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Frank Voisin
Frank Voisin
Articles (222)  | Author's Website |

Book Review: Oil: A Beginner’s Guide - by Vaclav Smil

July 14, 2011 | About:
Today I am reviewing Vaclav Smil’s Oil: A Beginner’s Guide. This is an ongoing process, so send me your feedback as to how I can provide you with more value in reviewing these books (send me an email here or leave a comment below). If you haven’t heard of Vaclav Smil, then you are missing out on one of the great minds of our time. Smil is an underrated academic (how many of those have you heard of?) from the University of Manitoba who has published twenty six books comprising 8,216 pages of impeccably researched discussion of such wide-ranging topics as global energy, the biosphere, the food supply, China and technical innovation. Moreover, if his other books are anything like Oil: A Beginner’s guide, there are a great deal of additional topics covered through various asides that show both the breadth and depth of the man’s knowledge.

Beyond being a prolific author (he has also written dozens of articles), he is also a regular on the lecture circuit. Wikipedia notes that has has been a speaker at more than 250 conferences and workshops. In 2010 he was named one of the top global thinkers by Foreign Policy magazine and finally, to further add to the man’s credibility is the fact that he has the endorsement of Bill Gates, who says Smil “opened my eyes to new ways to think about solving our energy and environmental issues.”

Given his reputation, I thought it worthwhile to start working through his books. I’ve started with Oil: A Beginner’s guide primarily because I have had several investments directly related to oil, including Transocean (NYSE: RIG), Rowan Companies (NYSE: RDC), and Noble Corporation (NYSE: NE). A better understanding of the world’s most important commodity seemed like a prudent goal, and Vaclav Smil’s book seemed to be as good starting point.

Smil divides his book into five parts. Part one covers the benefits and burdens of oil. Smil covers car ownership, aviation, and the impact of oil on agriculture, and its use as in feedstocks and plastics. OPEC is introduced along with its impact on oil prices. One interesting point I found was related to the sharing of oil profits between states and oil producers. From page 22:

t must be remembered that given the high taxes imposed on refined products by Western governments oil producers have actually made substantially less money than have the state treasuries.

Even in the US, where federal and state taxes on gasoline amounted to ‘just’ 19% of the average retail price (or to $0.58/L in 2005) the aggregate gasoline tax revenue between 1977 and 2005 was twice as large as the total profits of the major oil companies ($1.4 trillion vs. about $700 billion). In the EU and Japan, where taxes are several times the US level the government take has been much higher. And between 2000 and 2004 G7 countries collected about $1.6 trillion in taxes on liquid fuels compared to OPEC’s revenue of $1.3 trillion.
Part two discusses what oil is and how it is formed. Smil explains the folly of discussing oil in the singular sense, when it in fact covers many different hydrocarbons across the entire gas-liquid-solid range. Smil discusses the varieties even of crude oils, showing the differing combinations and structures of carbon and hydrogen. Smil even goes as far as showing how different oils were formed during different geological eras. Did you know that one litre of oil is approximately equal to 25 tonnes of “originally sequestered marine biomass?” Neither did I, until I picked up this book!

The third part explains how oil is found and where it has been discovered. This section starts with the earliest methods of finding oil (seeping from rocks and other above-ground observations) and carries through to the most advanced current methods, including 4D simulations and visualizations of oil reservoir dynamics. He explains how seismic exploration works both on and offshore, and how drilling works (did you know the Chinese were drilling as early as 200BCE?). An oil derrick is explained in depth and how Howard Hughes’ rotary cone drills revolutionized oil drilling (and minted him a fortune in the process). I was interested to see how the names of many of the oil industry’s original investors are still around today as some of the leading companies in oil exploration: Baker and Hughes, Halliburton, Schlumberger, and Cameron.

The penultimate chapter tells us how oil is produced, transported and processed. Smil shows how modern wells work, and how oil production has shifted geographically over time. He presents the advantages of pipelines in terms of economic and energy costs (economic cost would be the cash expense of lifting the oil; energy cost would related to the energy used for extraction) and uses these terms to describe different extraction techniques as well.

Smil’s final section tackles the question of how long oil will last. Unfortunately, any answer depends on many unknowns that would require significant assumptions and yield unreliable answers, so Smil uses this section to give a historical perspective on oil’s role in global energy supply, as well as a discussion of the fallacies and facts of peak oil. He does a good job dispelling the alarmists’ arguments about peak oil ultimately leading to a catastrophic breakdown of society:

“Historical evidence is clear: energy transitions have always been among the most important stimuil of technical advances… promoting innovation.. higher efficiency.. and resource substitution. …

To think that these stimuli will cease with a gradual move away from oil is baseless: they have actually been at work for some time…” (p. 175)
My only quibble would be that Smil often included data in paragraph form that would have been more digestible in a graph, and that he frequently erred on the side of including more information than less, which made some paragraphs feel almost like a chore. Overall, I think this was a great place to start and I feel like I have emerged from a university-level survey course of oil(s). I would recommend it to anyone who wants to learn more about oil, but didn’t want to look at in-depth textbooks on narrow aspects of oil. This book struck a good balance between breadth and depth, which the beginner will find useful. Soon I will be reviewing Morgan Downey’s new [i]Oil 101, which I’ve heard great things about, so stay tuned if you are interested in oil!

Buy This Book Here!

Author Disclosure: This book was provided by the publisher

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About the author:

Frank Voisin
Frank is an entrepreneur who owned four restaurants by the time he was twenty. He sold his businesses and returned to school, completing a concurrent Law / MBA degree. At the same time, he successfully completed all three levels of the CFA exams. He now invests full time with a focus on value investing. Frank Voisin writes about value investing topics at http://www.frankvoisin.com.

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Rating: 4.0/5 (8 votes)


Dak2123 - 6 years ago    Report SPAM
Thanks for writing the article. I enjoyed reading your review, and will add this book to my reading list. If you're interested in a similar book, on the history of the global oil industry, I suggest Daniel Yergin's The Prize: The Epic Quest for Oil, Money, and Power. It won the Pulitzer Prize for General Non-Fiction in 1992, and is very informative.

Thanks again.

Tom Hend
Tom Hend - 6 years ago    Report SPAM

No offence Dak2123 but Yergin's book is crap compared to Smil's. Smil is a conservative and Yergin is a liberal.

Smil is doing real work, Yergin is trying to sell books.

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