Blake,
Did you read his pdf presentations? Here is one that alarms me somewhat:
http://www.simmonsco-intl.com/domino/html/research.nsf/0/8CB9D9EB052E6A1386256CD400705410/$File/IFP2003.pdf
Also - here is the transcript of a recent talk given by Simmons at an international conference :
The uh, I think basically that now, that peaking of oil will never be
accurately predicted until after the fact. But the event will occur, and my
analysis is leaning me more by the month, the worry that peaking is at hand;
not years away. If it turns out I'm wrong, then I'm wrong. But if I'm right,
the unforeseen consequences are devastating.
But unfortunately the world has no Plan B if I'm right. The facts are too
serious to ignore. Sadly the pessimist-optimist debate started too late. The
Club of Rome humanists were right to raise the 'Limits to Growth' issues in the
late 1960's. When they raised these issues they were actually talking about a
time frame of 2050 to 2070. Then time was on the side of preparing Plan B. They
like Dr. Hubbert got to be seen as Chicken Little or the Boy Who Cried Wolf...
- Investment Banker Matthew Simmons
[Matthew Simmons has been a key advisor to the Bush Administration, Vice
President Cheney's 2001 Energy Task Force and the Council on Foreign Relations.
An energy investment banker, Simmons is the CEO of Simmons and Co.
International, handling an investment portfolio of approximately $56 billion.
He has served previously on the faculty of Harvard Business School. Among Peak
Oil researchers he is known for two seemingly contradictory things: being a
staunch supporter of George W. Bush and his policies and probably the only
outspoken insider to talk openly about Peak Oil.
On May 27th, 2003 Simmons addressed the second international conference of
the Association for the Study of Peak Oil (ASPO) which was meeting at the
French Petroleum Institute (IFP) via a satellite teleconference video link from
his Houston offices. His remarks were so revealing that I had them transcribed
from my tape recording of the event. It is becoming clearer by the day that the
Bush administration was aware of Peak Oil before taking office (pun intended)
and Simmons' remarks indicate an awareness of Peak Oil's implications. They
also predict extremely severe consequences arising from natural gas depletion
in North America. - MCR]
Matthew Simmons Transcript
[Regarding peak energy] It might turn out actually to be one of the most
important topics for the well being of the globe over the next fifty years,
which basically (is), "Is the energy glass half full or half empty?" So let me,
in the course of the next thirty or forty minutes, just share some of the
issues that I think are important.
First of all, the topic of whether the energy glass is half full or half
empty is right. It basically elicits some of these talks from so many people
that start out with positions saying, "The glass is half empty, we will never
run dry."
But the real issue is, basically speaking, does not basically mean running
dry. The debate on how long the dwindling of supplies might take has been
extremely controversial. In fact, I'd say that most of the debate has been
one-sided.
Optimists argue that the issue is still years away, and to their support is
that it has never happened before and it's too often been predicted. And each
time the future looks bleak, the optimists argue, it's always darkest before
dawn. It is also interesting how many people basically look at undiscovered
reserves and basically say that we really don't know how much we still have
left to find, and that's true, but we also, with the evidence of the reserves,
there's no guarantee that the reserves are actually there.
I come back to the basics and say I think that one thing that we do all know
is that oil and gas resources are genuinely non-renewable and so someday they
will basically run out. And also, we are using 28 billion barrels a year,
that's a lot of energy to be consuming. And peaking, as you all know, is
different than running out. Is "peaking" an important question or issue?
First of all, if you start out by saying usable energy is the world's most
critical resource then obviously it is an important issue. Without volume
energy we have no sustainable water, we have no sustainable food, we now have
no sustainable healthcare. And since five-sixths of the world still barely uses
any energy it really is an important issue. And since five-sixths of the world
is still growing fast or too fast it's even a more important issue.
What peaking does mean, in energy terms, is that once you've peaked, further
growth in supply, is over. Peaking is generally, also, a relatively quick
transition to a relatively serious decline at least on a basin by basin basis.
And the issue then, is the world's biggest serious question. [emphasis in
original]
Peaking of oil is also probably then assuming peaking of gas too. So is this
issue important, I think the answer is an emphatic yes. Why does this issue
evoke such controversy? Well, I think for several reasons, first of all the
term "peaking", unfortunately, does suggest a bleak future. It also suggests
high future energy prices and neither are pleasant thoughts.
I think it is human nature, basically, to say that we really like to have
pleasant thoughts. And crying wolf is bad business unless the wolf turns out to
be already at the front door, and by then, the cry is generally too late. And
crises are basically problems, by definition, that got ignored. And all great
crises were ignored until it became too late to do anything about it. And so
if the issue is serious, why are the answers so dissenting. I think the reasons
are several-fold. First of all, the data and the methodology to estimate total
energy resources is still remarkably hazy and takes a lot of fuzzy logic to get
to the bottom line.
Judging the data, for instance, on current decline rates on even fields per
basin is very hard to define and it turns out that peaking is one of these
fuzzy events that you only know clearly when you see it through a rear view
mirror, and by then an alternate resolution is generally too late.
Over the course of the last few years, conventional wisdom in the energy
business became "do not trust conventional wisdom." The voice of energy, for
better or worse turns out to be the International Association of Energy
Economists and I will be attending this group's 26th annual meeting next week
in Prague.
This group basically had a mantra throughout the decade of the nineties that
growth in energy demand is suspect, that energy supplies are surging, that
Moore's Law has brought down semiconductors at a cost so dramatically it will
bring energy prices considerably lower, that OPEC is obsolete, and a
non-sustainable concept.
Last year, the IAEE had their 25th annual meeting in Aberdeen, and I attended
the program. It was really interesting. On Saturday morning, they had 13 of
the past 25 presidents talking for the better part of two hours, and
individually reflecting on the lessons that they had learned over the past 25
years. And I heard 13 consecutive people basically state...what I heard most,
was the word, "conventional wisdom." This was the big mistake I personally made
25 years ago. Twenty-five years ago, I thought demand was going to go up fast
and that was wrong, I thought that oil prices were going to 100, and that was
wrong, and I thought the OPEC was omnipotent, and that was wrong, and I thought
that supplies basically were going to be a pot of gold and that was wrong, and
what I learned personally is to never trust "conventional wisdom." And by the
time all thirteen speakers had spoken, it was clear that their belief had
become conventional wisdom. It turned out that basically the generals, as
happens so often in the military, were fighting the last war. The big energy
mistake that was made, circa 1980-1981, was that oil was going to go to 100,
was that the demand growth was insatiable, and that OPEC was omnipotent. And
what all these people missed at the time was that the oil prices had already
grown tenfold; that nuclear energy was at the front door, that the fear of a
hundred dollar oil had finally created a conservational efficiency move and
that a ten-year E.P. [environmental protection movement] movement created a
surplus glut. And preventing making this mistake again became public enemy
number one and literally led a generation of energy experts to mistrust demand,
to assume supply growth and just to know that price collapse was just around
the door, the corner.
But it is interesting now with the benefits of being in a new millennium, to
look back and see what really happened to oil demand over the last 30 years.
First of all, global oil demand did fall in 1974 and half way through 1975. But
over the course of the first eight years of the 1970's, global oil demand grew
significantly. Global oil demand then fell in 1979 through 1983. And so you
had five of thirteen years down but the two events that caused this down demand
were a tenfold increase in product and the introduction of the only new energy
source native to the 20th century; nuclear. Global oil demand began to grow
again in 1983. The collapse of the F.S.U. from 1988 to 1995 created the
illusion of global stagnation while the rest of the world's oil demand and
energy just grew and grew and grew.
And it's interesting to step back and look at the difference between 1986
when non-FSU oil demand was just under 54 million barrels a day, to 2002, when
we crossed 73 million barrels a day... a 21 million barrel a day change during
an era that people thought basically that demand growth was over.
And then let's turn briefly to what happened to the world's supply. Well,
first the former Soviet Union supply collapsed. Secondly, the North Sea had its
second boom. Third, deep water became the new frontier and probably the last
frontier, and fourth, OPEC remained the swing producer. If you basically look
at the non-OPEC numbers excluding the former Soviet Union, you basically have a
growth between '86 and 2002 of 8.3 million barrels a day. Now it's interesting
to see that global oil growth and demand was 20 and non OPEC non-FSU growth was
8.3. But if you look carefully at the 8.3, in the first ten years, '86 thru
'96, during an era of low oil prices, we grew by 6.7 million barrels a day, and
in the last six years, during the era of high oil prices, we grew by 1.5
million barrels a day. So 81% of the last fifteen years growth, came in the,
sixteen years growth, came during the era of low prices, and 19% came during
the era of high prices. It turns out with just hindsight that we can now
clearly see that the growth engine of non-OPEC oil, excluding the former Soviet
Union petered out. The North Sea peaked, Latin America excluding Brazil peaked,
North America, excluding heavy oil peaked, Africa excluding deep water peaked,
the middle east excluding OPEC peaked, and the F.S.U. turned out the be the
only lasting pleasant surprise.
Which then raises the following question: Was the F.S.U. recovery real and
sustainable? In 1998-1999 not a single oil expert assumed that the F.S.U. would
suddenly turn around and start creating supplies again. But then low oil prices
created through the saga of the missing barrels caused the ruble to collapse.
And subsequently high oil prices created an F.S.U. bonanza, low global prices
and unbelievably high revenues. 67% of the 2000-2003 non OPEC supply came with
the F.S.U.'s oil recovery. Some of this increase was unlikely due to bad data
and some of the increase was a one time gain.
There has been no significant FSU exploration yet. It's simply too expensive.
And logistical bottlenecks create some significant limits to further export
growth. So I think it's dangerous to assume that the FSU growth will continue.
In the meantime the cost to create new oil supply soared.
While conventional wisdom believes where there's a will there's a supply,
real costs to maintaining flattening supplies soared. Between 1996 and 1999,
the 145 Public E&P companies which were worldwide, spent 410 Billion Dollars to
merely keep their full production flat at about 30 Million barrels of oil per
day. The Big Five, Exxon, Shell, BP, ChevronTexaco, and Total spent 150 Billion
dollars between 1999 and 2002 to barely grow production from 16 billion barrels
of oil a day to about 16.6.
The Big Four, excluding Total, because there numbers weren't out yet, between
the first quarter of 2002 and the first quarter of 2003 went from 14 million,
611 thousand barrels of oil equivalent per day to 14 billion 544. These four
companies spent collectively over 40 billion dollars over a 12 month period of
time actually lost 67 thousand barrels a day of total production. So while
people were assuming costs would fall the cost to stay in the game went through
the roof.
One of the other interesting mantras of the last decade was that technology
had eliminated dry holes. Well we never came close to obsoleting the dry hole.
The reason dry holes dropped so much is we drill far less wells. We also
stopped doing most genuine exploration. Even projects that are called wildcats
today probably 20 years ago were called modest step-outs. It turns out that now
that we look back with good data it takes four straight dry holes, it is still
a risky business. The U.S. statistics are appalling. Here basically is the
table going back from 1973 to 2002 of U.S. exploratory success rates and their
dry holes as a percentage, and this yellow one going through there is 67%
meaning that two out of three of those failed. We modestly drop the line from
about 75% down to 67% but two third failure rate, we've just killed building
dry holes. The North Sea exploration, in appraisal statistics is still
basically about 25% chance of success. Angola, of the major Block 17's has had
a string of dry holes. Eastern Canada's recent statistics have been
troublesome.
The Caspian Sea, other than one great discovery, potentially has been bad.
And even the Middle East is starting to dig a remarkable string of dry holes.
The single biggest reason that this supply surge that so many people assumed
was happening for so long was that depletion became the missing link. The
reason supply flattened out or peaked was not the lack of effort and no new
technology. The industry in fact had many great successes over the last decade.
But they were not about to offset depletion. Oil field technology created not
an easy way to grow supply but a depletion rat race. Smaller new fields were
found, technology allowed them to be commercial but we raised the climb rate to
an amazing level and therefore it began to flatten out.
Why is oil depletion so hard to grasp? Well the definition by itself is
hard. Many would hear the term depletion and assume it meant that we ran out,
and we obviously never ran out of oil. Depletion data was sketchy at best. Its
amazing how hard it is to actually dig out statistics for, even on a field by
field basis, what the net decline is. And the elusive data that you can find is
not real depletion but it's actually the net decline after lots of additional
drilling and money is spent to take a natural decline rate that would have been
far more drastic if you flattened out. And finally no one really likes to
discuss it much because it should generally mean bad news.
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part 2 in next post
