No subject
Tue Aug 12 04:15:46 UTC 2008
The high priest of "peak oil" thinks world oil output can now only =
decline
Fifth Ring
=20
=20
=20
=20
FOR a man who believes that the world as we know it is coming to an end, =
as least as far as energy is concerned, Matthew Simmons is remarkably =
cheerful. He magnanimously excuses The Economist's poor record of =
predicting the price of oil: our suggestion in 1999 that oil would =
remain dirt cheap was conventional wisdom at the time, he says =
soothingly. He also shrugs off our more recent scepticism about his =
belief that the world's production of oil has peaked: he, too, hopes =
that "peak oil" proves to be a myth, he says. But over a 40-year career =
in investment banking, Mr Simmons adds, he has learnt never to rely on =
wishful thinking. Most of the world's oil analysts, he believes, are far =
too optimistic about how long existing fields will last, the prospects =
for new discoveries, technology's ability to unlock new sources and to =
extend the life of existing ones, and so on. He prefers to rely on data =
rather than daydreams. And according to the American government's own =
numbers, the world's oil output has been more-or-less flat since 2005.
It was data that made Mr Simmons famous. He spent the summer of 2003 at =
his holiday home in Maine, poring over technical studies describing the =
state of Saudi Arabia's oilfields. Although the Saudi authorities do not =
release much evidence to support their claims of vast oil reserves, =
engineers from Saudi Aramco, the state-owned oil firm, do give talks at =
conferences and publish papers about their experience of reservoir =
modelling and management. Based on these, Mr Simmons concluded that =
Saudi Arabia's biggest fields were already past their peaks, required =
ever more expensive technological fixes to prop up production and would =
soon enter a period of inevitable and rapid decline.
Saudi grandees pooh-poohed Mr Simmons's 2005 book on the subject, =
"Twilight in the Desert: the Coming Saudi Oil Shock and the World =
Economy". But others held it up as convincing proof of the notion that =
the world's oil production would soon reach a pinnacle, never to be =
exceeded. Saudi Arabia, after all, is already the world's biggest =
producer, and is expected to cater to most of the growth in demand for =
oil over the next few years by expanding its output yet further. If, =
instead, it pumps less, there is little hope that other countries could =
make up the shortfall. In that scenario, as demand for oil continues to =
grow despite dwindling supplies, and as the search for substitutes =
proves fruitless, economic catastrophe ensues.
Mr Simmons helps to lend credence to this view in part because he is an =
old and respected hand in the oil business. He first stumbled into it in =
1969, thanks to a chance encounter at a hotel in Palm Springs. He was =
two-thirds of the way through a doctorate in economics and had planned =
to join his father's bank in Utah when he finished. Instead, he ended up =
abandoning his studies to help raise venture capital for a pioneering =
firm of divers working on California's offshore oil-rigs.
Simmons & Company, the investment bank Mr Simmons went on to found =
(along with Michael Huffington, an oilman and politician), helped to =
funnel money and financial advice to the nascent "oil services" =
industry, which performs tasks such as seismic surveys and drilling =
wells on behalf of oil firms. Indeed, Mr Simmons says it was his bank =
that coined the very phrase "oil services". It has handled over 500 =
merger-and-acquisition deals in the industry-49 of them last year alone.
All this means that Mr Simmons can draw upon long experience and deep =
knowledge of the oil industry. He does not dispute the main criticism of =
the "peak oil" theory: that improvements in technology, spurred by high =
prices, will eventually allow new fields to be found, more oil to be =
recovered from existing fields and artificial oil to be conjured from =
substances such as tar sands, coal and shale. But he thinks such =
advances will take longer to appear and have less of an impact than his =
detractors assume.
As it is, he points out, all the world's drilling rigs are working flat =
out, and old ones are being retired faster than new ones can be =
produced. The same is true of geologists and many more of the industry's =
essential inputs. This is slowing the development of new fields and =
pushing up the cost. By the same token, the technology being used to =
extract oil today has been in the works since the 1970s. It will take a =
long time for the next generation of clever kit to come into widespread =
use. Besides, many technological improvements seem to have simply =
speeded up the extraction of oil, rather than increasing the share of =
each reservoir that can be recovered.
Oil clocks out
In short, as Mr Simmons readily concedes, the debate between proponents =
and critics of "peak oil" boils down to an argument about timing. The =
optimists think that technology will advance quickly enough to offset =
declining production from mammoth fields such as those Mr Simmons =
studied in Saudi Arabia. But he and his disciples think the declines =
will come too soon, and be too sharp, for the world to adapt in time. =
The whole row could easily be solved, he says, if Saudi Arabia would =
only allow independent auditors to assess its reserves.
In the meantime, Mr Simmons is taking no chances. He plans to start up a =
farm near his house in Maine, in case the supply chain that provides =
America with food breaks down for lack of fuel. He plans to fertilise =
his fields with manure, rather than chemicals derived from oil and =
natural gas. He thinks globalisation must stop, and that as much trade =
as possible should be conducted by boat, to conserve whatever oil =
remains.
But Mr Simmons has not despaired. He holds out great hope for wave =
energy, and believes that at least one of the many different species of =
seaweed found along Maine's coast will yield oil that can be turned into =
biofuel. He has got Simmons & Company involved in alternative energy. It =
is a brave choice for someone who is so pessimistic about technology.
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<P class=3DMsoNormal>From <I>The Economist</I>. See <A=20
href=3D"">http://www.economist.com/people/displaystory.cfm?story_id=3D117=
02995</A>.<?xml:namespace=20
prefix =3D o ns =3D "urn:schemas-microsoft-com:office:office" =
/><o:p></o:p></P>
<P class=3DMsoNormal><o:p> </o:p><B><SPAN=20
style=3D"FONT-SIZE: 12pt; COLOR: #cc0033; FONT-FAMILY: =
'Verdana','sans-serif'">Face=20
value</SPAN></B><SPAN=20
style=3D"FONT-SIZE: 12pt; COLOR: black; FONT-FAMILY: 'Times New =
Roman','serif'">=20
<BR><BR></SPAN><B><SPAN=20
style=3D"FONT-SIZE: 18pt; COLOR: black; FONT-FAMILY: =
'Verdana','sans-serif'">The=20
only way is down</SPAN></B><B><SPAN=20
style=3D"FONT-SIZE: 12pt; COLOR: black; FONT-FAMILY: =
'Verdana','sans-serif'">=20
</SPAN></B><SPAN=20
style=3D"FONT-SIZE: 12pt; COLOR: #999999; FONT-FAMILY: =
'Verdana','sans-serif'"><o:p></o:p></SPAN></P>
<P class=3DMsoNormal><SPAN=20
style=3D"FONT-SIZE: 12pt; COLOR: #999999; FONT-FAMILY: =
'Verdana','sans-serif'">Jul=20
10th 2008 <BR>From The Economist print edition<o:p></o:p></SPAN></P>
<P class=3DMsoNormal><SPAN=20
style=3D"FONT-SIZE: 12pt; COLOR: black; FONT-FAMILY: 'Times New =
Roman','serif'"><BR></SPAN><B><SPAN=20
style=3D"FONT-SIZE: 12pt; COLOR: black; FONT-FAMILY: =
'Verdana','sans-serif'">The=20
high priest of =93peak oil=94 thinks world oil output can now only=20
decline</SPAN></B><SPAN=20
style=3D"FONT-SIZE: 12pt; COLOR: black; FONT-FAMILY: 'Times New =
Roman','serif'"><o:p></o:p></SPAN></P>
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Ring</SPAN><SPAN=20
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<P class=3DMsoNormal=20
style=3D"mso-margin-top-alt: auto; mso-margin-bottom-alt: auto"><SPAN=20
style=3D"FONT-SIZE: 12pt; COLOR: black; FONT-FAMILY: =
'Verdana','sans-serif'">FOR a=20
man who believes that the world as we know it is coming to an end, as =
least as=20
far as energy is concerned, Matthew Simmons is remarkably cheerful. He=20
magnanimously excuses <I>The Economist</I>=92s poor record of predicting =
the price=20
of oil: our suggestion in 1999 that oil would remain dirt cheap was =
conventional=20
wisdom at the time, he says soothingly. He also shrugs off our more =
recent=20
scepticism about his belief that the world=92s production of oil has =
peaked: he,=20
too, hopes that =93peak oil=94 proves to be a myth, he says. But over a =
40-year=20
career in investment banking, Mr Simmons adds, he has learnt never to =
rely on=20
wishful thinking. Most of the world=92s oil analysts, he believes, are =
far too=20
optimistic about how long existing fields will last, the prospects for =
new=20
discoveries, technology=92s ability to unlock new sources and to extend =
the life=20
of existing ones, and so on. He prefers to rely on data rather than =
daydreams.=20
And according to the American government=92s own numbers, the world=92s =
oil output=20
has been more-or-less flat since 2005.</SPAN><SPAN=20
style=3D"FONT-SIZE: 12pt; COLOR: black; FONT-FAMILY: 'Times New =
Roman','serif'"><o:p></o:p></SPAN></P>
<P class=3DMsoNormal=20
style=3D"mso-margin-top-alt: auto; mso-margin-bottom-alt: auto"><SPAN=20
style=3D"FONT-SIZE: 12pt; COLOR: black; FONT-FAMILY: =
'Verdana','sans-serif'">It=20
was data that made Mr Simmons famous. He spent the summer of 2003 at his =
holiday=20
home in Maine, poring over technical studies describing the state of =
Saudi=20
Arabia=92s oilfields. Although the Saudi authorities do not release much =
evidence=20
to support their claims of vast oil reserves, engineers from Saudi =
Aramco, the=20
state-owned oil firm, do give talks at conferences and publish papers =
about=20
their experience of reservoir modelling and management. Based on these, =
Mr=20
Simmons concluded that Saudi Arabia=92s biggest fields were already past =
their=20
peaks, required ever more expensive technological fixes to prop up =
production=20
and would soon enter a period of inevitable and rapid =
decline.</SPAN><SPAN=20
style=3D"FONT-SIZE: 12pt; COLOR: black; FONT-FAMILY: 'Times New =
Roman','serif'"><o:p></o:p></SPAN></P>
<P class=3DMsoNormal=20
style=3D"mso-margin-top-alt: auto; mso-margin-bottom-alt: auto"><SPAN=20
style=3D"FONT-SIZE: 12pt; COLOR: black; FONT-FAMILY: =
'Verdana','sans-serif'">Saudi=20
grandees pooh-poohed Mr Simmons=92s 2005 book on the subject, =
=93Twilight in the=20
Desert: the Coming Saudi Oil Shock and the World Economy=94. But others =
held it up=20
as convincing proof of the notion that the world=92s oil production =
would soon=20
reach a pinnacle, never to be exceeded. Saudi Arabia, after all, is =
already the=20
world=92s biggest producer, and is expected to cater to most of the =
growth in=20
demand for oil over the next few years by expanding its output yet =
further. If,=20
instead, it pumps less, there is little hope that other countries could =
make up=20
the shortfall. In that scenario, as demand for oil continues to grow =
despite=20
dwindling supplies, and as the search for substitutes proves fruitless, =
economic=20
catastrophe ensues.</SPAN><SPAN=20
style=3D"FONT-SIZE: 12pt; COLOR: black; FONT-FAMILY: 'Times New =
Roman','serif'"><o:p></o:p></SPAN></P>
<P class=3DMsoNormal=20
style=3D"mso-margin-top-alt: auto; mso-margin-bottom-alt: auto"><SPAN=20
style=3D"FONT-SIZE: 12pt; COLOR: black; FONT-FAMILY: =
'Verdana','sans-serif'">Mr=20
Simmons helps to lend credence to this view in part because he is an old =
and=20
respected hand in the oil business. He first stumbled into it in 1969, =
thanks to=20
a chance encounter at a hotel in Palm Springs. He was two-thirds of the =
way=20
through a doctorate in economics and had planned to join his father=92s =
bank in=20
Utah when he finished. Instead, he ended up abandoning his studies to =
help raise=20
venture capital for a pioneering firm of divers working on =
California=92s offshore=20
oil-rigs.</SPAN><SPAN=20
style=3D"FONT-SIZE: 12pt; COLOR: black; FONT-FAMILY: 'Times New =
Roman','serif'"><o:p></o:p></SPAN></P>
<P class=3DMsoNormal=20
style=3D"mso-margin-top-alt: auto; mso-margin-bottom-alt: auto"><SPAN=20
style=3D"FONT-SIZE: 12pt; COLOR: black; FONT-FAMILY: =
'Verdana','sans-serif'">Simmons=20
& Company, the investment bank Mr Simmons went on to found (along =
with=20
Michael Huffington, an oilman and politician), helped to funnel money =
and=20
financial advice to the nascent =93oil services=94 industry, which =
performs tasks=20
such as seismic surveys and drilling wells on behalf of oil firms. =
Indeed, Mr=20
Simmons says it was his bank that coined the very phrase =93oil =
services=94. It has=20
handled over 500 merger-and-acquisition deals in the industry=9749 of =
them last=20
year alone.</SPAN><SPAN=20
style=3D"FONT-SIZE: 12pt; COLOR: black; FONT-FAMILY: 'Times New =
Roman','serif'"><o:p></o:p></SPAN></P>
<P class=3DMsoNormal=20
style=3D"mso-margin-top-alt: auto; mso-margin-bottom-alt: auto"><SPAN=20
style=3D"FONT-SIZE: 12pt; COLOR: black; FONT-FAMILY: =
'Verdana','sans-serif'">All=20
this means that Mr Simmons can draw upon long experience and deep =
knowledge of=20
the oil industry. He does not dispute the main criticism of the =93peak =
oil=94=20
theory: that improvements in technology, spurred by high prices, will =
eventually=20
allow new fields to be found, more oil to be recovered from existing =
fields and=20
artificial oil to be conjured from substances such as tar sands, coal =
and shale.=20
But he thinks such advances will take longer to appear and have less of =
an=20
impact than his detractors assume.</SPAN><SPAN=20
style=3D"FONT-SIZE: 12pt; COLOR: black; FONT-FAMILY: 'Times New =
Roman','serif'"><o:p></o:p></SPAN></P>
<P class=3DMsoNormal=20
style=3D"mso-margin-top-alt: auto; mso-margin-bottom-alt: auto"><SPAN=20
style=3D"FONT-SIZE: 12pt; COLOR: black; FONT-FAMILY: =
'Verdana','sans-serif'">As it=20
is, he points out, all the world=92s drilling rigs are working flat out, =
and old=20
ones are being retired faster than new ones can be produced. The same is =
true of=20
geologists and many more of the industry=92s essential inputs. This is =
slowing the=20
development of new fields and pushing up the cost. By the same token, =
the=20
technology being used to extract oil today has been in the works since =
the=20
1970s. It will take a long time for the next generation of clever kit to =
come=20
into widespread use. Besides, many technological improvements seem to =
have=20
simply speeded up the extraction of oil, rather than increasing the =
share of=20
each reservoir that can be recovered.</SPAN><SPAN=20
style=3D"FONT-SIZE: 12pt; COLOR: black; FONT-FAMILY: 'Times New =
Roman','serif'"><o:p></o:p></SPAN></P>
<P class=3DMsoNormal><A name=3Doil_clocks_out><B><SPAN=20
style=3D"FONT-SIZE: 12pt; COLOR: black; FONT-FAMILY: =
'Verdana','sans-serif'">Oil=20
clocks out</SPAN></B></A><SPAN=20
style=3D"FONT-SIZE: 12pt; COLOR: black; FONT-FAMILY: 'Times New =
Roman','serif'"><o:p></o:p></SPAN></P>
<P class=3DMsoNormal=20
style=3D"mso-margin-top-alt: auto; mso-margin-bottom-alt: auto"><SPAN=20
style=3D"FONT-SIZE: 12pt; COLOR: black; FONT-FAMILY: =
'Verdana','sans-serif'">In=20
short, as Mr Simmons readily concedes, the debate between proponents and =
critics=20
of =93peak oil=94 boils down to an argument about timing. The optimists =
think that=20
technology will advance quickly enough to offset declining production =
from=20
mammoth fields such as those Mr Simmons studied in Saudi Arabia. But he =
and his=20
disciples think the declines will come too soon, and be too sharp, for =
the world=20
to adapt in time. The whole row could easily be solved, he says, if =
Saudi Arabia=20
would only allow independent auditors to assess its =
reserves.</SPAN><SPAN=20
style=3D"FONT-SIZE: 12pt; COLOR: black; FONT-FAMILY: 'Times New =
Roman','serif'"><o:p></o:p></SPAN></P>
<P class=3DMsoNormal=20
style=3D"mso-margin-top-alt: auto; mso-margin-bottom-alt: auto"><SPAN=20
style=3D"FONT-SIZE: 12pt; COLOR: black; FONT-FAMILY: =
'Verdana','sans-serif'">In=20
the meantime, Mr Simmons is taking no chances. He plans to start up a =
farm near=20
his house in Maine, in case the supply chain that provides America with =
food=20
breaks down for lack of fuel. He plans to fertilise his fields with =
manure,=20
rather than chemicals derived from oil and natural gas. He thinks =
globalisation=20
must stop, and that as much trade as possible should be conducted by =
boat, to=20
conserve whatever oil remains.</SPAN><SPAN=20
style=3D"FONT-SIZE: 12pt; COLOR: black; FONT-FAMILY: 'Times New =
Roman','serif'"><o:p></o:p></SPAN></P>
<P class=3DMsoNormal=20
style=3D"mso-margin-top-alt: auto; mso-margin-bottom-alt: auto"><SPAN=20
style=3D"FONT-SIZE: 12pt; COLOR: black; FONT-FAMILY: =
'Verdana','sans-serif'">But=20
Mr Simmons has not despaired. He holds out great hope for wave energy, =
and=20
believes that at least one of the many different species of seaweed =
found along=20
Maine=92s coast will yield oil that can be turned into biofuel. He has =
got Simmons=20
& Company involved in alternative energy. It is a brave choice for =
someone=20
who is so pessimistic about technology.</SPAN></P></FONT></DIV>
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