This is Julian Darley for Global Public Media interviewing energy banker Matt Simmons after the ASPO conference in Berlin on the 26th of May 2004.
JD: In the light of some of the presentations we've heard in the last two days, perhaps even the majority seem to have spoken against the message of ASPO --- what you, Colin and Jean Laherrère have been saying. We've heard over and over again that we've got 40, 50, 60 years of almost every energy source that we can imagine. Even at this very minute we have people from Volkswagen telling us about endless natural gas. What is your reaction to hearing so much of this kind of thing at an ASPO conference?
MS: I think the most dangerous thing that could happen at an ASPO conference is for a bunch of people to be inside a telephone booth all talking to themselves. The nice thing about what we've had here is a very professional group of people having a fairly professional dialogue as opposed to a shouting match. The reality is that most people in the world just look at the public available data. I don't want to pick on Saudi Arabia, but since Saudi Arabia published its data saying that they have 260 billion barrels of proven reserves, they say that's a really conservative number. Then someone asks, how much they producing a day? Oh, maybe 8 million barrels a day. Do they have any spare capacity? Then they say they have 2&1/2, 3 millions barrels a day of spare capacity. Gosh, at 8 million barrels a day that means they have 90 years!
So it's pretty easy to see why people are complacent. I say remember complacency is being so ignorant about a problem that even if you're standing right next to it --- like that sleeping Tiger picture I showed--- you don't even realize that is a Tiger!
But the reality is that we don't have enough data to categorically prove that we will peak on some date. What's really stupid is that there are a handful of people so ignorant about the issue that they think that we'll never peak. There are others so stupid that when they hear the term,
“ peak,” they think it means we're running out. But peaking doesn't mean running out. And non-renewable means that you will sometime peak. I think that the important thing is that in a very short three years Dr. Campbell and Jean Laherrère have taken a subject that was so murky, relegated to “kooks,” and really elevated it to right where it should be, at the forefront of critical global issues. While it would be naive to think that after three years you would have people falling in line and saying, “Man-alive~! This is a critical issue!” --- I think we've come a long way.
I think the media's doing a fabulous job of asking the right questions. In the United States right now there's a groundswell of articles coming out on the energy adequacy concept. On the cover story of National Geographic this month there’s a story of the end of cheap oil, with brilliant, great photographs. Imagine seeing something like this three years ago! There’s beginning to be an exchange of views. I really credit the IEA – and I used to be very critical of it--- for the incredible work they've done on trying to understand future demand. Remember, future demand is not necessarily future consumption. Future demand is what we should we be planning for. The numbers look big – recall what Dr. Fatih Birol said today ---- but there are still a billion and a half people on earth today living on less than a dollar a day. It’s easy to say that we don't need to be so wealthy but we're not talking only about ourselves.
JD: In the IEA talk in particular, there was talk of the fact that we need to grow more to allow the 1 point X billion people to have access to some low-electricity –e.g. China and so forth. This allows their economies to grow more. We see just about a near-iron linkage between economic growth and the electricity growth of electricity.
MS: There is. The two are tied at the hip.
JD: So how are we going to grow electricity? Many of us believe the thesis to be wrong, that growth will lift people out of poverty. But even if this thesis were right, according to Fatih Birol we're going to need to see all this economic growth to help the poor. Where is all that energy going to come from for these poor people? – electricity, oil, transport?
MS: Well, I don't know. That's why I said repeatedly that I wouldn't want to be part of the delegation that would have to go to tell India and China and say, “Sorry guys, we used your energy on our watch!” In the last fifty years thermonuclear war was the big issue, the cold war. But I’ve a nagging suspicion that the in the next 50 years it's going to be the rich-poor gap. It’s gotten much too wide. I wish I could figure out how to solve it. Fifty years ago we didn't think we'd solve thermonuclear war, but we did. I'm kind of an optimist at the end of the day even though I am really worried about our energy problems. I think we've left them too long unattended for too long.
JD: You are an optimist. Where do you find the roots of this optimism?
MS: I think human ingenuity. Once we actually know what a big problem we have, I think we can actually invent some new form of energy. One of my friends in Houston is Doctor Smalley. He’s a Nobel Laureate for nanotechnology. He’s probably put as much intellectual horsepower into this as anyone. He has some really wild ideas, for instance, using element-60, the lightest, strongest element to create satellite stations on the Moon, or use it for capturing real solar and beam it down in fiber optic superhighways. His work with element-60 is what he received his Nobel Laureate prize for. Some of this is really way-out stuff. But we've got to have a big breakthrough like that. To really have it work you need to have energy prices go up. The cheap energy we have now doesn’t enable research like that to be competitive.
JD: Will these new ideas be ready in time to save us from the carbon chasms?
MS: You know, I keep saying the longer we don't start, the later they'll be ready. They might not work but the worse thing is to assume they're not going to work. That’s just to go into a cave. I think, never underestimate human ingenuity. But human complacency is really bad.
JD: What do you think of suggestions of contraction --- reducing our demand?
MS: I think it can work in a village, but I just don't think we're setup as a society to do it. If we were all equally wealthy or equally poor, it would be easier to do it. But you can’t just send missionaries to India and China and tell them how animal dung really was good, just keep using it! You just can't say that.
JD: What about demand contraction for North America?
MS: Well, I think it's hard to do. You can say we screwed up. We should have created mass transportation. I know from living in Houston that once you have created a mushroom city it is almost impossible to create mass transportation. I think higher prices, much higher prices will convince people to create a satellite office in their home. But not when gasoline still costs per gallon less than a small cup of Starbucks coffee.
JD: One of the questions we haven't seen addressed is that the industrial agricultural system is nearly 100% based on oil and natural gas. Do you have anything that will address that because it's sure to lead to mass starvation with nearly seven billion people on our planet. What do you think about that?
MS: I know the problem but it's hard enough to actually figure out what to do. This isn't one that I have any good answers for. I'll bet if we put our mind to it, that we would probably figure out some strategy, but I'm talking totally off the top of my head. We didn't realize that nitrogen could be such a fabulous fertilizer until thirty years ago. To think that that's the last soil enhancer that we could come up with! I'm on the Bermuda biological research, for the Oceanographic Institute. It’s been so interesting to hear how much they're still learning in leaps and bounds about the Ocean. We might find all sorts of interesting things right here on our planet. But you can't do new things when conventional things are free. So I just keep coming back to the fact that energy prices are too cheap and we’ve taken it too casually. If prices were to go up, we’d get to work on these problems and might avoid a really cataclysmic event.
JD: And yet the politicians and other people like the IEA say that we need to keep prices competitive, which generally means cheap. How do you counter this, which seems to go against the whole way we've developed?
MS: Well because for so many years people just didn't understand anything about energy prices.
JD: Will the market allow for more expensive energy prices without huge constraint on the oil, for instance?
MS: The markets will basically demand higher prices or the capital won't be there. The market doesn't like bad returns. And besides, there isn't any market, it's individual investors.
JD: Finally, we heard in the last presentation of the linkage between money, the growth of the debt- based money system and the ever-growing economic system, which is always demanding more electricity, oil and natural gas. What is your reaction to that?
MS: I think that if you create a good product that’s badly needed, even if it’s an expensive one, people are willing to pay a price that creates a financial return. In that sense there’s no limit to the amount of capital. There's a real limit to risk capital that gets bad returns. I think, you know the one thing about the capital market is that it has no bounds. It would be if we had to link bills to gold. What capital needs is safety, secure returns, transparency. Then it’s kind of balanced, it seems to me.
JD: Do you think that Nixon's closing the gold window in 1971, this unhooking the dollar from gold, was a good thing?
MS: Yea, yea!
JD: Even though it's allowed the old system to spiral out of control?
MS: Well, I think the idea that you could go to Fort Knox and say, my dollar bills wearing out, was terribly outmoded concept. But I'm not a monetarist. I have several friends that are as passionate about that as I am about energy. But I think you can only tackle so many things at once.
JD: How do you see the future with regard to the projects that you're working on? Do you feel you are getting the message out?
MS: Yea, I really am. I think that five, six, or seven years ago I was trying my hardest to get people to pay attention to this phenomenon I called depletion. I talked about the decline curve. You can't go to an energy conference today without hearing people talking about the decline curve. Back then I started talking about bad energy data, boy, do we have a totally broken energy map. You can hardly go to an energy conference today without hearing about the fact that we don't have very good energy data. Now I 'm on a big new kick about disclosure standards --- getting energy companies to identify producing assets of the last five years’ production history: ultimate recoverable reserve, current estimate, ultimate original hydrocarbon place, current estimate, accumulative production. With those 13 points of data we would for the first time in history of the energy business have an early warning system. Fatih Birol spoke of that in Amsterdam this weekend with 70 oil ministers. So, you know, I'm actually encouraged by this.
JD: When you speak at OTC and other places about offshore drilling, when you speak to the industry, how do they take this message that if you're right, if Colin's right, that they haven't got a growth industry anymore? That in fact they’ve got a declining industry? We've already seen a contraction of Chevron-Texaco, Exxon-Mobil. Some people think there's much further contraction to go. How do they take that kind of news?
MS: You know, interestingly enough, subconsciously we believe. Because what they're preoccupied with is, oh my gosh, if oil prices collapse one more time, I'm so sick and tired of laying people off! What they're thinking about is prices rising to a level that they can do things they'd actually like be able to do. They're terrified because every time in the last 15 years they've started on that limb, someone chopped it off and one more time they had to massively downsize. Do oil executives think about this long term? Not really, but what they're thinking about is, boy I don't want to actually lose my job. I don't want the company to go under. There is really a siege mentality in the industry right now, and I don't blame them. It's been a very, very rocky 20 years.
JD: You've said in other places that the Shell reserves write-downs won't be confined to Shell.. How does that play in the big companies, the ones that are doing the big offshore 40-100 million dollar wells? -- they're the only ones that can afford this kind of drilling. If they see contraction, if they get into trouble, how are we going to see the rest of the deep-sea and the polar get developed, if the big oils are going to get into trouble?
MS: The only way that they're going to get into trouble is if the reserve numbers are basically overstated by 20, 25%, which they might be. If that's the case, it's because they couldn't afford to drill enough extensive appraisal wells to really scientifically test these structures because they'd go out of business. Well, the next surprise could turn out that we only have 2/3rds as much as we thought. They still have all their money, but what it really amounts to is having large companies with enough money for very expensive projects. We have floating around right now 50, 70 billion dollar energy projects. Small players worrying about downsizing can't do those things.
JD: But surely the capital markets get worried by seeing Shell downsizing?
MS: This is why I'm promoting this new set of disclosures voluntarily so that we get all this visibility out. We need to get off this mentality that we can't disclose internally our stuff.
JD: Thank you very much.
Transcript by David Meldrum
Editing: Caryl Johnston
December 22, 2004
- 2315 reads
