04 May 2008

In a recent Bloomberg interview, MM Lee said that the Government of Singapore Investment Corporation Pte Ltd, or GIC, may hold their stakes in western financial institutions for 20-30 years. Some of the institutions that GIC has invested in recently are Citigroup and UBS.

Once again, I believe this highlights our Minister Mentor's poor sense, or lack of understanding, of the direction in which the world is heading. We are no longer living in the 1950's or 60's when oil discoveries flourish and world energy production per capita grew rapidly. We are now entering the twilight of oil extraction and energy production.

When oil supplies cannot keep up with demand, economic growth will stagnate and decline. It should be obvious that financial institutions will suffer since their earnings are predicated on robust economic activity; I expect Citigroup, UBS and many major financial institutions to sink in the not too distant future.

Our Industrial Civilization runs on oil, period. Anyone who thinks we can easily transition to an economy that runs on alternative energy without major disruptions to our lives is delusional. Geologist Walter Youngquist explains clearly the myths and realities of alternative solutions.

Oil is currently selling for about $115 a barrel. Oil production appears to have peaked at about 85 million barrels a day. See chart below. Taken from http://gailtheactuary.wordpress.com/files/2007/06/world-oil.jpeg

Oil prices have climbed more than 400% since 2000. During this period, oil production was able to meet growing demand from China and India. I cannot imagine what prices will be like when production begins to decline. See chart below. Taken from http://upload.wikimedia.org/wikipedia/en/2/2f/Oil_Prices_Medium_Term.png

The German-based Energy Watch Group predicts that world oil production will fall by 30% as soon as 2020, a mere 12 years away.

Using the Export Land Model developed by Jeffrey Brown, oil exporting countries will go from peak exports to zero exports in nine years. In other words, if all oil exporting nations were to hit peak production today, they will export zero barrels of oil in nine years because of domestic oil consumption.

GIC, which manages Singapore's foreign reserves, is going to regret they ever made this investment.

Because our Minister Mentor, whom I believe still wields great influence on our ministers and MPs, shows no hint of understanding our current ecological crises (peak oil, overshoot, overpopulation, high entropy), I fear Singapore will be in for very hard times.

Marketwatch report on the Bloomberg interview