Saudi Arabia has nothing to do with falling prices at the pump, argues Bob Moriarty. He sees falling demand as the culprit, driven by economic slowdown in China, Europe and the U.S. In this interview with The Energy Report, Moriarty explains why increased consumer spending won't solve our problems, and discusses why he's still a fan of North American energy stocks—even though he hates shale oil.
The Energy Report: Bob, thanks for joining us again. In your recent interview with The Gold Report, you discussed U.S. involvement in the Middle East and how it could contribute to a financial crash. Today, oil is in the low eighties. A lot of focus is on Saudi Arabia and the fact that the country is not pulling back on its production. Is this a price war to squeeze out the North American shale oil plays?
Bob Moriarty: No, that's not the case. The price of oil is going down because demand is going down. China is slowing down, and that's reflected in the price of platinum, silver, copper, iron and coal. It's perfectly natural for the price of oil to go down as well. I don't attribute falling prices to any malignant behavior on the part of Saudi Arabia. I'll tell you—Saudi Arabia doesn't give a damn about shale oil because shale oil is not economic. Anybody who can do basic math understands that. Everybody in the oil business is saying the math doesn't work. The majors are bailing out on shale as fast as they can. The wells are deep, expensive and last 2-3 years before depletion.
TER: So, U.S. energy independence. . .
BM: It's absolute rubbish. We are never going to have energy independence. We have much more coal than we have oil. Coal's been a disaster. Coal mines have been shutting down for the past several years.
TER: Has new infrastructure or technology, like fracking or horizontal drilling, brought down the cost of extracting oil?
BM: Exactly the opposite—it's increased the cost. It used to cost $30 per barrel ($30/bbl) to extract oil using conventional methods. Now it costs $80/bbl. No one is making money in fracking, not in North Dakota, Montana or Wyoming. They're all losing money because the cost of production has gone way up. Nobody talks about peak oil anymore, but peak oil is absolutely real. Below an oil price of $80/bbl, no one can afford to produce.
TER: Yet you're still a giant fan of energy stocks. What value do you see in the energy sector?
BM: I'm a giant fan of energy, food and water. The one thing we know is that cheap oil is over. The cost of energy is going to go up. The big opportunity in the next 15 years is going to be energy in any form. Food and water are analogs of energy.
TER: Are there specific energy stocks that are more interesting to you?
BM: Yeah, the ones that are well run, well financed and well managed.
TER: Can you give us some of your favorites?
BM: When I write about an energy stock, it's because I know the management. I met the people at Torchlight Energy Resources Inc. when I was out in L.A. at a conference a few months ago. They're raising money, and the company is going to have a lot of money when the cost of projects and the cost of drilling come down. Torchlight is drilling in Texas and Oklahoma.
TER: Is the money being raised for drilling programs? The company recently bought a property in Texas.
BM: I'd like to see Torchlight increase its acreage and do drilling. It's a very favorable time because things have slowed in the patch. I actually like corrections. Everybody else wants to buy stuff at new highs. I'm not a big fan of that.
Another company I follow is Pan Orient Energy Corp. That company is kind of a tripleheader. It has projects in Thailand, Indonesia and Canada. All Pan Orient has to do is succeed in any of them. The stock seems pretty cheap to me now.
TER: You said that stock prices for most energy stocks have gone down, but you don't see them decreasing much further. Is that true for shale energy companies?
BM: A lot of guys in shale are literally going to go out of business. I will make it crystal clear: I am not a shale fan. The idea that shale is the salvation of the United States, that we're going to be the net energy producer and that we're going to start exporting oil and natural gas—it's bullpucky. Anybody who knows energy knows it's bullpucky. It ain't gonna happen.
We can expect oil from shale, but it's going to cost more money. I think that somewhere in the $75–80/bbl is the bottom for oil prices, but a lot of people are going to be hurt at that price. You want to look for companies that are well managed, with conventional oil in safe jurisdictions.