The Gospel According to Matthew
For more than twenty years, an extremely successful Houston investment banker has been trying to convince the world that the end (of oil) is nigh. Now that people are finally starting to listen, is it too late?
by Mimi Swartz
The Coronado Club, in downtown Houston, is an unlikely place to contemplate the end of life as we know it. Plush and hushed, with solemn black waiters in crisp black jackets, the private enclave practically exudes wealth and stability. Captains of local industry enter and exit purposefully, commanding their usual tables, wearing the best suits. Everybody knows everybody else. The light is flattering. The wine room is nicely stocked.
But here is Matthew R. Simmons, the head of one of the largest investment banking firms in the world, stabbing at his salad greens and heatedly discussing the chaos to come when, as he has long predicted, global oil production peaks and for the rest of our time on earth we struggle and suffer and barely endure under a diminishing supply of fuel until it disappears entirely. This idea is known as “peak oil,” and Simmons is its most fervent, and fearsome, apostle. As he puts it, “I don’t see why people are so worried about global warming destroying the planet—peak oil will take care of that.”
Slashing through his entrée, barely stopping for breath, he describes a bleak future, in which demand for oil will always surpass supply, the price will continue to rise—“so fast your head will spin”—and all sorts of problems in our carbon-dependent world will ensue. As fuel shortfalls complicate global delivery routes and leave farmers unable to run their tractors, we will face massive food shortages. Products made with petroleum, from asphalt and plastic to fabrics and computer chips, will also become scarcer and scarcer. Standards of living will fall, and people will not be able to pay their debts. Lending will tighten, and eventually there will be major defaults. Growth will cease, and hoarding will set in as oil becomes increasingly rare. Then, according to Simmons, the wars will begin. That is the peak oil scenario.
Simmons is an unlikely Cassandra in this, the energy capital of the world. He is a consummate insider—a friend of Mayor Bill White’s and of innumerable nabobs in the local as well as global energy business, a graduate with distinction from Harvard Business School, a Republican who advised presidential candidate George W. Bush on energy policy, and an extremely wealthy man. In 2006 his investment firm, Simmons and Company International, closed 35 transactions worth $8.7 billion and co-managed 19 offerings worth $6.7 billion. He lives with his wife, Ellen, in one of the city’s most exclusive neighborhoods and also owns a vacation house in Maine.
Yet at 64, Simmons opts to spend his days traveling the globe at his own expense, speaking at universities and business forums and to tiny alumni groups and just about anyone else, trying to convince an uninformed, uninterested populace that the end is very, very near. Like a lot of prophets, he has little patience for those who disagree with his message. He is an intense man, smallish and ruddy-complexioned, with a high, wide forehead and marble-blue eyes. Old ways of thinking—that the market will correct for skyrocketing prices, that the Saudis will always provide—drive him buggy. “Price has no impact on slowing demand,” he insists, as an anxious waiter hovers. “We’ve seen a stealth growth of eighteen million barrels a day, while the demand between the end of 1995 and last week went up tenfold.” What about when everyone said that Saudi Arabia was hiding vast reserves, ready to flood the world market and cause a price collapse? “That was the dumbest thing I ever heard,” he snaps. “What giant new oil finds have they reported in the last decade or so?”
Hardly anything escapes Simmons’s ire. He has no respect for those who, in his estimation, have not done their homework as diligently as he has. Daniel Yergin, one of the world’s foremost authorities on oil? “A silly person,” Simmons says. Ethanol? “A tragic scam.” Big Oil? “A brain-dead industry.” Pushing aside his plate, Simmons gives the top oil companies grades of D+, D-, D, and F, declaring, “The head of Exxon is a flake.”
“People used to talk about how tech had changed the name of the game in oil field development,” he reminisces, barely able to conceal his disgust with earlier industry predictions. “They said costs would come down. I thought it was BS. Tech sped up the decline curves.” He shoots his left arm nearly straight up, his palm stiff, like a rocket on takeoff. Then, hardly pausing to chew his food, he continues: “I spent two decades convincing myself that most conventional oil myths weren’t true. People thought I was nuts. They called me Matt the Alarmist.” Now he believes—“knows” might be a better word—that his conclusions spell doom for the American way of life unless people heed his warnings.
“The best we can hope for is a ten-year plateau,” Simmons says, skipping coffee. “This controversy is the single biggest risk for the twenty-first century.”
So can anything be done?
He looks sharply at me, the Coronado Club’s soft light reflected in his glasses, and shrugs, suddenly out of gas himself. “I’m a lot more concerned than I was three years ago,” he says.
the term “peak oil” was coined by M. King Hubbert, a geophysicist with Shell in the forties and fifties. At the time, the United States was the largest producer of oil in the world. But in 1956 Hubbert predicted that American oil dominance would peak fourteen years into the future. Though he was considered a serious crank by some contemporaries, just about everyone now knows that Hubbert was right. American crude production has been in decline since 1970, resulting in our current reliance on—some might say addiction to—foreign oil.
Hubbert’s model proposed that production of resources with a finite supply could be expected to follow a more or less symmetrical bell curve, meaning that the rate of decline once the peak was reached would be the same as the rate of increase had been. In other words, if worldwide oil production peaked in 2000, as Hubbert predicted it would, the rate of production in 2010 would match the rate in 1990. While Hubbert was wrong about his second prediction, many peak oil theorists believe he wasn’t wrong by much—that, in fact, peak oil was reached in 2005. Others put the date further into the future. The most optimistic peak oil supporters estimate that production will begin to decline after 2037.
Meanwhile, the peak oil debate has become one of the most fractious of our time, with Simmons and other advocates squaring off against their critics, not just over the timing of this supposed disaster but indeed over whether it will happen at all. Analysts like Yergin, who runs Cambridge Energy Research Associates (CERA), contend that we are decades away from a peak, that there is plenty of oil left in the ground, and that new technologies will soon come online to help extract it more efficiently. This view, known as “nondramatic peak oil,” has a number of proponents, including the U.S. Geological Survey.
Other critics dispute Hubbert’s premise itself, arguing that oil production may never peak (this idea has been dubbed “cornucopian” by peak oil followers). There’s even a radical idea, known as the Abiogenic Theory, that holds that most petroleum comes not from dinosaur fossils but from naturally occurring carbon deposits, possibly dating to the formation of the earth, which are being regenerated as we speak. All attempts to understand production are vexed by the fact that oil reserves are always subject to debate. Just as it can be difficult to determine the status of a weapons program halfway around the world, it’s never easy to verify a country’s claims about how much oil it has.
In fact, Simmons and many others believe that Saudi Arabia, the largest supplier of oil to the U.S., has been fudging its production numbers for quite some time. In 1989 the famously secretive country claimed to have 170 billion barrels of oil in reserve. In 1990 the number had risen to 257 billion, despite the fact that no substantial fields had been discovered in Saudi Arabia since the Ghawar Oil Field, in the forties. Furthermore, oil in a new field gushes easily from the ground, and the complex technology now required to coax the oil from Ghawar and other large Saudi fields suggests that they are in deep decline.
Simmons believes that the worldwide peak was reached in 2005. He estimates the rate of decline for all oil production at somewhere north of 5 percent a year. At the same time, the global need for oil is expanding exponentially, particularly as China and India claim their places on the world stage. In India energy needs are expected to grow 72 percent by 2025; China’s are expected to roughly double during the same time frame. In seventeen years the world’s demand for oil may well be more than 50 percent greater than it is today, while production capacity may well sink to 1985 levels.
Most of the globe remains oblivious to this impending crisis, but the number of people who have come to see its logic is growing. The once-skeptical Energy Information Administration, a U.S. government bureau that keeps tabs on oil production, is slowly buying the argument, as is Sadad Al-Husseini, the former executive vice president of exploration and producing for Saudi Aramco. Simmons spends much of his day strategizing via BlackBerry with other peak oil believers, like Colin Campbell, the famed geologist; David Rutledge, a Caltech electrical engineering professor and wireless-communications expert; Robert L. Hirsch, a senior energy program adviser at the government-friendly Science Applications International Corporation; Maryland congressman Roscoe Bartlett; Randy Udall, the son of former Arizona congressman Mo Udall; and yes, T. Boone Pickens.
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