Matt Simmons Answers Tough Questions About Peak Oil
By David J. DesLauriers
21 Aug 2005 at 05:10 PM EDT
TORONTO (ResourceInvestor.com) -- By now everyone, especially those who follow the resource sector, have heard the Peak Oil story. Matt Simmons deserves a lot of credit for the publicity he has generated on this subject, and his book Twilight in the Desert provides a detailed and fascinating account of the situation and how it may unfold.
Peak Oil
Peak Oil is a topic that has been covered extensively by Resource Investor. Tim Wood interviewed Matt Simmons in a popular story a couple of months ago, and the outlook of various other industry figures has been aired in these pages.
Pullback
Recently, RI highlighted the fact that after a more than 80% upward move in the past 12 months, the TSX Energy Index is beginning to pull back, possibly foreshadowing a correction (probably temporary) in the price of black gold. Despite the decline, awareness of the issue and investor enthusiasm towards the sector is robust, and everyone remains in agreement that the problem is not going away.
Naysaying the Alternatives
Indeed, believers in the Peak Oil thesis - and their ranks are swelling - have dismissed ideas about how hydrogen and other such sources of alternative energy like biofuels can offset the impact of Hubbard’s Peak. There has also been very little enthusiasm or hope for massive international projects like ITER, the International Thermonuclear Experimental Reactor.
Question Period
Simmons, like it or not, has a legion of doomsaying followers, and recently the Washington Post hosted an interesting and informative online forum which allowed readers to put questions to this well-recognized proponent of the thesis. RI has picked out a couple of the more interesting exchanges.
“Suwanee, Ga.: Some analysts think the world will reach its Hubbert's Peak in the next year. What is your opinion of when this will occur?”
“Matthew Simmons: The biggest worry I have as a result of doing the research on Saudi Arabia's oil is that there is a real risk that they have already exceeded sustainable peak oil production and the longer they produce at current rates the higher the risk that they could start into a production collapse. If that turns out to be true than the odds are 95% that the world has then exceeded sustained peak oil production. What the people that get into the peak oil debate often don't think about is that peak oil is not the maximum amount of oil you could produce in a single day, it's realistically the amount you could produce per day for at least a half decade. Therefore it could already be happening. And we'll never know that until we get better data.”
“Saint John, Canada: Given that there is a well understood technology for synthesizing other fossil fuels into oil (mostly coal) do you believe it will be possible to offset the production declines from conventional oil wells by increased coal liquefaction? How environmentally destructive is that process?”
“Matthew Simmons: I don't understand the environmental impact of coal gasification. Almost every single aspect of using unconventional oil, whether it's coal or Canadian tar sands or oil shales are all incredibly energy intensive, so they use a lot of energy to convert them into usable energy, and they don't come out of the ground at high amounts. So it becomes a daunting task to begin offsetting oil coming out of a highly pressurized oil field, which can come out at a rate of 5-10,000 barrels per day per well with unconventional oil sources, which are energy intensive and come out in small amounts.”
“Detroit, Mich.: In the short run, which country do you expect can best make up any shortfall of oil production by Saudi Arabia?”
“Matthew Simmons: If things really went well, Libya. Libya's new opening up could potentially add 2-3 million barrels a day, but it would take at least 5-10 years for that to happen. Algeria could add possibly a million barrels, with everything going right. Some think the UAE could maybe add 500,000 barrels a day, some say Kuwait could add 500,000. But these are all best case scenario estimates and they all assume that the current production bases in each of these countries stays flat.”
“Boston, Mass.: If Saudi oil production is in decline, won't that make the competition for the remaining world oil supplies between China and the U.S., in particular, and China/India and U.S./Europe, in general, all the more intense?”
“Matthew Simmons: Absolutely, which is why we need a global economic cooperative framework for how we allocate oil use and in this framework we need to give India and China, for instance, an incremental use of another 50% more oil while we go on a diet to have any sense of equality. If we don't do this than we will basically end up playing musical chairs, and musical chairs can get violent very fast.”
Conclusion
The crux of the argument seems to lie in Simmons’ response to the question from Saint John’s Newfoundland, Canada. All of the new production that can be brought on from alternative energy sources like the tar sands require large amounts of existing energy for extraction and processing.
In this sense, despite a growing belief that Alberta’s oil sands could host larger reserves than those of Saudia Arabia, it is sort of a pyrrhic victory to bring on production from Fort McMurray fueled by endless gas reserves, which will probably eventually come from the north once the politicians and interest groups can be satisfied that they all have a slice.
As a contrarian it becomes difficult to believe that oil prices will remain at these prices or go very much higher for the time being. Don Coxe’s rule of Pg. 16 - that you never make or lose serious money on a front-page story is sure to come into effect sooner than later.
It seems, however, that we would need something major to bring down the price - either an outbreak of the Avian flu, or a worldwide recession would do the trick for instance. The potential for an Avian flu pandemic was the subject of a report last week by BMO Nesbitt Burns, and was reported on by RI. Reasons for a worldwide slowdown or recession of course are plentiful and numerous.
Both of those situations require a watching brief, but in the meantime the Peak Oil constituency is not going away and for good reason. |
