The oil industry’s foreboding future is a “grim reality” that cannot be ignored, according to a Houston oil industry investment banker.
Matt Simmons told CNBC’s Squawk Box program there is no getting around the declining potential for the industry.
His was one of a series of guests on the CNBC program to address the theory of peak oil, the contention that the world is in an irreversible downslide of oil production.
According to a transcript provided to WND by CNBC, Simmons said the grim reality of the world is that, “Oil company executives today are overlooking the fact they’re in liquidation.
“No matter how much money they tend to spend, they just can’t get ahead of their decline curves and their proven reserves are shrinking rapidly,” he said.
As WND reported last week, John Hofmeister, the Houston-based president of Shell Oil’s U.S. operations appeared on CNBC and expressed doubt about the validity of peak oil theory, arguing that although Simmons’ theory has “swamped the world,” his “hypotheses are too narrow.”
Shell U.S. President John Hofmeister
Hofmeister stressed Simmons’ analyses had failed to account for unconventional oil, such as oil recovered from the tar sands in Alberta, Canada, a resource producing sufficient supplies for Canada to have assumed the position of the leading supplier of foreign oil to the U.S.
The peak oil theory involves a Malthusian fear the world’s oil resources are finite and will be completely exhausted at a future date.
In his CNBC appearance, Simmons dismissed unconventional resources as a solution.
“It’s very convenient to turn to Canada, where a single contract can theoretically give you the ability to produce that oil for 50 or 60 years that can boost your reserves,” he said.
“Shell has a project in the oil sands area that they have been talking about for the last few years to increase their daily production by 100,000 barrels a day,” he continued. “The last cost estimates I saw in the press were about $14 billion to do so. Shell is not sure if they can go ahead. At the prime of Saudi Arabia’s oil, two wells produced 100,000 barrels a day.”
He further argued that converting the tar sands to oil “takes an incredible amount of potable water that should be converted to agriculture,” while consuming natural gas “to create enough steam to blow the oil sands and melt the tar.”
Simmons stressed that oil coming from the Canadian tar sands is of low quality and must be upgraded with high quality oil to create crude.
“So, you’re turning gold into lead,” Simmons emphasized, diminishing the importance of the Canadian tar sands as an oil resource that could reverse peak oil predictions.
Simmons further argued that $100 a barrel was still a “very cheap” price for oil.
“As I continue to point out [$100 a barrel for oil] is 15 cents a cup,” he said. “If anyone in the major oil company community would like to argue that 15 cents a cup for crude oil is an astonishing high price, I’d like to hear it.”
Shell Oil disagrees.
In an annual strategy update given last week, the Dutch head of Shell Oil internationally said the company’s Canadian business is at the center of its wider ambitions to meet growing energy demand worldwide, according to a report published in The Guardian.
Currently, the Anglo-Dutch Shell Oil Company is producing 155,000 barrels a day from the tar sands, with plans to raise this amount to 500,000.
The Guardian further reported Shell Oil has applied for a license in Canada to enable it to increase production to 770,000 barrels a day.
The peak oil theory, first propounded by Shell Oil geoscientist M. King Hubbert in 1956, has come under increasing criticism in recent years, as repeated predictions of world oil depletion have failed to match empirical data documenting increasing oil reserves.
For instance, data produced by the U.S. Department of Energy’s Energy Information Administration currently shows 1.3 trillion barrels of proven oil reserves worldwide, more than ever in recorded history, despite a doubling in world oil consumption since the 1970s.
In what has become a contentious worldwide debate over whether peak oil is fact or fiction, Simmons typically dismisses statistics that fail to meet his depletion models.
“The EIA has been as inept at forecasting oil outlook in both production and prices as anyone, yet so few ever remember their awful forecasts,” Simmons wrote in an exchange of e-mails over the Easter weekend with WND involving several prominent peak oil advocates.
“If you took the EIA at its word, we would now be paying about $17.50 a barrel for crude oil,” he wrote.
“The USGS [United States Geological Survey] record is about as bad,” he continued. “How these mega-organizations got energy so wrong is baffling to me.”
Simmons, author of the book entitled, “Twilight in the Desert: The Coming Saudi Oil Shock and the World Economy,” bases his conclusions largely on his analysis of 240 Society of Petroleum Engineers papers evidencing depletion statistics in Saudi wells.
Appearing on CNBC, Hofmeister also questioned whether Simmons’ models accurately estimated the probability of new discoveries of previously unknown oil reserves.
“Simmons is also basing his conclusions on a particular study of one country, Saudi Arabia, while there are a whole lot of other reserves around the world we’re still discovering,” Hofmeister said on CNBC. “Some day we will peak, but not because we don’t have enough oil.”
WND has reported new finds of ultra-deep underwater oil being found by Chevron offshore from Louisiana in the Gulf of Mexico and by Brazil’s Petroleo Brasileiro offshore in the Atlantic Ocean, each location apparently containing billions of barrels of economically recoverable oil.
In another of his Easter weekend e-mails, Simmons was dismissive that deep-earth oil found offshore will reverse peak oil predictions.
“The great Brazil find, as best laid out in the February issue of World Oil, is a great example of a handful of extremely expensive, rank wildcat wells finding at least traces of hydrocarbons,” Simmons wrote.
“But until scores of other wells that are both flow-tested and also cored, there is no solid idea of how much oil might ever be recovered,” he continued. “Given the severe deepwater rig shortage, it might take a decade or more to genuinely test the Santos Basin.
“I would be delighted to be wrong on all this,” Simmons wrote, “but too much hard data is too specific, and the optimist case is all faith-based theories.”
Reading carefully the report filed by contributing editor Arthur Berman in the February issue of World Oil to which Simmons referred, it is clear the current exploration of “three super-giant oil fields in Brazil’s offshore Santos Basin” is yet in an exploratory phase.
Yet Berman called these new discoveries “the most important oilfield discoveries in decades,” estimating one of the fields could prove to be “the third-largest oil field in the world.”
Directly contradicting Simmons, Berman argued, “The real message of these discoveries is that we must not lose sight of the as-yet unknown, but possibly great potential of basins that are often the exclusive domain of national oil companies.”
Finally, as WND has recently reported, new scientific discoveries have produced important evidence supporting the abiotic theory of the origin of oil.
Scientists have recently reported abiotic liquid hydrocarbons exuding from the mantle of the earth in fissures such as the Lost City Hydrothermal Field on the bottom of the Atlantic Ocean and abundant abiotic liquid methane on Titan, the giant moon of Saturn, found by the Cassini-Huygens mission jointly launched by NASA, the European Space Agency and the Italian Space Agency.
Traditional petro-geologists have maintained that oil is a biological in origin, arising from organic material deposited in sedimentary soil.
The organic theory of the origin of oil has served as a logical underpinning of the tautology at the heart of the peak oil theory.
Only a finite amount of biological material was deposited in sedimentary soil capable of forming oil, so there has to be a finite amount of oil.
The abiotic theory suggests that oil is formed naturally in the mantle of the earth by chemical reactions such as are described in the Fisher-Tropsch equations the Nazis developed to make synthetic oil from coal prior to World War II.
The abiotic theory of the origin of oil would suggest more deep-earth discoveries of oil should be forthcoming, especially since the industry has until recently lacked the technology to find and recover cost-effectively offshore oil.
With over 70 percent of the earth covered by water, much previously unexplored territory remains to be explored for oil, as ultra-deep oil drilling technology continues to progress.
However Simmons ridiculed the idea of abiotic oil, calling it “Buck Rogers to the 9th degree.”