Crude Cassandra

As the price of petroleum plunges, the prince of Peak Oil finds himself a contrarian again.

Matthew Simmons has given 30-plus speeches in the past year, to audiences as diverse as the Pentagon and the Colorado School of Mines. One talk was tortuously titled: “Quo Vadis Energy? (Will Dawn Follow Darkness as Twilight of Energy Fades?)” Short answer: No. Simmons’ message is always some variation on the global implications of Peak Oil–that point after which global crude supplies wane, prices soar and shortages spur geopolitical strife.

The Ukraine-Russia gas tiff is a first taste of the transnational energy disputes to come. Simmons believes Moscow’s saber rattling is political cover for a more serious problem: a shortage of gas in Gazprom’s pipeline system. “This is really serious stuff. We’ve had a peak in Russian gas. Next year Europe is toast. Cold toast.” Could he be right? Chief Executive Alexei Miller stated last July that Gazprom’s output had flattened out below 2006 production levels. Russia is already importing gas from the central Asian “Stans” and exporting it to Europe.


Peak Oil zealots eat this stuff up. As crude climbed to $147 a barrel last year, Simmons won lots of converts. But prices have since fallen 75%; OPEC has slashed output; oil companies are laying off workers and mothballing drilling rigs at a rate not seen in a decade. The market signals oodles of oil. Can’t we put Peak Oil to rest?

No way, says Simmons. In the library of Simmons & Co., the Houston investment bank he founded 40 years ago, he insists we’ve already passed Peak Oil–but the world won’t realize it until economic recovery stimulates oil thirst anew. When that comes, gird for shortages and $500 a barrel. “There’s no logical reason for the price to be this low. If it doesn’t reverse itself soon, it will destroy the industry,” he says. If Simmons ruled the world, he’d order an oil price floor of at least $150 a barrel to stimulate exploration and to combat rust, which he says is the biggest threat to the oil supply. He figures it could cost $100 trillion to replace aged pipelines, rigs and platforms. That’s quite a sum–70 years of oil industry revenues, at present rates.

Forbes