Mat Simmons of Simmons & Co., addressing the Petroleum Club of Houston, said that ‘We Are In A Deep Hole’ and that our ‘wake-up call is here!’ The consensus used to be that demand would peak and supplies would grow as energy costs fell. This was a dream. In reality, demand has grown, costs have doubled and new supplies have gotten smaller.
Energy 9/11
By August 2005 spare capacity was disappearing as everything, from drilling rigs through production facilities, pipelines to refineries. Perhaps even more important was the shortage qualified personnel across the industry. Onto this stretched market came hurricane Katrina which removed what little spare capacity that remained. For Simmons, Katerina is ‘our energy 9/11,’ and the full impact of Katerina (and Rita) is still emerging. Gulf coast facilities have been crushed, refineries are broken and much of the workforce is AWOL!
Lessons learned
The lessons learned from the hurricanes? ‘Just-in-time inventory’ was a mistake as the impact of a local problem spreads nationwide. Concentrating America’s energy engines into the epicenter of hurricane alley was another error. The problem is even bigger, with demand forecast to grow to 120 million barrels/day by 2020. This is to be set against the ‘fantasy’ of both current reserve estimates and Saudi Arabia’s supposedly new 200 billion of proven reserves. According to Simmons, ‘peak’ production may now be ‘past tense.’
Marshall Plan
Simmons believes that the US should put itself on a ‘war footing’ regarding energy supply and use and recommends a ‘Marshall Plan’ for energy including the following emergency measures: reduce transportation energy by moving goods by boat and train, stop long commuting, reduce distribution costs by eating locally produced produce and manufacturing closer to home. Fixing the US situation regarding natural supply may be even harder. In general, an R&D ‘explosion’ is required along the lines of Alfred Loomis’ WWII Tuxedo Park effort. Read Simmons’ paper in full on simmonsco-intl.com.
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