Oil peak theorist warns of chaos, war
SHAWN McCARTHY
From Tuesday's Globe and Mail
WASHINGTON — Matt Simmons sounds the alarm like the Cassandra of the
oil industry, warning that crude production has peaked and that
looming energy shortages could derail global growth and even spark
armed conflict.
As a prominent “peak oil” theorist, the veteran oil industry financier
paints a grim picture of a world facing resource scarcity. Still, it
doesn't take a “peak-ist” to conclude that the global oil producers
will find it increasingly difficult to keep up with growing demand.
He squared off yesterday against other experts who argue that the
world has yet to reach the physical limits of oil production. But
while they disagreed on the extent of the problem, the panelists at a
U.S. Department of Energy conference in Washington concurred that
future crude production will be constrained by physical, economic and
political factors that add up to tight markets and higher oil prices.
Despite oil prices that have topped $100 (U.S.) a barrel, there was
little sense at yesterday's conference, put on by the Department of
Energy's Energy Information Administration, that high prices would
spark either a boost in oil output or a sharp fall in global demand.
Record pump prices – and a sharply slowing economy – have cut into
U.S. demand, which represents 25 per cent of the world's total. But
analysts who follow the emerging economies said there is no sign yet
that triple-digit crude prices have seriously dented demand in China
or India.
Global demand for oil will continue to grow, analysts forecast, even
as the developed world reduces consumption in the face of high prices
and environmental concerns. Economic growth and rising living
standards in developing countries like China, India and the Middle
East will more than offset reduced energy consumption in the mature
economies of North America and Europe.
The views of Mr. Simmons, who runs Houston-based Simmons & Assoc.
investment bank, bordered on apocalyptic.
Oil shortages “could lead to social chaos and war,” he warned. “The
issue is the most serious risk to sustaining the 21st century. Peak
oil is real, and we have to take it seriously.” He argued that
production of conventional crude peaked in May, 2005, at 74 million
barrels a day.
Since then, the world has met rising consumption – now at about 88-
million barrels a day – by cutting inventories, tapping natural gas
liquids that typically are included in crude production figures and
using better refinery efficiencies.
Peter Jackson, a director at the Cambridge Energy Research Assoc.,
said Mr. Simmons was overstating decline rates of existing fields, was
not taking into account the prospect for new discoveries, and played
down the importance of unconventional resources such as Canada's oil
sands.
Still, he said the industry faced “above ground” problems that would
make it difficult to keep production growing fast enough to meet
rising demand. About 90 per cent of existing conventional reserves are
controlled by state-owned oil companies, many of which are not
investing enough in capacity expansion, he said.
At the same time, the industry worldwide has seen construction costs
explode, even as oil companies are forced to exploit smaller, more
remote and more geologically complex reserves. The average cost of
producing a barrel of oil has more than doubled in the past eight
years, with most of that increase occurring in the past four, he said.
James Schlesinger, who was the United States' first energy secretary
30 years ago during the oil shock of the late 1970s, warned of a new
crisis looming.
That 1970s shock was the result of supply disruptions caused by the
1973 Arab embargo and then the Iranian revolution. The current runup
in prices reflects a more fundamental disconnect between constrained
supplies and rising demand in the developing world, he said.
“At some point during the decade immediately ahead, we will hit a
plateau, and this will have a tremendous shock both economically and
politically,” Mr. Schlesinger said.
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