Energy: inflation and extinction, or a future golden age for mankind? I’m cheering up.

Being a gloomy bond fund manager, I like nothing more than to read a book predicting economic and social collapse. Thus I’ve just finished reading The Last Oil Shock – a Survival Guide to the Imminent Extinction of Petroleum Man, by David Strahan. There’s not much new in this, but it does contain a useful recap of Peak Oil theory. As a quick summary, Dr M. King Hubbert used statistical sampling techniques to correctly predict the peak in US oil production in 1971, and later, that global oil production would peak in 2005. So we’ve reached the point where oil production is falling, yet global demand is rising by 2-3% per year as emerging market growth develops. The most interesting thing for me in the book was some analysis of the imaginative estimates of reserves produced by the OPEC nations (the true numbers could be half what is stated), and also the assertion that poor stewardship of many oil fields (most obviously in Iraq) has reduced their potential dramatically.

So I was out for a beer with one of my cleverer friends last week, and was on my soapbox proclaiming that it’s not for global warming reasons that we should be saving energy, but because we need to reduce our dependence on fossil fuels before they run out, leaving us in an anarchic Mad Max world. And even if you believe that we’ll muddle through without having to move to the hills and buy shotguns, the impact on inflation of higher and higher oil prices would be significant. He told me not to worry, and to read this article about nuclear fusion. In contrast to fission, in which atoms are split apart to create nuclear reactions, fusion joins hydrogen isotopes together to produce helium, a neutron and energy. This is the same type of reaction that powers the sun. The reaction produces only very low levels of radiation, so its safe, and no CO2, so it’s good for the environment. The problem to date is that the amount of energy required to join the hydrogen isotopes together can exceed what comes out. But this is changing, and there’s a French fusion reactor being built right now, as well as an EU project underway to use lasers to initiate the fusion process. So the prospect of almost free, unlimited, safe and clean energy is not simply a dream, but a real possibility, and within our lifetimes. Free energy, no need to get involved in the Middle East to secure oil supplies, or to be held hostage by Russia over access to natural gas, and no greenhouse gas emissions – could this be the next golden age for mankind?


The value of investments will fluctuate, which will cause prices to fall as well as rise and you may not get back the original amount you invested. Past performance is not a guide to future performance.

Jim Leaviss

Job Title: CIO Public Fixed Income

Specialist Subjects: Macro economics and fixed interest asset allocation

Likes: Cycling, factory records, dim sum

Heroes: Brian Clough, Morrissey, Neil Armstrong

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