Peak Oil News: Matt Simmons' terrifying world of peak politics

Thursday, October 20, 2005

Matt Simmons' terrifying world of peak politics

canada.com

By Peter Foster

Celebrity energy doomster Matt Simmons was in Toronto this week peddling his theories on "peak oil," a bogus but fashionable issue that I addressed skeptically here two months ago. I was subsequently assailed by several outraged non-economists who accused me of both mental and moral shortcomings. I was accused of lack of concern for the environment and for our children's future, of being "in denial," of acting as a cardboard-brained huckster for the "mainstream media." I was told that I favoured a world in which there would be nothing to eat but "twenty dollar bills and bond yields." I was also informed that I had been unfair to Mr. Simmons. However, upon hearing him address his fellow Harvard alumni at the National Club on Tuesday, I now believe Mr. Simmons to be not merely misguided but downright dangerous.

Mr. Simmons is a Texas investment banker who is often described as an "energy advisor to George Bush." In fact, his views are closer --much closer -- to those of Al Gore.

Mr. Simmons' critique, expounded in his book Twilight in the Desert, centres on allegations that Saudi Arabia, the world's largest oil producer and reserve holder, is on the point of a potentially catastrophic production decline. Oil production more generally is "peaking," and this will lead to price increases unlike anything seen before. Mr. Simmons, who projects oil at US$200 a barrel by 2010, has admitted that he wrote the book to "scare people to death," and consistently uses alarmist language to justify his Jimmy-Carteresque call to put policy on a "war footing." For example, he describes Hurricane Katrina as America's "Energy 9/11." But if that is the case, one can only wonder at the astonishing success of the private sector's "counterattack." When I last wrote criticizing peak oil theory, gasoline in Toronto was $1.39 a litre. On Monday I bought it for 89.5 cents. If that doesn't speak to the efficiency of producers and refiners, and to the power of markets to solve problems without government "help," then what does?

Most authorities disagree with Mr. Simmons that the peak of global oil production is imminent. Indeed, the International Energy Agency last month issued a statement specifically refuting peak oil scares. But it's not primarily Mr. Simmons' "facts" and projections that are suspect, it's his solutions.

The argument against peak oil theory is not that oil is not finite in supply, or that production will not at some stage go into decline. It is that peaking oil means "the end of economics," or, even more ridiculously, "A New Dark Age," requiring draconian political action. Peak oil theory ultimately isn't about geology or economics at all, it's an example of neo-Malthusian ignorance. It's about a call for a great new wave of energy global governance.

Mr. Simmons doesn't like markets. He has declared that "If you leave it to the invisible hand of Adam Smith, that could actually end up creating a gigantic noose that strangles us."

But while oil may have unusual production characteristics, it is ultimately no different from other resources. Oil supply is inelastic in the short-to-medium term because it is simply uneconomic to develop large amounts of "spare" capacity. Saudi Arabia -- which is at the heart of Mr. Simmons' case -- has long been the only country with any potential for ramping up supply. This means that unexpected surges in demand will lead to corresponding spikes in price, which begins a corrective market process by restraining demand, inducing -- as long as market players believe the price will stay up, a critical proviso -- new exploration and technology, and promoting a search for "alternatives," whose economic threshold is brought closer. This is exactly what happened after the two OPEC "crises" of the 1970s. This year's price increases have much more to do with an unexpected surge in demand from developing nations and with geopolitical instability than with imminent resource limits.

Meanwhile, here's the central question: If not a market response to whatever geology and geopolitics may throw at us, then what?

There are only two possible solutions to the "resource problem." We can look to the great diversity of human knowledge and ingenuity informed by market prices and projections and induced by the prospect of profits, or we can look to a forced political response. The latter is Mr. Simmons preferred route, and his list of recommendations is positively terrifying. He wants to mandate the means by which goods are moved, to stop workers from commuting, to force people to eat local produce rather than bringing it round the world, and to stop globalization, which allegedly depends on "sweatshop labour." This is an agenda that would be recognized as radically "left" were it not coming from a Houston investment banker.

Indeed, when it comes to appreciation of free markets and free trade, Mr. Simmons makes CNN's Lou Dobbs -- leading scaremonger about offshoring and outsourcing --look like Milton Friedman.

How are Mr. Simmons' complex policy wonders to be engineered? Via a "world summit," doubtless organized under the auspices of the UN, and populated by the very same countries he claims are lying to us about reserves (including the United States).

Mr. Simmons -- like old Soviet planners -- seems to believe that good policy will automatically follow from comprehensive statistics, although he makes obeisance to "social democracy." Once "we" have all these figures, "there could be a public debate about what the price of oil should be." The mind boggles.

Mr. Simmons has described the market as a "500-pound wrecking ball." If he wants to see wreckage, he should take a look at the history of government energy policy, and indeed economic policy more generally. Mr. Simmons may -- or may not -- know his geology, but he should spend a lot more time studying economic history.


9 Comments:

At 2:41 PM, October 20, 2005, Anonymous Anonymous said...

Good post. It's good to see that online discussion of peak oil has taken a turn towards common sense/application of basic economics.

 
At 6:29 AM, October 21, 2005, Anonymous Anonymous said...

Foster's attitude, common among believers in the so called "free market" is precisely why the advent of peak oil will be the disaster that Simmons fears. Foster is more interested in attacking the messanger than addressing the argument.

 
At 8:41 PM, October 21, 2005, Anonymous Anonymous said...

Just once I would like to see someone like Foster actually do a little bit of research about real solutions rather than religious statements like "the market will provide." If the market will provide, when? How? What technology will they use? How quickly will it come online? How will it offset the 2% oil depletion and allow for continued growth? Is it realistic to ramp this up in the time available? These are serious issues, and the reason why Simmons sees no solution from the free market.

 
At 10:46 AM, October 22, 2005, Blogger John Murney said...

Foster's article is irresponsible, and will only delude people into believing everything is all right. I agree the coming crisis will only be made worse by trash written by the likes of Foster.

 
At 12:23 PM, October 22, 2005, Anonymous Anonymous said...

I think the market should have brought a solution to the problem about 20 years ago. The time to change is too late. There are millions of cars in the US alone, to assume that the market will magically come up with a way to provide cheap and quick alternatives to our current way of transport is ludicris. The only real solution is an easy to make domestically produced direct gas replacement that is cheap. Lets be realistic here, that will never happen. If it was possible I am sure the market gods would have brought it out to market years ago, and no, it is not biodiesel or ethanol. Both require alot of engergy to produce and in the US ethanol is only cheaper that gas because of government subsidizing.

The thinking that everyone should go out and buy hybrid cars and fuel cell vehicles and this will solve all our problems is rooted in ignorance. We have to have a complete turn over of our whole world's automotive fleet from gas guzzlers to little econoboxes and alternative fueled cars in a short period of time. The market has created the problem we have now.

I would ask Peter using nothing but pure logic, based on statistics and facts, how likely is it that the market will come up with a situation in time and how fast realistically can it be put into place. And if the technology cost alot more than what we use now, will people adopt it and if they do what will the increased cost of this newer technology over the current technology impact people. How much will people cut back on other things such as food, entertainment, housing, eating at resturaunts, buying clothing, ect. How will this affect other people that produce and provide these goods and services. Will they lose their jobs because perhaps people will have a smaller disposable income and will not beable to spend it non essentials because they need to buy the newest thing on the market so they can get to work. Can a country really be sustained if every one keeps cutting back on spending, while more and more people lose their jobs because of other people not buying things. Looks to me like a domino effect.

People have a tendancy to ignore things or not believe if the thing is something that is bad for them. If we were hearing news about some dink country that most of the world doesn't care about, and this news was all about how that countries economy, or say transportation system was in jeporday no one would think anything of it. Instead they would take the information, accept it, then go merrily about their lives. In the current situation we have plenty of people telling us that this peak oil thing will happen, but because it will directly affect people in a negative way people attack it, then dismiss it, then merrily going about their lives thinking nothing will happen. If you were to have told people in the 1930's that Hitler rising to power in Germany would create the holocaust, and that tons of people were going to die because of this I bet the people of the 1930's would say, "Oh no that can't happen. You're just being a doom monger. No one would ever do that. The world is too civilized, too advanced to let anything like that happen." It is this kind of thinking that created the holocaust, where were the people trying to stop Hitler then in the 30's.

Where are the people now that are trying to make real solutions to the current peak oil problem. Where were they 20 years ago? Why aren't we seeing any real alternatives on the market now?

 
At 9:51 AM, October 24, 2005, Anonymous Anonymous said...

Commentators like Matt Simmons are trying to scare us to death because we =need= to be scared to death! People still are barely aware of the peak oil issue, and time's a-wasting. Garbage like Foster's commentary holds us back from engaging the issues and solving them to the best of our ability, in the however little time we have left.

 
At 2:03 PM, October 30, 2005, Anonymous Anonymous said...

"Mr/Mrs Anonymous" of October 23 seems to want to be convinced that we have supply-related and pollution-related problems in need of draconian or political interference.

There are not many people willing to engage in such interference who are more to be trusted than those against whom their interference is directed. That is why we have democracy - to avoid being dictated to by those whose greatest qualification is that they feel very strongly about something and need a lot of joiners to fortify their views.

The only reason such con-artists get away with it is lazy-based ignorance in the general population.

Consider Jay Leno's "Jay-Walk" panels. People in whom the people of the USA have invested the best opportunity, information, education and protection and for all that do not care to know enough of any subject to simply get by.

We are awash with falsehood - so much that a person deeply attached to truth is considered naive, foolish, without social graces, high-minded .... Lies told in the interest of some sort of "good cause" are worse than lies told in the interest of evil. Surely Jimmy Swaggart's crimes are worse than Al Capone's - our tradition of values holds that wolves in sheep's clothing are worse by far than wolves.

It is tantamount to lying to promulgate falsehood about petroleum supply, petroleum-related environmental impacts and so on. Bad law, wrong-directed public policy and actions based on emotive bias will slow right-directed action leaving time for matters to deteriorate.

While big business is capable of all sorts of mayhem, it is no more so than populists spouting truisms and rousing wrong-directed public sentiment.

At least business is subject to due process, forced by competition to be properly informed and tends to be dominated by moral people who wnat to do right.

We have lots of remaining petroleum reserves and we do not have to screw up the earth to get or use them. That is a fact which is demonstrable. On the other side are those who have suddenly realized that in hind site we will be able to ascertain when we reached the half-way point in the consumption of petroleum reserves. So what?!

If they want to do something, why don't they choose a useful alternative.

When I was a senior executive in operations in the petroleum industry, we went to zero-impact drilling (on land), well casing vent leak correction, multiple-well drilling from one surface location ... I could go on for two days with illustrations of things that real and truthful people have done to permit our continued and improved use of petroleum with the improved lifestyles derived therefrom.

Choose to be happy and optimistic. Inform yourself about these matters and try to ignore those who indulge in doomsday forecasting.

Rudy Krueger
Alberta, Canada

 
At 6:00 AM, October 31, 2005, Anonymous Anonymous said...

There are notes elsewhere on this blog - about how reservoirs have been managed - that companies have harvested only the easy-to-get reserves and left, on average, more than half the reserves in the ground. Because of technological development on many fronts, as much of this abandoned oil is not only accessible today but in cleaner, cheaper and more profitable ways.

This is true. Economic viability in resource production is like a flexible border laid over known reserves. As technology drives down cost and/or demand drives up price the borders move out and more reserves fall into the range of economic viability. Once production is on line is is less likely to go off-line with a price slip simply because the expendature has been made and has to be paid back even if the expected economics are not there.

The body of knowledge now available to the general public in respect to proven producable reserves at any sustained prioce level, is quite large. Anyone can read enough such information to know that sufficient time remains for hydrocarbon supply, to cover our growing demands while alternatives are developed not only for supply but for demand.

I did a study a few years ago for a big oil company looking to apply its money and technology to whatever best prospect existed globally. They were not interested in spending on exploration but rather on development of existing reserves. There is no lack of alternatives.

One of the reasons for perceived shortages is the fact that more than 3/4 of known world reserves are in the hands or under the dominant influence of regimes or nations with unfriendly attitudes toward USA and its friends/ allies. Still, there remains sufficient petroleum to look after American needs for a long old time.

So, for those who accuse others of being without viable alternatives, it could be useful to consider that we need no viable alterna-tives just now. The market is not some sort of person with an agenda. It is an arithmatic factor in decision-making. When a buck can be made with acceptable certainty, money goes after the possibility and more petroleum becomes available.

If one prefers to be upset about something, how about poverty, ignorance and health care ... lots of such issues to be worried about and lots of constructive possibilities to pursue instead of the ghosts whirling around the petroleum industry.

 
At 8:57 PM, February 27, 2006, Blogger Jab said...

If one prefers to be upset about something, how about poverty, ignorance and health care ... lots of such issues to be worried about and lots of constructive possibilities to pursue instead of the ghosts whirling around the petroleum industry


how can there be a response to that.

does reality as defined by fact and science exist anymore.

lets face it. everything runs out. including our lives.

what we are concerned with here is will oil end before we kick off.

Um to explain ... get in on credit.

screw the future get it now.
That is our philosophy, have a good time. Tomorrow is some elses problem.

 

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