research to develop a sustainable energy supply. The institute is in the formative stage, pending final approval. [...]

He and his partners at Groppe, Long & Littell rely on research they've gathered since 1955.

His energy views are not shared by the U.S. Department of Energy, which forecasts that production will continue to rise during the next 24 years.

To avoid a global crisis, Groppe thinks that Americans should use the next 10 years, a time in which production output is expected to peak, to transition into new energy-usage habits.

"We must rely more on nuclear power and alternative energy supplies and use all energy more efficiently," he said.

He is no fan of ethanol, which he calls "pure farm-bloc subsidy." The energy spent on producing it is greater than the output, he said, "not to mention depletion of the topsoil."

Some analysts said that after U.S. military action, oil production in Iraq would rise, but Groppe predicted instability, disruption and lower oil production for at least eight years.

Groppe, who sat with Bush on the board of directors of the Tom Brown oil company headed by Evans, has strong misgivings about the president's decision to invade Iraq.

Until the invasion, said Groppe, who describes himself as politically independent, the U.S. had an energy policy based on the notion that the West could not do without Middle Eastern oil, and the U.S. would maintain absolute control over the Gulf: "Make it our lake. Never allow any of the five major powers — Israel, Syria, Egypt, Iraq and Iran — to get too strong or weak.

"That was an energy policy that worked. The invasion of Iraq was one of the most damaging moves anybody could make because he took out one of those five powers. You set in motion a series of cascading events that will unfold in uncontrollable ways for decades, including the strengthening of Iran's hand." [Emphasis added]

Groppe's an interesting guy, not at all what you think of when you think of a world-class energy markets analyst. At age 80, he eats brown rice and tofu, and for decades he's been involved in a variety of progressive causes, from civil rights, to preventive medicine, to the use of biofeedback in the treatment of addictions. See the article cited.

When it comes to analyzing oil markets, thought, he's not some amateur trying to sell books. He's a pro whose clients are pros. They pay him to provide an accurate assessment of what lies in store, and he's been very, very good at it.

Posted by Jonathan at September 11, 2006 06:19 PM  del.icio.us digg NewsVine Reddit YahooMyWeb