380. A TRIP DOWN MEMORY LANE WITH MATT SIMMONS

We like to wax nostalgic from time to time here at POD, and I thought you might enjoy an amusing little nugget from July 14, 2008. It features our old buddy Matt Simmons making yet another astute call on the oil market:



To help you put this in context:



The commentator's remark toward the end of the video that "commodities are cyclical" triggered the usual subthread of ridicule over at The Soiled Rump, and of course that has long been a staple of PO rhetoric. The peak oilers believe that, aside from some negligible superimposed noise, PO will cause never-ending price escalation, and bring an end to cycles. For example, here is Robert Rapier rejecting a journalist's comment that oil is cyclical:

Journalist (in an article called "What Goes Up Must Come Down"): The length of the cycles may vary, but in the end, oil, too, is a cyclical business.

Robert Rapier: Encouraging signs that we are reducing our consumption, but I think the author misses the mark with that last statement. Oil has historically been a cyclical business. This will change when supply growth can no longer outstrip demand. This is going to be the case when oil production peaks, and all signs indicate to me that the erosion of excess capacity is driving the current surge in prices. Unless we have enormous demand destruction (and how is that going to occur other than through very high prices?), or there are a couple of Saudi Arabia’s hiding in the Arctic and soon to be discovered, I can’t easily see supply getting far ahead of demand. That is what would be required to continue the cycles - an oversupply situation.Source

This has been consistently rejected by the grizzled old veterans who run the oil business:

"We're a cyclical business," David J. O'Reilly, chief executive of ChevronTexaco, the second-largest American oil company, said in a telephone interview, "and at the high end of the cycle it makes sense to get the company in good shape and strengthen our balance sheet.

"History tells us that what goes up also goes down."Source

I think we're going have to step up to the plate and admit it here folks. Any company which greenlighted its projects according to peak oil theory (i.e. assuming high oil prices) is now getting seriously reamed. The grizzled old veterans were right. Oil is a cyclical business.

So why do the peak oilers keep getting this wrong? My answer is the same as always: Peak oil theory has a systemic bias which prevents its adherents from clearly understanding the demand side.

by JD

379. TWILIGHT IN THE DESERT, MY ASS

Matt Simmons has been wrong about virtually every important trend he has tried to call.

He was wrong in his shrill predictions about US gas "going over a cliff". He predicted a catastrophic drop in US natural gas production by summer 2005. That never transpired, and in summer 2008 US gas production is *rising* at a rapid clip. Details

He also predicted a near term collapse in Saudi oil production (Twilight in the Desert: The Coming Saudi Oil Shock) which never transpired. The book was released in June 2005, and in the last 18 months, Saudi crude+condensate production has steadily risen, reaching a high of 9,700mbd in July 2008 (EIA stats, Table 1.1c). Historically, that's an extremely high level. The last time Saudi crude+condensate production was that high was almost 30 years ago, in October 1981 (see EIA, 2008 Monthly Energy Review, Table 11.1a Link).

Simmons staked his reputation on the claim that Saudi Production was going to collapse, and it did exactly the opposite. No wonder he's having a nervous breakdown and promoting bizarre schemes like mowing the bottom of the ocean with "underwater lawnmowers":

“Call it seaweed, if you want,” Simmons said. Whatever you call it, Simmons said the world must start harvesting this micro algae using what he called “underwater lawnmowers.”

Simmons acknowledged that any plan for large scale harvesting of micro algae likely would be strongly opposed by environmentalists. His blunt message to them: "Get over it. We’ve already destroyed the fish stock."Source

Simmons' consistent view has always been that high prices will not temper demand, that demand will continue to follow optimistic IEA forecasts even if supply massively undershoots that level (economic gobbledygook like "In seventeen years the world’s demand for oil may well be more than 50 percent greater than it is today, while production capacity may well sink to 1985 levels."Source), and that prices are going to go through the roof. Which, of course, is completely at odds with the actual situation of falling demand and prices. The man is overwrought and out of touch: on Sept. 22, 2008, as the price of oil was nosediving to $33, his comment was: "There really is no roof on oil prices at this point."Source

-- by JD

378. WHY ROBERT HIRSCH IS DEAD WRONG

I can't count the number of times that pessimists have told me: "It's too late to address peak oil. Read the Hirsch Report. If we wanted to mitigate peak oil, we needed to start 20 years ago."

That's the classic peak oil sound bite. You're left with the impression that "mitigating" peak oil is a horrendously complex process which will take decades upon decades and trillions of dollars. And granted, that is an accurate depiction of Hirsch's view, and explains why he thinks the problem is so ugly, and we are in such deep trouble.

Robert Hirsch: Taking himself way too seriously

On the other hand, it's always good to question authority, and we can learn an important lesson by examining exactly what Hirsch means by "mitigation".

Here's the fine print, from the Hirsch Report:

Nevertheless, this analysis clearly demonstrates that the key to mitigation of world oil production peaking will be the construction a large number of substitute fuel production facilities, coupled to significant increases in transportation fuel efficiency. The time required to mitigate world oil production peaking is measured on a decade time-scale. Related production facility size is large and capital intensive. (P. 6)

Let's break that down. Note that conservation plays no role whatsoever in Hirsch's "mitigation". None. Zero. His idea of "solving" the peak oil problem is to build horrendously expensive, highly polluting facilities for producing substitute liquid fuel (CTL, GTL, heavy oil) so that everyone can continue driving their current vehicles in a completely business-as-usual fashion.

(Incidentally, as I've noted before, 30% of Dr. Robert Hirsch Ph.D's "mitigation" plan depends on Venezuela (of all places) ramping up heavy oil production from 0.6mbd to 6.0mbd in 10 years. Which is probably the most butt-stupid peak oil plan ever put to paper. The US is not going to maintain business-as-usual by ramping up heavy oil production in Venezuela, for a whole host of reasons Hirsch is apparently too senile and poorly informed to notice.)

Hirsch frankly concedes that his plan only addresses the supply-side, and intentionally ignores all demand-side conservation measures:

Our focus is on large-scale, physical mitigation, as opposed to policy actions, e.g. tax credits, rationing, automobile speed restrictions etc. (P. 25)

This oversight seriously calls into question his claim that it will take 20 years to "mitigate" peak oil. It's as though we were considering solutions for an obese person, and Hirsch is telling us it's going to take forever because we won't be considering options like dieting and exercise.

The IEA takes a more reasonable approach. It sees conservation as the backbone of any rapid response to oil shortages. In an excellent report called Saving Oil in a Hurry (pdf) they list a whole range of low-cost, quick-implementation policy options for cutting oil consumption:

Employer trip reduction
Area-wide ridesharing
Public transit improvements
HOV lanes
Park and ride lots
Bike and walk facilities
Parking pricing at work
Parking pricing: non-work
Congestion pricing
Compressed work weak
Telecommuting
Land use planning
Smog/VMT(Vehicle Miles Traveled) tax
Public appeals to reduce consumption without price effects
Public appeals to reduce consumption with price effects
Ban on motor sports events
Ban on driving by car to large scale events
Speed restrictions
Ban on driving every second Sunday
Ban on driving every second Weekend
General ban on Sunday driving
Restriction on use by administrative degree (public authorities set days on which drivers are banned)
Restriction on use by registration number (on each weekday two final registration numbers banned)
Implementation of fuel supply ordinance (rationing) (P. 27)

Hirsch completely ignores all this. He is strictly an old-school oil-luvin', business-as-usual "drill, baby, drill" extractionist. Which is not totally wrong, of course. I also support CTL, GTL, and drilling (under the right circumstances). I agree 100% with Hirsch that we must continue growth and industrial development. The difference is that I believe in conservation first, then extraction. Hirsch believes in full-bore extraction without any conservation at all.

Many people have the mistaken notion that we need to build something, or invest in something to mitigate peak oil. That's why it's "too late". We need coal liquefaction plants, and GTL, and higher mileage vehicles, and drilling in ANWR, and mass transit, and nuclear plants, and electric cars, and etc. etc. Granted, all those things are important, and will come into play as the solution evolves. But the bottom line is this: peak oil can be almost entirely mitigated without any money, time or equipment at all.

I will be taking this theme up in greater detail in future posts, but for now, I'll just sketch an outline so you can see what I'm talking about.

The IEA conservation measures are great, but they're barely scratching the surface. They mention car pooling as a very low-cost, high-impact measure, but how about extreme car pooling, a la Afghanistan?


Imagine Afghani style car-pooling during every rush-hour, in every city in the US. Pickups packed with people and their bicycles. What you would have is incredible efficiency and fuel savings, with no up front investment cost, using only existing vehicles. Note that I'm not saying that we will adopt Afghani style car-pooling (I very much doubt it will get even remotely that bad). But we certainly could make it happen if we needed to, and all-in-all it wouldn't be that big of a deal.

On page 1 of the Hirsch Report, Hirsch says "Improving fuel efficiency will take 10 years..." Which is a load of ridiculous horseshit. You can double or triple your fuel-efficiency in one day by car pooling, or sleeping at work, or riding the bus. You can increase your fuel efficiency to infinity by just getting off your butt and bicycling. Lots of US cities have bus systems, and they can be packed to the gills. If you live out in the country without bus service, make your own. Pack it to the gills. Do "shopping-pooling" where one person with a big truck or SUV buys for everybody. Set up a little private shuttle bus that gathers people for a daily ride to shopping, or into town.

The home-heating oil problem in the Northeast can be addressed with a similar strategy. Five or six seniors, who are each getting reamed to the tune of $3000-4000 a winter on their heating oil bills, get together at the senior center, and decide to move into one house for the cold season. Call it "housepooling". Now, they're all saving large sums of money, which they can invest in insulation, wood/gas heating, or (ideally) a ground source heat pump etc. Similar concepts apply to intracity travel. If you're too far away, move! There's not a law of nature which says that people are bolted down to the locations they're in, or that they have to live one to each house.

Literally, everywhere you look, the problem can be massively mitigated by some no-cost quick-fix requiring no investment, no money, no new equipment, and only minor tweaks in cultural behavior.

Consider this interesting factoid that Hirsch himself provides on P. 24 of the Hirsch Report: "67 percent of personal automobile travel, and 50 percent of airplane travel are discretionary". Wow. Using the oil consumption figures from P. 23, this means that 6.3 million barrels per day (roughly equal to the oil production of Iran+Iraq) are used in discretionary auto/air travel in the US alone. That's huge: 30% of US oil consumption, and 50% of US oil imports. And it's being wasted on non-mission-critical, optional travel. So here's a simple solution to the early phases of peak oil: skip the discretionary travel. Total cost of solution: $0. Total time required: 0 hours. Total new equipment needed: None.

If it comes to that, is it going to be fun? No. It's going to be uncomfortable, and there's going to be a lot of unhappy campers. On the other hand, it's clearly ludicrous to think that our civilization is going to collapse due to the reduction or elimination of luxury. The point is that we do have a "Plan B". It's called conservation, and it can be scaled up immediately, at any time, and at very low cost. Hirsch's claim that we need 20 years to mitigate peak oil is nonsense.

by JD

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*) Postscript: On 10/6/08 at The Oil Drum, Alan Drake wrote:

At ASPO-Sacramento, I approached Robert Hirsch about possibly writing an "Alternative Hirsch Report" and he basically called be an idiot (in more polite words), appealed to authority (his) and said it could not be done in less than 50 years. It is a daunting challenge, but I may go ahead, with my own resources, and write the "Alternative (Green) Hirsch Report".

For obvious reasons, I posted a link to this article. The link, and Alan's original comment, were deleted by the TOD staff.