Matt Simmons was on CNBC's Financial Sense Newshour with Jim Puplaua to discuss the General Accounting Office's report on oil depletion and depletion in general. This is interesting because, besides simply being a good interview with some interesting oil facts, it shows how peak oil is filtering higher up into the mainstream media. Financial markets have been following it for at least a couple of years now, because it obviously has large implications for investors, and this is more finance news, but on a national and widely watched news show. Good stuff.
JIM:
In February of this year the General Accounting Office released a
report on crude oil. Uncertainty about the future oil supply makes
it important to develop a strategy for addressing a peak and a
decline in oil production. Joining me on the program this week is
Matt Simmons, he’s Chairman of Simmons Intl.
Matt,
when I saw this report I thought: finally, somebody in Washington
is taking this issue seriously. I found that at least encouraging.
MATT
SIMMONS:
Yeah, I did too. I knew that the report was going to be released
in a press conference last Thursday. Congressman Udall, and
Congressman Bartlett, I think are two really remarkably great
Americans. Bartlett’s basically an 18-year veteran Republican
from Frederick, Maryland, and a PhD in science. And Tom Udall is a
Democratic Congressman from Albuquerque. He’s the son of Stewart
Udall, probably the last great Secretary of the Interior. So these
are two very special people. They happen to also be the
co-chairmen of the Peak Oil Caucus. And I felt it was like
basically finally the first real official cannon going off saying
we really screwed up.
[...]
MATT:
You mentioned Cantarell. I spent a week ago
yesterday, pretty well all day at his request, visiting with the
new Director General of Pemex, and Mexico thought they had 50
million barrels of oil 7 years ago – they now think they have
13. And what they now know because it’s happening in front of
their eyes is that the world’s second largest producing oil
field, Cantarell – that has accounted for 6 out of every 10
barrels of oil that Mexico’s produced for the last 40 years –
finally went into a tertiary recovery program. They went from 40
producing wells to 440 producing wells. The 40 producing wells
from 81 to 96 produced a million barrels a day without a hiccup.
They now have 440 producing wells and they nitrogen injected the
gas cap which was like stepping on a tube of toothpaste, and it
ramped the production all the way up to 2.2 million barrels a day.
And all of a sudden it’s in decline, and it’s declined by 20%
the first year. They are hoping that the decline rate slows down
to 14% - but it’s just a hope. And my commentary was if you look
at the production profiles of all sorts of publicly available data
on giant producing fields that have now done sort of the most
aggressive sweep of their oil, it doesn’t slow down until
you’re down to about the last 10%. Then it slows way down when
you manage the tail.JIM:
Yet the remarkable thing, as you’re describing what’s
happening with the second largest oil field, there are similar
problems with the world’s largest oil field.
MATT:
There are similar problems with the world’s third largest; there
are similar problems with the world’s fourth largest. You can go
down the top twenty producing oil fields and there might be one or
two that are still in their ascendancy – but the rest are all in
irreversible decline. That’s what makes it so hard for me to
fathom why some people can so casually say that peak oil is an
event that won’t happen for decades, and then we’ll have an
undulating plateau for decades. And I say, “give me a break,
where are they coming from?” They have access to the same data I
do.JIM:
Is it just something that is optimistic because I mean if you take
a look at – and this gets back to the reserves data – and you
look at, okay, we have the tar sands, and maybe we have shale oil,
we have deepwater oil, and the assumptions out there that we have
all this stuff, maybe not in the conventional form, and we’ll
just substitute that stuff.
MATT:
Yeah, that’s exactly what they are doing. And Dan Yergin at CERA,
along with Exxon, have probably become the two loudest voices that
we have no problems. He basically loves to go back and remind
people over the last one hundred years we’ve had several times
when we were basically worried that it seemed like we had run out
of things to find – he always said “run out of oil” but
it’s never been that, it’s run out of things to find – and
then, bingo, we find a new oil basin. Well, he’s actually
correct, as we started from no idea what was there to now we’ve
basically swept the world. What he is basically assuming is if you
do that for one hundred years you can do it for another hundred
years. And it’s a terrific economist sort of thesis – but you
can also go back and say that Cantarell in 1975, 76 was the last
oil field that we’ve ever found that basically produced over a
million barrels a day; and the North Sea fields were the last
fields that we ever found that produced over 500,000 barrels a
day. And now we basically have Thunder Horse may be coming on in
2009, as opposed to 2005, that may be it will produce 250,000
barrels a day – that’s the biggest deepwater field we’ll
ever do. And so the average new field today – you know, giant
field – produces about 40- or 50,000 barrels a day for a couple
of years and then goes into rapid decline. That’s just real
numbers.
[...]
JIM:
As I went through the GAO report, another problem is that – as
they address – a lot of these government agencies they spoke
with in putting this report together, their efforts were not
specifically designed to address peak oil. In fact, the Department
Of Energy said there is no formal strategy for coordinating and
prioritizing Federal efforts dealing with peak. And right now, the
hot topic in Washington is global warming. It’s like putting the
cart before the horse.
MATT:
It’s amazing how this one report from the United Nation’s
study group, and Al Gore’s movie, finally just put the icing on
the cake that, “oh my gosh, let’s all acknowledge global
warming’s here.” And I say that climate change is probably a
very important issue. I do not pooh-pooh that at all. I think we
need far better data to understand the implications of whether
it’s CO2, or methane for instance. There’s a lot of data in
that same report that methane is three times more lethal –
it’s just that we don’t know how to capture it, and so it’s
easier to pick on CO2. But peak oil is far more real. The data is
far more compelling, and the impact on our lives in the next three
years is utterly awful if we ignore it and it happens.
[...]
MATT:
The reality – it would be nice to think otherwise – but the
reality of the Middle East oil is that there were 35 giant fields
that were discovered, and they were all discovered in a very
narrow area. If you sit in the EXPEC center of Saudi Aramco in
Dhahran and watch this really well put together 3D movie, the
movie starts out with a depiction of the earth cracking and the
creation of the Rift Valley and the Red Sea; and what they show is
that basically effectively scraped the whole Arabian Peninsula of
several thousand feet of what was once rich swampland over until
it hit the Zagreb [phon.] mountains – and that’s why
these 35 fields are lined up perfectly North to South like they
are tankers on a radar screen coming out of the Straits of Hormuz.
That’s all the oil that basically got created in the Middle East
because of that one event.
What
I found out to my unbelievable amazement as I went back and read
some SPE papers about Cantarell before going to Mexico last week,
was that in the mid-90s they discovered the most amazing fact that
they basically through magnetic surveys the largest meteorite
crater that’s ever been discovered was this meteorite they
believed hit earth 45 to 60 million years ago and created a
ten-by-ten mile crater – that’s the Bay of Campeche. Within
that crater floor is every giant oil field of Mexico.
So
two acts of God created two of the most prolific basins the world
has ever known. And yet for a half a century we sort of assumed
oil was kind of dispersed around the world equally, and if we just
had two million rigs at work we’d basically be producing 200
million barrels a day. No one ever quite said that, but that was
sort of the implication of the architecture that we created for
the world we now have. [19:57]
JIM:
Another issue I find absolutely fascinating in this whole debate,
and I’ve interviewed authors who think peak oil is a myth, some
think it is far out in the distance, but when I take a look at it
and you boil it down, you’ve got about 75% of the world’s oil
lies within OPEC, and another 10% in Russia – their reserves are
unaudited, so how do we know what they have are real? They
increased by 300 billion in the 80s with no major discovery. Then
many OPEC countries, their reserves remained constant.
MATT:
Well, they produced another 350 billion barrels of oil.
JIM:
Yeah. And you know, the government report even acknowledged this.
They said, “wait a minute, Kuwait has not changed its reserves
in the last two decades, and yet we know that they produced 8
billion barrels of oil.” The fact that nobody questions this is
just remarkable.
MATT:
I find it so utterly naïve for people to just say, “you’re
stupid, just look at the 265 billion barrels that Saudi Arabia
has.” And I say, yes, I know because of the research I did that
the senior executives at Aramco under oath told the same GAO
entity that there were basically 110 billion barrels in 1979 (of
proven reserves under SEC standards) and basically since then
they’ve produced down to where that same number would be
probably today 18 to 20 billion left. And yet they say they have
265 billion, and they have another 200 billion sitting in reserves
if we ever need it. And people say, “thank you, I didn’t
realize that.”
FSO Transcription - "The GAO Report on Peak Oil" by Matthew Simmons 04/07/2007
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