Pictures of the Future        Fall 2008

Twilight at the Pump

Interview with Matthew R. Simmons

Worldwide, we are now consuming around 88 million barrels of oil per day. Do we know how long our reserves will last?

Simmons: No. We don’t have a clue. We don’t know how much oil is in a field until it comes to a halt. Look at Prudhoe Bay in Alaska, the largest oil field the U.S. has ever had. When it was discovered, estimates said that the field had 25 billion barrels of reserves and that it would be possible to recover up to 13 billion of those. But in reality Prudhoe Bay produced 1.5 million barrels a day for almost 11 years—or around six billion barrels. Today the field produces only about 200,000 barrels a day.

Is Prudhoe a typical example?

Simmons: Yes. Many oil fields are coming to the end of their useful lives. In Mexico, for instance, the Cantarell field came on line in the mid ’70s. When it opened it was unbelievably productive—40 wells produced one million barrels per day for almost 20 years. Then, in 1997, the field’s reservoir pressure started to decline. PEMEX drilled another 400 wells and repressured the field. Productivity quickly rose to 2.2 million barrels per day and then, in 2005, it collapsed. We have an increasing number of Prudhoe Bays and Cantarells.

Surely there are a few untapped fields…

Simmons: There could be. There’s an exciting development offshore from Brazil called the Santos Basin. In very deep water they’ve discovered a series of seemingly huge structures. But they estimate that it will take until 2020 to 2025 before they really know what’s out there. Estimates for the single largest structure run from 1.5 billion barrels to 33 billion. That indicates how fuzzy the science is.

Are we powering the world economy on fuzzy science?

Simmons: It’s as if we had gotten everyone on earth into a plane, gone up to 35,000 feet and then discovered that there was no fuel gauge. The pundits tell us we’ve got plenty of fuel to make it home, but what if they’re wrong?

Why is oil becoming so expensive?

Simmons: Very simply because demand has exceeded supply. In fact, demand is growing while supply is falling. We are getting into an extremely tight market. Refiners have to pay top dollar for crude because it’s getting really hard to find. What we were seeing recently at $140 per barrel was cheap. In six months to five years we will see oil between $200 and $500 per barrel. Think of it in cups. Divide $140-per-barrel oil into a price per cup and you get 0.21 $. Can you think of anything that costs that little any more? In my opinion, a more realistic price would be $5 per cup. That would come out to $3,360 per barrel. We still have no idea how to price this incredibly scarce and absolutely irreplaceable product.

How can we kick the oil habit?

Simmons: We are going to have to make the most abrupt retreat in human history. If we don’t use less, we could be looking at a savage resource war. The G7 countries should urgently develop a blueprint for sharply cutting oil use worldwide. Next, they should call for an overhaul of labor markets that would provide incentives for people to work at home with a view to sharply reducing long-distance commuting and boosting the energy efficiency of the transport system. Third, they should create incentives for food to be produced locally.

You’re calling for radical changes in our society and lifestyle.

Simmons: We’re already moving in that direction. The big, centralized dairy farms in the U.S. are becoming less and less viable because they rely on shipping their products long distances. Our next Administration is going to have to encourage this trend. The result will be that people will spend less time on the road.

Could all of this be a blessing in disguise?

Simmons: It could. The skyrocketing price of oil is already bringing thousands of jobs back to the industrialized countries because the cost of shipping from so-called low-wage countries has become too high. This could usher in a growing movement to small, localized, highly automated production centers.

How can alternative energy sources help?

Simmons: I’m not a scientist. I’m a banker. All I can say is that a large and growing proportion of the earth’s population lives within a hundred miles of a coastline. We should therefore start thinking about ways of harvesting the power of the oceans in terms of tides and winds to produce electricity. For example, I’m very excited about a project we have started in Maine. Our plan is to build 95 floating windmills that will have the longest turbine blades ever built. Another vision is to use the electricity derived from wind and ocean power to drive electric vehicles or to produce synthetic fuels. That would allow us to use our current infrastructure—including the cars now on the road—to buy time while developing even more efficient alternatives.

                                                                    Interview conducted by Arthur F. Pease