Sunday, 14 December 2008

Simmons & Hirch : Steps away from a disaster

The always interesting Financial Sense podcast series recently ran an interview with Matthew Simmons & Robert Hirsch (Dec 13, 2008). Here are their quick bios for the gentlemen interviewed:

Matthew R. Simmons
Chairman, Simmons & Company International

Dr. Robert L. Hirsch

Senior Energy Advisor at MISI & consultant in energy, technology and management

Some highlights from the interview:
  • IOCs now understand they can't run their operations profitably on $40 USD oil
  • OPEC might cut 2Mb next week in a panic
  • Massive pressure on oil trading firms (Glencore, etc) due to CDS, causing squeeze on futures positions
  • It is becoming increasingly clear that the sustained peak of oil production happened in 2005
  • Industry is now in panic and starting to unravel
  • If oil industry starts downsizing, we will quickly lose 20% of supply. This is the worst possible scenario
  • We are unwinding supply now as fast as we have ever done
  • Supply destruction is moving faster than demand destruction [actually demand adjustment]
  • China's oil imports have not fallen, their import growth rates have fallen. They imported record rates in October and only slightly less in November
  • Shell was buying oil on the sport market when oil fell to $40 and tried to store it in tankers (due to futures contango). Problems is, there are no tankers left
  • People do not understand the magnitude of daily oil flows - spare tankers represent such a drop in the bucket it does not matter at all
  • Forget that term quick fix. There are no quick fixes. Fix is a minimum 10 year fix
  • You have to get off the inventory liquid mind set - think volumetric flow rates. Well educated people do not understand this
  • Fatih Birol (IEA) is flying around the world telling political decision makers that the Game is Over. Cheap oil is gone.
  • Most optimistic IEA scenario oil production will fall to 25Mbpd by 2030, IF we spend a fortune mitigating natural decline rates (9 Mbpd
  • 14% of our oil is coming from the 10 largest oil fields. Average age of top 20 oil fields is 59 years. They are very old, mature and near decline.
  • We need eight new Saudi Arabias worth of oil to meeting growing oil demand in the next 10 years. Everybody knows that is impossible
  • When you talk about several Saudi Arabias worth of not yet found oil, you have to understand that it is not possible. This oil does not exist.
  • Idea that renewables will solve our problems is just plain wrong.
  • Mexico's export capability will end by 2010. This will have a major impact on Mexico and US, which imports a big part of its oil from Mexico.
  • Brazil's major findings are hard & expensive oil, taking 10-20 years to start understanding what is there. We have never been at these levels, you can't believe how complicated this production is.
  • Five years from now our oil production will be down up to 20%
  • We just don't have the technical population needed to pull this off: more people in overalls than in three piece suits.
  • Skeptics: just put your head in the sand, you deserve to get suffocated
  • The scale of changes needed is just mind boggling. We need totally new investments, on a massive scale, at a speed nobody has ever done
  • We entered a phase where we are in a very serious trouble and will be for a long time.
A deeply sobering interview. All this financial alphabet hoopla is masking the biggest short range civilization threat we currently face and is in fact, making the financial issue worse, which in turn is making the energy problem worse. Positive feedbacks, anyone?

Keep your eyes on the prize. Everything else is just noise - a distraction at most.