Black Gold
The New Frontier in Oil for Investors
By George Orwel
John Wiley & Sons, Inc.
HC, 216 pgs. US$
ISBN: 0-4717-9268-3
The end of the world is nigh! Invest now!
By Steven Martinovich
web posted September 11, 2006
It shouldn't surprise anyone to hear it, but those who purchased energy related equities -- particularly those involving the oil industry -- just a few short years ago have probably enjoyed a healthy return on their investments. Though most of us have to bear the burden of higher energy prices, those lucky investors with foresight have mitigated that blow for themselves. Of course, as even the amateur investor knows, by the time everyone else has figured out what stocks to buy, it's probably already too late to throw your lot in.
Except that it may not be. George Orwel, an analyst and journalist who covers the oil industry for several publications, argues in Black Gold: The New Frontier in Oil for Investors that there are still opportunities for investors to make considerable sums of money investing in the energy sector. Unlike other sectors that rise and fall in near perpetuity, he says, the oil industry is facing a stark fact: the day when oil production begins its inexorable decline is only a few years away. As a commodity as in demand as oil becomes scarcer, one thing is assured: prices will only rise and oil and related companies, and their investors, will reap the rewards.
Black Gold tackles the subject matter in three parts, the first logically beginning by asking if we are at the end of an era, and if so, what the consequences of passing peak oil production. According to the research that Orwel cites, we are a decade or two away from the day when total oil production begins a slow decline. If so, the consequences are dire. Our society depends on oil for its transportation needs and scarcity of that commodity will cause the price of every other good and service to rise. Ultimately our economic problems could turn into a full-scale societal collapse, he argues.
Optimists looking for a solution will be dismayed by Black Gold. No alternative energy sources are ready to assume oil's place, though Orwel nevertheless believes their use should be promoted in the hopes of paying off far in the future, and conservation will merely delay the day of reckoning. Humanity is facing a dead-end and there is little we can do about it for some time.
From there Orwel moves to where most of the world's major reserves are located, the Middle East, focusing most of his attention on Saudi Arabia and Iraq. Although he occasionally strays dangerously close to editorializing against the American-led war against Saddam Hussein's Ba'athist regime, hardly the central issue of his book, Orwel does the reader a service by investigating the claims nations like Saudi Arabia have made about their alleged oil production capabilities and proven reserves. Rosy forecasts about proven reserves may be more myth than fact.
Finally, Orwel tackles what he believes is the coming oil boom, that is rise in price that will accompany scarcity. He explores the factors behind why the price of oil has risen so quickly in recent years after nearly two decades of stable prices, and what the oil companies are doing with the huge profits that politicians and the public are attacking them for. Orwel also devotes a chapter explaining basic investment strategies, oil-related industries to investigate for investment and a call for investors to be optimistic, in short nothing that the reader wouldn't find in any current book touting itself as an investment guide.
There is a Strangelovean aspect to Black Gold however. Orwel asserts that thanks to the gradual decline in our oil-powered economy, international movement of people and goods will slow and the global economic order that we know today will slowly collapse. We will become more regionally focused, a positive outcome according to Orwel, and purchase our food and goods from local producers. This warm and fuzzy view of our near future ignores the savage wars that will undoubtedly be fought by nations seeking resources and massive regional and continental level starvation. Nor does Orwel tell us what cash-rich oil investors will do with their money if all they can really do is shop locally.
Further, Black Gold doesn't provide any real worthwhile insights for investors. While there is undoubtedly money to be made over the long-term, Orwel doesn't provide much in the way of advice to get the reader from today to that future. On a more technical note, this book appears to have only had a light touch by an editor given its numerous typos, repetitious statements and abrupt swings in focus.
Judged on its merits Black Gold is mostly a failure. It offers little real guidance to investors and other efforts have more capably explored the issue of the future of global oil production. Where it is more successful is when it examines the ramifications of declining oil production for nations like Saudi Arabia and Iraq and what competition for increasingly scarce supplies will mean for the United States, China and India. Despite the inherent pessimism of declaring life as we know it to be ending very soon, Black Gold can at least be lauded for taking somewhat hopeful stance that we can individually prosper from that sea change and that technological advances sometime in the future can put us back on the path to limitless growth. 
Steven Martinovich is a freelance writer in Sudbury, Ontario, Canada.
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Other related essays:
- The end of cheap gas by Steve Martinovich (July 18, 2005)
Steve Martinovich found Twilight in the Desert: The Coming Saudi Oil Shock and the World Economy to be one heck of a wake-up call