Another Stake In the Heart of "Peak Oil" Deniers

If last week's confession by a Lukoil official that Russian oil production has peaked weren't enough to convert "peak oil" deniers, today's comments by Saudia Arabia ought to do the trick. (See the WSJ article here.) As a result, energy prices should continue their steady march upward at a much faster clip than other asset classes (at least until the oil "supply shock" hurts demand enough, which we think will happen later in '08).

So, strictly speaking, our market-weight energy position since starting this blog will remain a drag on relative performance, unless it becomes clear that oil demand is slowing down much more sharply than oil supply. That probably won't happen in the next couple of months, at the rate nations are pursuing inflationary and energy-inefficient policies around the world, and given the rising cost of extracting an incremental barrel of oil.

That said, we haven't raised our energy weighting. We're seeking to "mimic" the performance of rising energy assets with assets that instead improve resource efficiency, reduce industry's carbon & pollution footprints, and create a more sustainable world. To that end, we've written about investments along several major themes, such as agri-biotech, solar power & some other alternative energy platforms, water infrastructure & irrigation technology, green electronics, and others (scroll through our Environment subject for detail).

In addition to "mimic-ing" the performance of rising energy assets, we think these investments could decline less than the energy sector if the global economy slows down enough to drag the energy sector down, because the major environmental investment theme should remain intact.

But we have a lot more work to do before making up for being market-weight energy, rather than overweight, because traditional energy can get more expensive, and still be cheaper than alternative energies. So we're extending our environmental investment themes to include another industrial efficiency play (FLIR Systems - FLIR), and several high barrier-to-entry environmental collection and processing networks (including Clean Harbors - CLHB, and Darling International - DAR). Note that Darling, which collects and processes animal bi-products from thousands of sources, sells into many product categories as a replacement of fossil fuels, and enjoys rising average prices as a result.