Matt Simmons gave a great, succinct interview on the Bloomberg Report about Peak Oil a couple weeks ago. It has been linked to in previous posts on TOD as well.
I showed the interview to my English conversation class and typed up a transcript for it. Here is the transcript for anyone who might want it:
Anchor woman: Matthew Simmons is chairman of Simmons & Company International; and he says we’ve hit Peak Oil, globally. He joins me tonight from Houston, Texas. Good to have you on the program.
Matthew Simmons: Thank you. Nice to be here.
AW: Tell me how you draw your conclusion that at this point we’ve hit peak oil.
MS: Well, if you follow the numbers and you look at what’s going on with Mexico’s giant Cantarell field, which is now in a very serious state of decline, and then you look at the North Sea and you see just the UK and Norway, it’s pretty obvious to me that those three areas alone could actually decline by 800,000 and a million barrels a day in 2007. That pretty well wipes out almost all the production gains coming on stream, and implicit in that [is that] it assumes everyone else is flat. So, I think basically too many of our oil fields are too old. They’re now...too many are now in decline. The Middle East is basically out of capacity. There’s some projects that are being worked on, but most don’t, kind of, hit the market until 2008 [or] 2009 and we’re running out of time.
AW: Matthew, from what you’re saying there as far as what your research has found, where do you think oil prices should actually be trading?
MS: Well, I think oil prices are unbelievably inexpensive today. And the faster we get a grasp, as a system, on the fact that we’re still giving oil away, and..and, if the declines start to basically set in while demand is almost insatiable, oil prices are going way higher. And, I don’t know what that even means, other than the fact that I do know that 65 dollars a barrel is 10 cents a cup. And it was interesting, I was in China three weeks ago and basically, that’s just less than a yuan - for a cup. There’s nothing in China that sells [oil] anywhere for less than a dollar a cup other than what crude oil is sold to refineries [for].
AW: So way above 65 dollars [per barrel]?
MS: Oh, yeah. Yeah. You know, there are a lot of countries around the world that in their finished products, are charging consumers effectively close to 300 dollars a barrel. And they still use it.
AW: Could that ever happen here?
MS: Sure it could.
AW: Three hundred dollars a barrel?
MS: I don’t know when. But..but...it’s still... I think the most important thing to realize is that if demand is accelerating - and there seems to be nothing on the horizon to slow down global oil demand - and supply can’t [increase], then prices don’t, sort of, stabilize at 10 cents a cup.
AW: Alright, so, you’ve outlined a pretty grave problem here as far as supplies go. Three hundred dollars a barrel oil: How do you fix that?
MS: Well first of all I think we need to address as many supply fixes as we can to stabilize supply. I don’t think we will ever basically be able to continue to create any significant growth in supply. And we have to start addressing the intensity of how we use energy; and particularly transportation since that’s 70 percent of the oil barrel. And, you know, I, the a...It was interesting being in China speaking on the need to end globalization as we need it today. That was sort of a popular topic. Uh, we need to liberate the workforce and let people work when they want and where they want and payback productivity. So I see a number of very large changes coming, and if we make the changes right [then] we’ll get through this just fine. If we don’t, it could really be a problem.
AW: Do you think we took the right first step in what President Bush proposed in his State of the Union [speech]?
MS: Well, I think the most important thing began a year ago when President Bush made his famous, “America needs to end it’s addiction to oil” [speech]. What we’re grasping with now is some realistic targets of how to get that job done. And unfortunately, we’re... and I think President Bush, when I’ve heard him speaking several times on the media, has said, “These are very ambitious targets.” I think they’re probably almost unachievable targets. But I think that’s the only thing we know how to do right now. And I think, soon, as it becomes more and more evident that supply is stabilizing or headed down, then we’re going to have to do some more drastic things of focusing on how we use oil.
AW: Such as?
MS: Well, like I say, liberate the workforce. That’ll eliminate... Payback productivity will eliminate long distance commuting almost entirely. Uh, Start making goods at home. We ship too many things too far. And if you just go through... You have to sort of start from the ground root. [Ask,] How did we get to 85 million barrels a day of consumption, and what would we do if the supply went to 70, while we thought it was going to 100? So that’s the magnitude of the issue we’re talking about. And it’s very serious. And not a lot of attention’s been spent on it. And I’m firmly of the belief that over the course of the next year or two, this issue of peak oil will probably replace global warming as what we’re almost [always] worried about and debating and talking about.
AW: Where potentially might we find oil where we haven’t yet, if anywhere?
MS: Well, there’s the entire outer continental shelf of North America that’s basically barely been drilled, [or] explored, other than [also,] the central and western part of the Gulf of Mexico, the Bay of Campichi, Santa Barbara Channel and Cook Inlet. We might start looking there.
AW: But you’re not optimistic?
MS: Well, I think we’ve almost run out of time. We’re out of drilling rigs. The current off-shore drilling fleet of 600 rigs is on average 25 years old this year. That’s when we used to retire rigs and junk ‘em, and now the whole fleet - 80 percent of the drilling fleet is basically in the 24 - 27 year old age group. So, we’re going to have to work very hard to keep the industry at its current size. We kind of let the industry rust away.
AW: We’ve got to end it there. Matthew Simmons, I wish we had four hours because it’s been a great discussion. Thanks for joining us.
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