Ponderings about oil and property prices

I have to admit that this article concerns me from a property investment point of view (and obviously other pov's).

http://www.theoildrum.com/node/5969

While I'm in my 40's, I am relatively new to investing (one IP and PPOR) and would like to continue to add to my portfolio so I can have a reasonable passive income in 20 years time, but my gut tells me that sometime in the next 5 years we will have a large drop in aussie house prices due to oil (as described in the article).

I am no expert in oil and dont pretend to be, just trying to be widely read and question all the assumptions that I base building a property portfolio on.

I would be very happy for someone to convince me that my fears are unfounded. Unfortunately I think oil > supply and demand.

cheers
 
We hit peak "conventional" oil a few years ago and the fall in production is accelerating. Gawar, the world's biggest oil field has not been audited since the Saudis kicked the Yanks out decades ago. There is reason to believe that it has peaked though. Cantarell, Mexico's big field (and the world's No 2?) which supplies much of the US imports is decaying @ over 20% PA. Mexico will be a net importer soon.

The importance of Peak Oil cannot be overestimated. It is, IMHO, more factual, more critical and more imminent than climate change. Ignore it at your peril.
 
The importance of Peak Oil cannot be overestimated. It is, IMHO, more factual, more critical and more imminent than climate change. Ignore it at your peril.

Peak oil = the solution to climate change.

You can't burn what you don't have.

If nothing else, moving transport to renewable sources will reduce the amount of oil consumption by established consumer nations by half. Of course, BRIC means that is all offset by increased usage elsewhere.

I'm looking forward to 100% electric cars being mainstream by 2015.

Cheers,
Michael
 
Peak oil = the solution to climate change.

You can't burn what you don't have.
Would be great if true, and maybe it will be! My understanding is that coal might likely fill a lot of the void, and that is far from good news for the environment.

A very complex subject. Reading The Oil Drum should convince anyone of that.

I believe from an investing standpoint the solution would be to have your plan and concentrate on working towards your goals, with a nod towards big macro themes but also understanding how difficult it is to forecast the future accurately.

I read a few smart people that are forecasting that the era of perma-growth might be coming to an end and we should all get ready for a scaled down future, could be true as well.

Take your resi IP strategy perhaps most fully exposed to a view of permagrowth such as the vanilla buy, hold, negative gear and accumulate more of the same. Even here you can mitigate your risks and add value by such relatively simple things as.

* Buying well
* Cosmetic renovations
* Keeping gearing levels at reasonable levels
* Living on less than you earn
* Having buffers in place
* Ensuring your job income is safe, continual education and potential other income sources if needed.

Adding a nod to the coming issues around energy

* Buy near transport and lifestyle hubs, walkability of housing might be very important in the future.

So there is a real risk with the energy issues in the future and what they might do us resi investment people, though there is a risk as well in not investing in resi (or just inaction) as there always is.
 
Thanks for the comments so far.

I'm trying to visualise it this way. Imagine waking up tomorrow with petrol at $4/litre and the price of all utilities and food etc suddenly twice the current prices. What effect would that have on rents, property prices etc.

Its similar to the thoughts I was having when interest rates were at their peak just before the GFC, when everyone was saying that we should start buying near transport hubs.

Being at the point where I need to decide whether to continue the accumulation phase or hold steady with my 40% LVR, I have a great interest in this topic. People still have to live somewhere, assuming they can afford it.

cheers
 
Natural gas will keep it all going for the forseeable future. In the 1970s there was an oil crisis and 'everyone' said the future was gas and small cars. So we got Hummers and gas at five times the price it was.

Consider the vested interests and what they want and they don't want a no cars future. Expect natural gas to be the order of the day IF there is any truth to peak oil. I'm brutally sceptical about everything on the net these days - peak oil, nostradamus, 2012, Wall street recovery etc etc.

As for the Mad Max future world without oil and similar effects on housing prices I can't see it, except for the areas without infrastructure where there is no industry or employment to support the population in the short term. Which means until their marginal seat votes are needed. Agree with Andrew on what and where to buy.

I think a much more probable impact on residential investing could be rent capping by the government and removal of negative gearing and tax concessions along with additional taxes from the global warming carbon trading rort being set up currently. Add to that tax on a PPOR selling for over a million and there could be a whole lot of investment properties scared onto the market with a corresponding price dip. All this propaganda about 'affordability' is happening for a reason.

As Bob Dylan said - 'Don't follow leaders, watch the parking meters'.
 
Yawn

Do we really think that the oil companies etc are going to suck the last drop out and then tell everyone to go home. Get real.

I have no faith in these companies and the powers that control them doing the right thing for the benefit of humanity. What i do have faith in is these powers wanting to make more money. They cant do that in a world in destruction. if we the worker bees dont make money then they will have no one to take the money from.

oil will be used until its cost is either much higher than alternate fuels or until the cost is so high that the world economy stops because of it.

Either way life will go on

Cheers
 
if oil companies are investing in solar (BP), wind (Chevron), tidal (Shell) etc then clearly this is where the market is headed.
 
if oil companies are investing in solar (BP), wind (Chevron), tidal (Shell) etc then clearly this is where the market is headed.

The Shell Global Renewables initiative just got canned.

BP has just shut down its solar business.

I don't know anything about Chevron and wind, which probably means whatever they are or aren't doing is only symbolic.

So that big IF should probably become IF NOT.

The possible pace of change in the energy and power industries has always been over-estimated. It truly is glacial. These things may start hurting around 2050 but there is a lot of money to be made in the meantime.

And in the face of rising electricity and oil prices, there is an incredible amount of scope for society to use much less of the stuff, maintaining disposable income for other purposes. Haven't even scratched the surface there yet.

I'm going to ride home on my bicycle now... :)
 
Solar/Wind/Tidal powered cars and trucks?

They are obviously not trying to replace oil with these.

Huh? Of course they are...

Solar/Wind/Tidal is all about turbines and electricity as the output. Where do you reckon the auto industry is headed en masse? Electric cars are just around the corner. Its all about the grid.

Will Houston become an Electric Car capital?

Test driving the Nissan Leaf electric car in Los Angeles

Norway electric car maker to build in Indiana

Chinese electric car launched

A quarter of all cars to be plug-in electric by 2020

Group says electric car is U.S. oil addiction cure

They're already here and will be mainstream within a decade.

Cheers,
Michael
 
The world's output of liquid fuel is decreasing by millions of barrels per day year after year. None of the technologies mentioned will replace these barrels this year, next year and the year after.

It's fine for a banker to ride his/her bike to the railway station but our economy needs production and distribution or the bankers will have no clients.
 
They're already here and will be mainstream within a decade.

Cheers,
Michael

they are already mainstream - the prius.

everyone else is playing catchup.

The Shell Global Renewables initiative just got canned.

BP has just shut down its solar business.

I don't know anything about Chevron and wind, which probably means whatever they are or aren't doing is only symbolic.

So that big IF should probably become IF NOT.

The possible pace of change in the energy and power industries has always been over-estimated. It truly is glacial. These things may start hurting around 2050 but there is a lot of money to be made in the meantime.

And in the face of rising electricity and oil prices, there is an incredible amount of scope for society to use much less of the stuff, maintaining disposable income for other purposes. Haven't even scratched the surface there yet.

i didn't know Shell canned their research - bummer. thansk for updating.

i thought BP canned their mainstream solar business in SE Asia and Australia only...? i thought they were still big in Scandanavia and the EU...i guess some google reading will clarify. funny though, they still use solar for their fuel stations.

i thought Chevron were going to use Gorgon Island as a large test bed for their wind generators as well.
 
they are already mainstream - the prius.

everyone else is playing catchup.
Hi BC,

I was talking about electric cars becoming mainstream, not hybrids or hydro etc. I know the Prius is already here with a backlog of orders from would-be buyers, but its hybrid. I'm talking 100% electric, battery operated, grid charged.

All good. Looking forward to 0% fossil fuel powered vehicles. How we make the electricity to charge the grid is another discussion. At least by eliminating the use of petroleum in vehicle engines we set the stage for eliminating the use of fossil fuels for transport altogether when we use alternate sources to charge the grid. Nuclear? Thermal? Solar? Wind? Wave? Tidal? etc. My vote is for Solar for now. Pholtovoltaic cells are getting cheaper by the minute. New technology just around the corner makes this a very cost effective energy capture mechanism.

A lot of people are stuck in yesterday's thinking when tomorrow is already upon us... ;)

Cheers,
Michael
 
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