Oil peak theorist [Simmons] warns of chaos, war

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.

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.

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