future oil prices

[chelidon]

The link below leads to a long, but interesting (to me, anyway) interview, if scary. I sure hope Simmons is very wrong. 5-10 times increase in oil prices? And he's not talking 20 years from now, he's talking about worst-case, starting as soon as this winter. I can't even conceive what that would do to the world. Even a doubling from current levels would be an economic disaster. Oil and gas prices are again at record heights this week (Crude touches another record, breaks $65), in part because of a series of accidents and issues with U.S. refineries, highlighting the fact that the refining and transportation infrastructure is pretty much running 24/7, tapped out at 100%+. Things are so tight that any significant constraint in either supply, refining or transportation will tend to cause prices to skyrocket. Anyone who's a student of economics, systems science, or Murphy knows that if you have no leeway, no room for error or happenstance, a crisis point is a matter of when, not if. Everything breaks, everything fails, and often at the worst possible time. CNN had an article today about near-misses in running out of aviation fuel, due to some of the same infrastructure issues.

We have got to get a government fully behind conservation and alternative energy, and pushing for local work towards lowering our individual and community energy footprints is absolutely essential.

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TRANSCRIPTION OF INTERVIEW

August 6, 2005
Matthew R. Simmons, President
Simmons & Company International
author: Twilight in the Desert: The Coming Saudi Oil Shock and the World Economy

full article: http://www.financialsense.com/transcriptions/Simmons.html

JIM PUPLAVA: Joining me on the program is Matthew Simmons. He’s Chairman and Chief Executive Officer of Simmons & Company International, a Houston-based investment bank that specializes in the energy industry. Mr. Simmons serves on the boards of Brown-Forman Corporation, The Atlantic Council of The United States, he’s also a member of the National Petroleum Council and The Council of Foreign Relations. He has an MBA from Harvard University. And he’s here to discuss his new book Twilight in the Desert: The Coming Saudi Oil Shock and the World Economy.

Matt, I want to start out the discussion from the back of your book in Appendix B. Several years ago you did a study of the world’s major oil fields. What did you find?

MATTHEW SIMMONS: It was really an incredible exercise of trying to collect the data no one had ever actually thought of doing before, and that’s, what are the top oil fields in the world – field by field. And the background for me doing this is that I’ve participated 2 years in a row in an energy supply workshop, conducted by the energy analysts of the CIA in Washington, where they got about 10 of the best oil experts together, and we’d spend a day doing a discussion of all the key countries, and how much oil capacity they had in place over the course of the coming 3 years. I sat there listening aghast at all of these experts with their laptops that kept looking at their supply models, and it’s how China will be producing 3,217,000 barrels/day this year, and 3,281,000 barrels/day. And I basically said: “how do you all even know that. What are the 3 or 4 top fields in China?” And no one had any answers.

So I decided it would be interesting and educational to see if you could actually put together a list of the top 20 oil fields by name. And I thought somebody must have done this before, and the more I dug the more I realized that no one ever had.
[snip]
full article: http://www.financialsense.com/transcriptions/Simmons.html

Comments

Interesting...

[(Anonymous)]

That was most interesting. Especially about how the reserved jumped overnight when the OPEC nations decided that production would be governed by reserves, and how the reserve numbers never decline, even though we are not finding more oil, while producing millions of bpd.

In Wellington we are blessed by constrained geography. Basically the city is kept compact by the steep hills, and the bedroom communities follow the valleys. Which means most everyone is within a few km of a train line. The city could proabbly make it through a really bad oil shock. Auckland, on the other hand.... cannibalism by day 3 is my guess.

It will really change the calculus of driving when a trip to the grocery store is no long $3 of petrol, but $50 of petrol!

When the crunch hits it will bring lots of ugly politics to the fore. Little countries will be at the back of the line, and shortages will probably be worse. I just hope we can avoid a resource-war! That would be ugly all over.

Stephen in NZ

Re: Interesting...

[chelidon.livejournal.com]

Amen. I'm hoping for a soft, slow landing, it could happen. All the worrysome peak oil info I'm seeing could be pessimistic claptrap. But...it's looking increasingly likely that there are major shifts ahead. When addicts lose their fix, they can get ugly, and most of the world is deeply addicted to abnormally cheap energy, which really does look to be coming to an end. And not only are the governments of the industrialized world doing little but rearranging the deck chairs on the Titanic, they're actually going to full throttle at the same time ;> I think a lot will depend on how quickly we have to change gears, how much time we have to adapt, individually, and as nations and societies.

True about the calculus of driving, especially if that gallon of milk you want at the store once you pay your $50 to get there costs $25, unless you can get it from a local dairy. I'll miss those NZ raspberries in February, but I guess I'll have to lay up some from my bushes. Freezing stuff is pretty easy around here November-March ;>

The island thing is one of the reasons I didn't consider going back to Hawaii, though I still have plenty of friends over there. One reason the cost of living is already so high there is that almost everything has to be shipped in from someplace far away -- even the west coast of the U.S. is roughly 3K miles away! And while the volcanic soil can be quite good, there's actualy not much local agriculture anymore, and what there is tends to be specialized -- Kona coffee, orchids, etc (not pineapple any more, either -- it's cheaper now to grow and ship it from Asia). Hawaii has no natural resources that aren't plant-based, and everything there would get very expensive, very quickly. Tourism is a huge source of income, and if plane flights start costing $3500 instead of $800...big-time crash.

I'm thinking NZ is in a lot better situation, much more of an ability to develop sustainable local manufacturing, etc., and geographically much less isolated, too. Train lines may be more and more important, since that's one of the most efficient ways to move large amounts of goods. Heck, it's always possible to go back to coal or wood-fired steam engines if diesel isn't available. I don't know about NZ, tho', but the state of the rail system in road-crazy America would put a third-world country to shame. Still, there's some rail infrastructure left, it's a start.

Re: Interesting...

[(Anonymous)]

The rail system here has big problems. It was privitaized about 15 years ago, and sold to a person who was known as an asset-stripper. That rail company was bought ~2 years ago by Toll, an autrailian road-rail company, and they were shocked by the state of the rails. This last year they re-nationialized the rail lines (bought them from Toll for $1). Now they are looking at near a billion of repairs. A few months ago a really emblamatic problem- a repair train crashed through the bridge they were sent to repair and into a river. Oops! :)

But NZ will need massive rail-rebuilding to get some linkage for its many really remote locations. Otherwise they will be driving animals around like in the olds days. I am just glad to be in a country with a massive agricultural surplus. Poor we may be, but we should never starve!

Food exports will be an intersting proposition. Will sea transport still be economical enough? There are many large cities that are ports- will NZ lamb and apples end up going to New York and LA, but never to Kansas (barring rail links)?

But if tourism (#2 export income earner) and agricultural exports (#1 export income earner) go away, the local economy will go totally insane. That will be...interesting. Impossible to predict how it will all work out in the end. I do think places like Hawaii will quickly convert from lots of specialized crops to many more staple food crops, just to keep populations alive!

It also makes me wonder about the habitation of dubious locations (Los Vegas being a prime example)- in the absence of lots of cheap energy, what do you do? I don't see the residents of sprawling, super-hot Phoenix riding their bikes to work!

One interview that was a bit disappointing was with a local Green leader. She was talking about how after peak oil we will all have to "ride our bikes to work". The interviewer asked "where are we going to get 1 million bikes in short order? we wont be able to import due to world demand- so do we even have the ability to manufacture them?" She had no answer besides "we will all be riding bikes". The greens need to start getting practical. Some of what they predicted is coming, but just saying "told you so" will not help when it hits the fan!

NZ has lost most of its manufacturing over the last 20 years. But like that article said, WW2 showed how quickly a Focused society can built new infrastructure. I am really, REALLY glad that about 80% of the nations power comes from wind/water. At least the lights will stay on, and we can get new factories up and running with wthat power.

Stephen in NZ