GET USED TO IT
Soon it will take a C-note to fill your tank
BY DOUG FRENCH

If there is one thing Americans take for granted and insist upon, it is cheap gasoline. Last year's increased pump prices - even before Mother Nature reminded the Gulf Coast who is boss - had Average Joes and Talking Heads alike claiming that the evil oil companies were conspiring to rip off the helpless public. In response, opportunistic politicians quickly geared up the Washington Circus and let the cameras whirl, grilling oil company executives under the bright lights. 

But, oil and gas prices quickly waned after supply disruptions were fixed and the furor has died down. But, what is the future for oil and natural gas prices? Will driving to work and heating the house soon send working stiffs to the poor house? 

Richard Rainwater thinks so. Rainwater is a multibillionaire who, according to Fortune magazine, has doubled his net worth in a decade. He's had the Midas touch since the 1970s when he helped turn the $50-million Bass family fortune into $5 billion. In the mid-'90s, when investors were bailing out of Houston real estate, Rainwater piled in, buying 15 million square feet. The value of those properties has now tripled. 

Rainwater is a believer in M. King Hubert's peak-oil theory. Hubert, a geologist for Shell in the 1940s and 1950s, believed that oil production in the United States would peak in the early 1970s. His prediction came true. Now some geologists believe world production of oil may now be peaking. "I believe in Hubert's Peak," Rainwater told Fortune. "I came out of Texas. I watched oil fields reach peak and go over, and I've watched how people would do all they could, put whatever amount of money into a field, and they couldn't do anything about it." 

As fuel costs skyrocket, other problems will be exacerbated. According to Rainwater: "The world as we know it is unwinding with respect to Social Security, pensions and Medicare." 

The way the legendary investor plans to make money from this coming disaster is to invest in oil and gas, agricultural products and the currencies of countries rich in natural resources. 

T. Boone Pickens was a household name in the 1980s as a corporate raider of oil companies. Starting his career as an oil geologist in the 1950s, Pickens is as savvy an investor in oil and gas as anyone. Early last year he had predicted oil would reach $75 a barrel in 2005, a prediction that almost came true when oil hit $70 in hurricane Katrina's aftermath. 

Pickens notes the discrepancy between $2 a gallon of gas in the United States and $5 a gallon of gas in Europe. "The energy situation is global," he told CNN last June. "I know there are taxes involved in the pricing ... but eventually it's going to have to move up."

"If demand continues to rise, you're going to be up to 87 million barrels a day being consumed," Pickens predicts, "with 85 million barrels of supply. What is the solution?" 

At 77 years old, Pickens has lived through the ups and downs of the oil and gas market for over half a century. He's bullish enough to be back in the drilling business and he told Trader magazine that eventually natural gas will replace gasoline as a transportation fuel. 

Oil analyst Kurt Wulff told Barron's recently that he predicts the price of oil to hit $150 per barrel by the end of the decade. But Wulff believes natural gas prices will rise even more than oil. He says there "is no reason why natural gas should be any cheaper than oil." Natural gas has traded as high as $15 per million BTU [British Thermal Unit], a price that many people think is too high, but Wulff contends it is not. Natural gas is a cleaner fuel and thus in demand by the environmentally conscious.

The fact that no oil refinery has been built since Marathon Oil's Garyville, Louisiana facility in 1976 lends credence to the peak-oil theory. Sure, it's tough getting a refinery approved - more than two dozen separate permits are required on the state and federal levels - but if the oil companies really wanted to build refineries, they would have managed to get at least one built over the course of 30 years. 

Congressmen and their constituents can believe all the conspiracy theories they want, but the brightest minds in the oil patch believe we're just plain running out of the stuff while at the same time world demand is growing. Soon, it will take a C-note to fill your tank. Get used to it. LW

Doug French, associate editor of Liberty Watch: The Magazine, is an executive vice president of a Nevada bank. He is the 2005 recipient of the Murray N. Rothbard Award from the Center for Libertarian Studies.