Re: Matthew Simmons on Oil

From: Don Winterstein <>
Date: Wed Aug 24 2005 - 07:24:43 EDT

Glenn Morton wrote: "The world is short on oil now and the $67/bbl is evidence of that shortage."

Oil prices have not gone in a single direction for the 30 years or so I've been aware of them, so there probably will be notable declines again in the future. I recall industry leaders in the mid to late '70s talking about prices going through the roof, and all the major oil companies suddenly got serious about research into alternative sources of energy such as solar and shale oil. Then the bottom dropped out, massive layoffs followed, and one company after another eventually dropped its research into alternate energy. Two things happened: The country got serious about conservation (remember the enforced 55 mph speed limits?), and the hundreds of oil companies worked desperately to increase their output while the prices were high. All those little bits added up. Of course, the shortages in the '70s were artificial or temporary, caused first by the Arab embargo and later by the Iran-Iraq war.

Then in the late '90s prices again dropped to a low of $8-10 per barrel when OPEC increased its quotas and Asia was in economic doldrums.

I agree with Glenn that this time--especially on account of economic vitality in China and India--we're much closer to the point where no amount of industry effort is going to make a decisive difference--although I've heard Russia may have realistic potential for boosting output significantly. And how about Iraq in a dream world where the bombing stops? But we're also seeing American drivers put on more miles than ever, apparently oblivious to higher prices. Demand has not yet dropped, so for the short term this can only drive prices higher still.

But if China or India or the USA were to stumble, and Americans were to curb their wasteful habits, ... there could be reprieve. Economies aren't monotonic, either.


  ----- Original Message -----
  From: Glenn Morton<>
  To:<> ;<> ;<>
  Sent: Tuesday, August 23, 2005 8:08 PM
  Subject: RE: Matthew Simmons on Oil

>### Half the stock market (reflecting the world) is made up of negative,
>fear/pessimism-driven Bears and the other half is made up of positive,
>courage/optimism-driven Bulls.
>Into which perspective / worldview do you think you would fall?

  GRM: Janice, it isn't world view which determines factuality. I would note that in 1999, I wrote an article for PSCF on the coming oil crisis. It was published in 2000. Oil was about $18 dollars a barrel when I wrote the article. You can find the article at Coming Energy Crisis

  GRM:My predictions have come about. Thus, I wouldn't classify myself as a bear or a bull. I am a realist when it comes to this. The world is short on oil now and the $67/bbl is evidence of that shortage. Not to mention that in 1999 I set in motion a plan for me to take advantage of the coming shortage. I put my life savings at risk here. Are you willing to do the same? Are you willing to place your life savings on long term shorts on the oil market? (you will be ruined if you turn out wrong). I would be willing to by the opposite side of your short contracts. :-)

  GRM:This is a joke, don't take investment advice from me, but if you decide on your own to do it, let me know and I will buy the opposite contract. I will take you to the cleaners.

>Fear sells (to the glass is half-empty, doom and gloom Bears). And there
>are no better Chicken-Little fear-mongerers than the "Perfect Storm" stock
>market Bears at
>We haven't even begun to tap into some of the huge deep oil well reserves.
>We have more oil reserves today than ever before. Oil Reserve History

  GRM: I love it that people who have never found so much as a thimble full of oil seem to know how to find it and to know that we are not running out. I would suggest that he go into business for himself. Those of us in the business are having some difficulty. I looked at this site. I will tell you that they fall into the problem and trap most novices fall into in this area, including those who have made false predictions in the past. I will capitalize this. RESERVES ARE NOT IMPORTANT!. Did you hear that Janice???? Reserves are not important. They will go up every year for a variety of reasons, most of which have to do with the SEC financial rules. As I pointed out in my talk at the ASA meeting this year in Pennsylvania, when we find a field, the SEC (securities and exchange commisions--I am afraid you might not know who they are) will only let an oil company count as reserves a very tiny part of the field. ONly after the field has p roduced, do they let more and more of the field be counted as reserves. This gives the illusion that more oil has been found when no new oil has been found. All of the guys you cite below forget that.

  GRM:Secondly, reserves are like money in your bank account. It is the amount of oil you can eventually get out of the bank account. But what is about to happen to the world is not that your money (oil) will disappear, it is that the rate at which we can get the oil out of the ground is about to decline. This is like telling you that you have a billion dollars in the bank. Today you can withdraw $1000 dollars a day, but tomorrow, you will only be able to withdraw $900 and the day after only $800.... until you can only withdraw $10 per day. When you can only withdraw and spend $10 per day, you will not be rich, no matter how much money you have in the bank. Same with oil. But having watched your postings here, I doubt seriously you will comprehend this nuance.

>FACT: Oil bubbles up freely through fissures in the bottom of the ocean
>Google Results 1 - 10 of about 9,150 for oil bubbles up from fissures in
>the ocean. (0.27 seconds

  GRM:Of course it bubbles up from faults. But that doesn't mean that it bubbles up in commercially useful quantities. If it did bubble up at 80 million barrels per day we would have an ocean of oil rather than an ocean of water.

>August 23, 2005 An Oil "Crisis"? By Thomas Sowell

  GRM:I would beleive Sowell if it weren't for the fact that the last time someone found a 70 billion barrel oil field was in 1947. And the last time someone found a 20 billion barrel oil field was in something like 1962. The Gulf of Mexico has only found one 1 billion barrel oil field and it is one of the most prolific oil producing places in the world.
>8-23-05 Oil prices and the Rule of Bigness James K. Glassman:
>Daily Breeze<>
>8-23-05 On the Move in the Oil, Gas, and Petrochemical Market, Washington
>Group International Establishes Its Oil & Gas Headquarters in Houston The
>Company Launches Hiring of Hundreds of Oil and Gas Professionals

  GRM:As an oil and gas professional, I am all in favor of being hired and having my services bid upon by cash rich and desparate oil companies. It is good for my pocketbook. But, neither I nor my colleagues can find oil where there is no oil.

>The Bottomless Well: No Need To Curb Energy Consumption
>by James K. Glassman (May 19, 2005)<>

  GRM: This guy is absolutely laughable in his ignorance of oil. He writes: " In 1979, we were told that the U.S. had only 30 billion barrels of natural gas left in the ground and that we'd run out by the 1990s."

  First off, natural gas is NOT measured in barrels. It is measured in cubic feet. Strike 1.
  According to the BP statistical review of World Energy in 1970 the US reported 53.9 TRILLION cubic feet. 30 billion barrels would be 180 trillion cubic feet so I don't know where this guy gets his inflated numbers. Strike 2.

  The guy also says:
  "The oil is there. The obstacles to putting it to use are strictly political: restrictions on drilling, on building refineries (the number has dropped by more than half since 1980), and on making the distribution system more efficient. Remove the barriers, and prices will fall. "

  This is fallacious. If there were too little refining capacity but too much oil, then OIL price would be low and gasoline price would be HIGH! Then the building of refineries would lower the price of gasoline. But, since OIL is the commodity which is high in price, it seems more logical that the oil is what is in short supply. Strike 3 HEEEEEEE's OUT!!!!!

>Ignorance on Energy Matters Is Profound
>By James K. Glassman Posted: Monday, April 18, 2005

  GRM: Yes, his ignorance is quite profound!

>4/28/05 The Economist: "A Bottomless Beer Mug: Why the World is not
>Running Out of Oil." Excerpt:
>"Peter O'Dell of Rotterdam's Erasmus University points out that since 1971,
>over 1500 billion barrels of oil have been added to our worldwide reserves.
>Over the same 35-year period, under 800 billion barrels were consumed. One
>can argue for a world which has been running into oil rather than running
>out of it. What makes the estimates go up continuously is a combination of
>economics and innovation. The IEA explains the process this way. Reserves
>are constantly revised in line with new discoveries, changes in prices, and
>technological advances. These revisions invariably add to the reserve base.
>A few decades ago the average oil recovery rate from reservoirs was 20%.
>Thanks to remarkable advances in technology this has risen to about 35%
>today." ;

  GRM: No, the recovery rate has gone up only for the NEW fields using NEW completion technologies. The reality is that much of this doesn't apply to the old fields and most of the worlds oil comes from old fields.
>The New Age of Discovery.
>"But there is a more practical fallacy embedded in the gloomy forecast, >too.
>'I challenge the idea that the era of discovery is over in oil,' says one
>expert. Thanks to the Cold War and other political constraints on western
>investment, much of the world has yet to be explored with the aid of the
>latest technologies. Most of the oil still undiscovered thanks to the Cold
>War and other political constraints on western investment, called

  GRM: Does this guy think the old communist countries didn't do oil exploration????? Can he really be serious? The old USSR was the largest producer of oil in the world during its time, producing 12 million barrels per day. This figure seems remarkable if as this guy says, the cold war prevented exploration in their countries.

  I can tell you that the oil industry has explored the mountains of Tibet and the ice fields of Greenland, the Canadian Arctic, the jungles of South America, all over Africa. I have had friends who have worked the locations. The only unexplored place on earth is Antarctica.

>New word for political constraints on western investment,
>environmentalism. Already, the industry, (the oil industry), is exploring
>underwater at depths that were unimaginable a decade or two ago. In the >Gulf of Mexico and elsewhere, oil rigs now float atop 3,000 meters, or >10,000 feet of water. These marvels of engineering [capitalism] are stuffed >with the latest in robotics, electronic sensors, and satellite equipment
>using fancy multilateral wells that twist and turn in all directions, they
>can hit giant underwater oil pockets miles away from the rigs." ..."

  Technology is grand aint it. But, if you look at the discoveries in the last 2 years in the Gulf of Mexico, there have been only 4 discoveries over 200 million barrels. They total about a billion barrels of oil. Do you know how long that will fuel the world? About 2 weeks. In the past two years (104 weeks) the Gulf of Mexico discoveries amount to about a 2 week world supply. Woop-dee-doo. Let's hear it for Janice and her ability to know the large amounts of oil left in the world without ever working a single day in the oil business. Yippee.

>Lots more here:
>There's No Oil Shortage May 3, 2005
>Oil, Oil Everywhere
>The Wall Street Journal Opinion Journal ^ | Sunday, January 30, 2005 12:01
>a.m. EST | PETER HUBER AND MARK MILLS Posted on 01/30/2005 10:24:37 AM CST
>by Woodworker

  Might I suggest that multiplying a list of people who don't know what they are talking about is no substitute for being correct?

>Also, another idea:
>Anything into Oil (solution to dependence on foregn oil?)
>DISCOVER Vol. 24 No. 5 ^ | May 2003 | Brad Lemley
>Posted on 04/21/2003 7:57:41 AM CDT by honway
>"......60 percent of America's petroleum supplies come from foreign
>countries (24 percent is imported from Persian Gulf countries, including 6
>percent from Iraq) - increasing to 64 percent by 2020. Our national
>security, let alone our economy, must not be captive to volatile and
>unreliable sources of energy. Keep in mind that in 1973, when only 36
>percent of our supply was imported, OPEC was able to create an energy
>crisis here by cutting supply and driving up prices.
>Nearly 70 percent of oil reserves and 50 percent of gas reserves are
>located on government lands. By 2020, U.S. oil and gas consumption will
>increase by more than 30 percent and 60 percent, respectively. A labyrinth
>of statutes, regulations and lawsuits have made access to these resources -
>whether in the Alaska National Wildlife Reserve, the continental United
>states, or off the coasts of California and Florida - extremely difficult
>and costly.
>Furthermore, a major refinery hasn't been built in more than 20 years, the
>Environmental Protection Agency mandates a large variety of petroleum >blends for different parts of the country, and more pipeline delivery
>systems are needed. The construction of power plants isn't keeping pace
>with electricity demand, which will increase by 45 percent in 2020. And >there hasn't been a nuclear power plant licensed since 1979." ~ Rush >Limbaugh Thursday,
>January 10, 2002

  All of this is true, but it doesn't tell me where I can find the new oil fields. Since you know where the oil is, and I know the people who have money to invest, why not come work with me. Put your life saving at risk in finding this oil you know about. I have put my life savings at risk based on my views of what will happen to oil. Are you willing to put your money where your mouth is? IF not, you are merely passing hot air.

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Received on Wed Aug 24 07:24:32 2005

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