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Politics : Rat's Nest - Chronicles of Collapse -- Ignore unavailable to you. Want to Upgrade?

To: Wharf Rat who wrote (7318)	3/30/2008 5:44:22 AM
From: Wharf Rat	Respond to of 24225

'Cheap $100 oil' not to curb demand By Shakir Husain, Staff Reporter Published: March 28, 2008, 00:22 Dubai: While the world frets over rising oil prices, Matthew Simmons, chairman of Simmons and Company International, a US-based investment banking firm, says oil at $100-plus per barrel is "cheap." The gap between world oil production and demand will keep growing and America's dependence on Middle East oil will continue, he told Gulf News. He is the author of the book Twilight in the Desert: The Coming Saudi Oil Shock and the World Economy. Simmons argues in the book that production at giant Saudi oilfields is fast depleting and the world should be prepared for a sharp supply decline. Simmons was raised in the US state of Utah, and holds an MBA from Harvard Business School. Simmons is married and has five daughters. His company is setting up a base in Dubai to provide investment banking and equities trading services in the Middle East. -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- Gulf News: What do you make of the high oil prices? Matthew Simmons: What do you mean high oil prices? Oil is cheap. Oil is 15 cents a cup, does that strike you as high? When you take a barrel and divide it by 42 you get an American gallon, you divide that by 16 and you get a cup. Most of the liquid things that we as consumers buy, we buy by the cup, so oil is cheap. If oil at $100-plus a barrel is cheap, when do you think it will become expensive? Economists keep saying that when oil is $100 a barrel, people will stop using oil. Open your eyes. There is no substitute for oil. Ninety-eight per cent of transportation energy in the world comes from black oil. In the US, we have about 850 vehicles per 1,000 people. And the average vehicle travels about 12,500 miles a year, which is halfway around the world. In China, last year they bought more vehicles than Japanese did. But China has just 18 vehicles per 1,000 people. In India, it is seven vehicles per thousand people. So demand for oil is still young and supply is old. It is too bad that oil is peaking. A very large supply of our oil comes from a relatively small number of giant fields that are now too old. Could oil reach $200 per barrel? The price of crude is going to go up. Some countries are already selling finished products at a high price. In London in October last year, they were paying $9 per gallon for petrol. That is $378 per barrel and people there were not mad about it. The problem is that we only have so much oil. You can get mad and say we want another North Sea. To urge oil producers to get rid of decline rates is like saying to your parents not to get old. What role do you think Gulf producers will play in the future supply-demand scenario? They will remain dominant oil producers for a long period of time. The question is: Realistically, do any of the Gulf producers have the ability to increase their production by even 35 per cent and maintain it for a decade? The fields in Kuwait are frightfully old. They have not been badly-managed, it is just that they have produced for too long. They are embracing tertiary recovery projects, steam floods water flood, gas injection. The remaining oil that they have is tough to get out. Iraq has three great fields and two lesser fields. They have never really done any exploration in the deserts of Iraq. If I were asked to be an investor, I would say look at the pitiful success of 75 years of exploration in Syria, Jordan and the entire Arabian Peninsula, outside of the Eastern Province [of Saudi Arabia]. In the first quarter of 2008, we are consuming about 88 million barrels per day. Some of that is coming from inventory liquidation. The worldwide crude production now is struggling to stay above 73 million barrels per day. At an all-time peak in May 2005, we had a record of 74.3 million barrels per day. We have yet to get back to that. There are too many major regions of the world that are in steep decline. Look at the North Sea: By 1999, you had the UK and Norway collectively hit 6.1 million barrels per day. The UK now struggles to produce 1.1 million barrels, Norway struggles to produce 2.2 million barrels. It is an example of what the same aggressive use of technology [to enhance oil recovery] and artificial injections to keep reservoir pressure high do. US politicians keep talking about reducing dependence on Middle Eastern oil. To what extent that is achievable? It cannot be done. What they are really talking about is ending our addiction to oil, not Middle Eastern oil per se. It is really done by this maniac sort of worry about global warming and the need to reduce the carbon footprint of fossil fuels. Global warming might or might not be an issue. Even [former US vice president and Nobel Peace Prize winner] Al Gore, who is most pronounced on global warming, does not warn that New York City could be under water until 2100. Energy dependence We cannot be energy independent. The world is still going to use 70 million barrels per day. Even at $120, if you look at IEA's [International Energy Agency] models and if you look at what they have in China and India, on a per capita basis it is still way less than Mexico, which is the smallest per capita consumer of oil in the OECD. Let us assume that China and India go on a population freeze, even then the world is going to need another 45 million barrels per day. We will need seven more Saudi Arabias. The US has to figure out very fast a plan of starting to use less oil. What role do you see for countries like Russia playing in global oil supplies in the light of geopolitics? The high price of oil has re-created a strong Russia. A strong Russia is safer than a dying Russia. You are going to see [President Vladimir] Putin's team becoming a lot more hard-nosed about how much oil the system should be allowed to produce because they do not want to overproduce. That is why he was so furious about what the oligarchs were doing. They were creaming these oilfields and taking their money to London and buying football clubs. You are going to see more countries start to realise that lower oil production rates are safer. This is what Venezuela, Kuwait and Saudi Arabia should do. People say the US foreign policy in the Middle East is driven by oil. What is your view? I think we have always paid more attention to the Middle East by a long shot than we ever paid attention to Africa. Part of that is that we have such an unbelievably strong commitment to Israel. If Israel was somewhere else, it would change somewhat how we look at the Middle East. There is a lot of rhetoric that we are protectors of Middle Eastern oil. I think in reality there is not a lot that we can do to protect it. gulfnews.com