Open Access Article Originally Published: February 24, 2008
Houston investment banker Matthew Simmons is somewhat surprised and obviously pleased that his 2005 'Twilight in the Desert' has now surpassed 100,00 copies in print -- making it a best seller of sorts -- and that it is now available in German, Chinese, Japanese and Korean.
But what really pleases him is that despite early and inaccurate accusations that his book criticizes Saudi Aramco for mismanaging Saudi Arabia's giant oil fields, his research efforts have won the praise of the very people who assumed they were the target of his pen.
That praise, however, hasn't tempered his conviction that the world as we know it is about to change irrevocably as the demand for petroleum outpaces supply.
In this exclusive interview, Simmons talks about the changes he's observed in the oil and gas industry since the release of 'Twilight' in May, 2005.
"Oil prices have gone from $60 to $100," he replied. "if they had gone from $60 to $10, there would be a lot of people saying, 'That idiot from Houston, obviously he was wrong...
"A lot of people attribute the price rise to hedge funds and fear factors... No, the market is really tight."
But for Simmons, it's not been the steady climb of the price of oil over the last three years, that has been the most important change for him personally. He told me that it was the education that he got researching the book, wading through the 200-plus petroleum engineering papers with the help of industry professionals that served as the basis of his book.
What surprises him the most is how he's taken such a keen interest in the technical minutiae of petroleum engineering after spending most of his career as an investment banker to the oil industry having little interest in how oil and gas actually were produced.
"I knew that porosity and permeability were two different properties that were highly important to create reservoir rocks so you can actually flow oil, but I could never remember which was which and what each one was," he explained to me. "That was the degree of my knowledge five years ago. By the time the book came out, I had the good fortune to spend an undo amount of time reading through carefully and writing in the margins of technical reports on field-specific projects to then find a group of people who in my opinion, are the best of the best reservoir engineers that were teaching people. And they collectively, a group of less than ten people, helped me sort of better understand some of the stuff I wasn't quite properly describing or saying.
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Reader Comments
8 comments so far...
24-Feb-2008
60510
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This guy who calls other people naive, superficial, stupid and foolish is the same one who last May predicted a "searing summer of gasoline shortages."
Posted by: john
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25-Feb-2008
60518
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The blog Satellite o'er the Desert provides additional insight into the recent doings of Saudi Aramco.
http://satelliteoerthedesert.blogspot.com/
Posted by: Joules Burn
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26-Feb-2008
60539
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John, you can't expect him to be right 100% of the time. To me he seems to be more right than wrong. The only reason that he was wrong about gasoline shortages is because he probably underestimated people's/business' ability to reduce fuel consumption either by driving less or getting more economical vehicles... or both. After all, every Dodge Sprinter sold means that there is one less Ford Econoline or Chevy Express sold... both of which use significantly more fuel even when equipped with a diesel.
Posted by: Peter Stern
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26-Feb-2008
60545
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I'm not criticizing Simmons for his views. What he says usually makes sense. I'm criticizing him for how he presents his views.
To wit, he seems to say, "I'm the only one with any brains. Everyone else is naive, superficial, stupid and foolish." As I pointed out, his prediction in May 2007 that the summer of 2007 would be a "searing summer of gasoline shortages" showed him too to be fallible.
Peak oil is going to be a difficult challenge for all of us. People like Simmons seem more interested in personal grandstanding than meeting that challenge. I think that's a shame.
Posted by: john
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26-Feb-2008
60547
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I think that Mr. Simmons is more right than wrong. Unfortunately it seems that people who do great work are driven by ego and sometimes over reach because of that ego. Simmons prediction of gas shortages last summer was certainly over reaching. Still, I think he is exactly right over a longer time horizon. Even if he is slightly off on his predictions on the supply side, the demand side of the oil equation will quickly overtake any country's ability to increase producion.
Posted by: Ken Quinty
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03-Mar-2008
60627
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Simmons is a great guy. Sure, everyone has their moments when they are driven by ego, everyone. I think John is reading too much into it, though.
What really matters here is that Simmons has an invaluable knowledge on the subject and that's why his opinion and predictions have merit. That is why people listen to him. It's hard to become as knowledgeable as he is because he's been in the industry for so long, which is what makes him an authority on the subject, like it or not.
Posted by: Ricardo Parker
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30-Mar-2008
60996
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Who cares what Simmons is like personally. On a pesonal level, he could be the biggest jerk on the planet, but that doesn't matter. I don't think he is, but I'v enever met him in person, What DOES matter, is that he is one of the very few people who are telling it like it is. We are not running out of oil, far from it. But we are most certainly running out of the cheap, easy to get oil that has fueled our society for about the last 100 years. The next 100 years, and even the next decade, are going to look a whole lot different from the last ones.
Posted by: Thomas Jamison
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17-Jun-2008
62252
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Well, when there's a global shortage, it translates differently in different places. Here in America, it translates into higher prices at the pump. Other places, it translates into people walking to work instead of taking the bus, grandmothers covering up in more blankets rather than turn up the heat, kids going to bed rather than turn on the lamp to finish their homework, etc.; Rich countries just pay more, poor countries do without.
The numbers didn't add up for the last couple of years; the Government Energy Information Administration (EIA) says that production almost exactly matched demand for each of the last 5 years, but that's just because the price of crude oil has increased from $25 per barrel to $140 per barrel. Classic supply and demand. If prices hadn't flown sky-high, those shortages would have been as apparent to us as they are to the people in the third world. People in some of the poorer countries are staging demonstrations and considering revolts because the shortages are causing a big increase in deaths due to freezing, high unemployment as companies can't afford to buy fuel for the factories, etc.
Just because consumption equals production doesn't mean that there wouldn't have been a lot more demand if the supply could have kept up with it. For a simpler example, consider the farmer whose apple tree produces 100 apples, but 1,000 people want an apple. It doesn't take him long to figure out that he can raise the price that he charges for an apple. The 100 people with lots of money complain because the price went up. the 900 who go without complain about the apple shortage.
Posted by: george marvin
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