Now that oil is a long way from the $145 per barrel peak it hit in July 2008 and nobody on Wall Street is predicting, as Goldman Sachs did in 2008, that oil is headed to $250 a barrel, we’re not hearing much about peak oil anymore.

The peak oil model, initially developed by oil geologist King Hubbert and which accurately predicted a peak in U.S. oil production between 1965 and 1970, says that the production from an oil field grows exponentially over time, then peaks, and finally declines. The model has been applied to individual oil fields, national oil industries, and global oil production. Back in 2008, the fiercest proponents of peak oil as a global model were predicting that the world would start running out of oil sometime around 2020.

Now that the world is awash in oil, the only people talking about peak oil are its opponents, who are dancing on what they depict as the grave of what they call a “theory” that was never worth the graph paper it was plotted on.

Well, I still think that the peak oil model is the most useful description of what we see happening in the oil industry today—even if West Texas Intermediate, the U.S. benchmark, closed at a twitch under $100 a barrel on Friday, February 3. (Brent crude, the European benchmark closed at $114.58.)

And, I’d go on to say that the peak oil model is the best way to understand what’s happening to the prices of other commodities, especially copper.  (Full disclosure: I predicted that oil would go to $180 a barrel shortly before it began its collapse from the $145 a barrel high in 2008. And full, full disclosure: The only one predicting $250 a barrel oil right now is Iran, which is threatening that prices will reach that level if developed economies impose tougher sanctions on the Iranian economy in an attempt to slow or stop that country’s development of a nuclear bomb.)

And I think it’s even useful for thinking about how to invest in commodities such zs iron ore that, currently, don’t fit the peak oil model at all.

Let me explain why I still find so much value in this “discredited” theory. Read more

China, the world’s largest wheat producer, is facing a severe drought in areas of the North China plain that account for 67% of the country’s wheat crop. China’s wheat production fell to 114.5 million tons in the 2010 harvest from 115.1 million tons a year earlier. This year the harvest could drop another 4 million tons.

This is a big deal since China is also the world’s largest consumer of wheat and accounts for about 17% of global wheat consumption.

The government is working to provide additional irrigation to mitigate the drought.

In Western Australia—across the continent from Australia’s worst floods—drought has put the wheat crop in Australia’s largest wheat producing state in doubt. The impact of the decade-long drought itself is intensified by a battle for Western Australia’s scarce water supplies between farmers and miners. There are about $170 billion in new mining projects on the books for the next five years. All those mines need water to help dig out and process ore, to remove waste rock and to suppress dust. Mining is already the largest user of water, taking 27% of licensed water, compared to 22% for agriculture. Six years ago the proportions were reversed with farming getting 37% of water and mining 26%.

I think you can see where I’m going with this, right?

No, no. Not more about the increasing global squeeze on food supplies. I’ve dealt with that quite enough recently, thank you. (See my posts http://jubakpicks.com/2011/01/14/food-prices-are-back-to-2008-peaks-here-are-10-stocks-that-tap-into-the-trend/ and http://jubakpicks.com/2011/02/01/egypt-has-escalated-the-food-crisis-and-shifted-global-economic-policy-on-inflation-too/ )

This time I want to talk about water scarcity, the trend that everyone sees but that it is so difficult to invest in. Read more

It’s hard to find water plays–but here are three from Singapore (Yes, Singapore)

The coming global water shortage.

It dwarfs all other potential global shortages. Peak oil? A piker compared to no water. Push comes to shove and we will find replacements for oil. Water? Drink or die. The biology is that simple.

In my December 2008 book The Jubak Picks I wrote that “Water–perhaps even more than oil–is at the center of the current environmental crisis.”

“There’s the global shortage of water that’s clean enough to drink and clean enough to use in industrial processes. The World Bank reports that 80 countries now have water shortages that threaten health and economies. The dimensions of the problem get even larger when you include water-short regions of otherwise water wealthy countries.  For example, the United States has, on average, enough water, but the cities of the Southwest, California, and Florida all face severe water shortages.

“A growing population–especially a population that insists on moving to water short areas such as Florida–is part of the problem. More people equals a demand for more water. But that’s only part of the problem. Since 1900, water use has grown six times while global population has increased by only two times. As economies grow and as living standards go up, the per capita demand for water climbs. We also insist on fouling the planet’s limited supplies of fresh water. According to the World Bank about 95% of the world’s cities still dump raw sewage into their waters.”

It’s not hard to see the crisis coming. What’s hard—and frustrating to investors—is that there’s aren’t very many ways to invest in water.

 In my book I suggested water pump and pump stocks such as Flowserve (FLS). Last summer I wrote about irrigation stocks such as India’s Jain Irrigation Systems. See my post http://jubakpicks.com/2009/08/28/is-there-profit-in-water-by-the-drop/ ) Good company but horrendously difficult to buy without an account in India. (It’s 500219 on the Bombay Stock Exchange.)

But I’ve got a new suggestion–one brought to my attention by a recent newsstory on Bloomberg–for where to look for water stocks–Singapore–and three specific stocks for you to look at. Read more

Is there profit in water by the drop?

Water is the difference between paradise and hell.

As far as I know that isn’t an old Moorish saying, but it should be. Driving through the fields of Andalucía last week, I remember looking out the right hand-window and seeing nothing but burnt brown earth and olive trees. Out the left-hand window the fields were a vivid green. I swear that I even saw the huge leaves of tobacco plants.

The difference was irrigation. Spiders of pipe crawled across those green fields spraying water on the crops.

No wonder that in Washington Irving’s history of Granada’s Alhambra it is the bringing of water that is so often the mark of a great king. Alhamar “introduced abundant streams of water into the city, erecting baths and fountains, and constructing aqueducts and canals to irrigate and fertilize the Vega. By these means prosperity and abundance prevailed in this beautiful city, its gates were thronged with commerce, and its warehouses filled with luxuries and merchandise of every clime and country.”

And rulers who don’t bring water?

Look at India where the failure of the monsoon rains threatens the rule of a Congress party that won a decisive election victory just last year. India’s monsoon rains provide the main source of irrigation water for the country’s 235 million farmers. The government has declared 246 of the country’s 600 districts drought affected.

Recent rains have helped–the monsoon rain-fall deficit is now about 29%; in July it was a startling 44%–but not enough to prevent huge declines in crop yields. Rice production, for example, could fall by 10 million metric tons.

Drought has brought rising food prices and extreme steps from the government. Rice exports were halted in July. The government is talking about banning corn exports—again. The last ban on corn exports was lifted only last October. The government has offered farmers subsidies for diesel fuel to run water pumps, deferred the repayment of farm loans, and cut interest payments on short-term crop loans. In addition the country is working to get farmers to sow winter crops, including wheat—to make up for the 10 million tons of summer-sown rice lost to the drought.

India is an extreme case: About 60% of India’s crop land is totally dependent on rainfall since it isn’t irrigated at all and decades of over pumping from underground supplies have left many rural wells high and dry above sinking water tables.

But the country isn’t alone by any means. Which means long-term investors should be on the lookout for the shares of companies that can “fix” what isa a global water supply problem. In this column IO’ll give you three stocks to research. Read more

Update Flowserve (FLS)

Turns out the pumping business is a very good place to be in this economy.

On July 29 Flowserve (FLS) announced second quarter earnings of a better than expected $1.92 a share and raised its earnings forecast for 2009. The company increased its target for 2009 earnings to $7.15 to $7.75 a share from an earlier target of $6.75 to $7.50.

Sales climbed to $1.09 billion. That was an increase of 6% from the first quarter of 2009 but a decrease of 6% from the second quarter of 2008.

Taking out the effect of a stronger U.S. dollar, on a constant currency basis sales climbed 4% year-over-year.

 Bookings, a key measure of future sales trends, climbed by 7% from the first quarter of 2009. Read more