Oil’s Cassandra dies but his questions live on

August 9, 2010
oil

Peak Oil has lost its leading prophet with the death of Houston banker Matt Simmons. Since many nations refuse to share detailed oil data it may be years before his warnings of ebbing production are vindicated — or discredited. But his crusade for more information on supplies is as urgent as ever.

The founder of Simmons & Co added plenty of gravitas to the “peak oil” movement — which contains more than its share of wing-nuts. His 2005 book “Twilight in the Desert” took on the biggest oil producer of all, Saudi Arabia. Drawing on 200 technical papers, he concluded that the kingdom’s largest oil field Ghawar would soon top out. As a result, oil’s friendly giant would soon start to struggle to keep pace with rising oil demand.

Unlike the founding father of the peak oil theory, M. King Hubbert, Simmons was a financier and not a geologist. Thus his scientific grasp was sometimes questioned. Aramco’s former head of reservoir management, Nansen Saleri, quipped that he could read 200 studies on neurology and nobody would want him to perform brain surgery.

Recent developments have cast doubt on the notion that geology will be the key immediate problem. Advances in deep sea drilling have brought huge reservoirs within reach off the coasts of West Africa, Brazil and the Gulf of Mexico. As prices have risen, Canada’s trove of oil sands becomes economical to extract. And, politics permitting, huge reserves of cheap oil may be drilled in Iraq.

This does not invalidate Simmons’ arguments. With the fate of the global economy hinging on a reliable energy supply, it is dangerous to blindly trust big oil producers’ own estimates of their reserves. Any transition away from oil, after all, would need to be planned for decades in advance. In that respect Simmons’ quest for more information should not die with him.

Comments

There is peak oil now – it should be obvious from a price stand point. Five years ago oil was below $20/bbl despite war in the region; now it’s fairly steady between $70-80 as the war draws to an end. The USD has fallen maybe 20% against the ‘intl basket’ in that time, so that is still a tripling in price even as supply has been increasing.

I think the main factor is demand rose far too quickly with China’s economic experiments turning out to be powerful growth engines. Even as the world fell into this terrible recession demand didn’t shrink, and supply still can’t keep up. This recession won’t last forever – on the other side of it you can bet your bottom dollar that oil prices will rise again rapidly – not quite like 07 but not far behind either.

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Also wanted to add that the CDN Oil Sands, even under the most optimized scenario, can only produce maybe 5mboe/d… a deepwater ban in the Gulf of Mexico would kill thrice that production. The oil sands are no answer to anything – but if China and America want to spend their money here to develop it, I won’t stop em. We don’t say no to jobs here! and we’ll make sure it stays (or at least gets progressively more) clean.

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