Peak Oil is You

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Page added on March 29, 2008

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‘Cheap $100 oil’ not to curb demand – Simmons interview

If oil at $100-plus a barrel is cheap, when do you think it will become expensive?

Economists keep saying that when oil is $100 a barrel, people will stop using oil. Open your eyes. There is no substitute for oil. Ninety-eight per cent of transportation energy in the world comes from black oil. In the US, we have about 850 vehicles per 1,000 people. And the average vehicle travels about 12,500 miles a year, which is halfway around the world. In China, last year they bought more vehicles than Japanese did. But China has just 18 vehicles per 1,000 people. In India, it is seven vehicles per thousand people. So demand for oil is still young and supply is old. It is too bad that oil is peaking. A very large supply of our oil comes from a relatively small number of giant fields that are now too old.
Could oil reach $200 per barrel?

The price of crude is going to go up. Some countries are already selling finished products at a high price. In London in October last year, they were paying $9 per gallon for petrol. That is $378 per barrel and people there were not mad about it. The problem is that we only have so much oil. You can get mad and say we want another North Sea. To urge oil producers to get rid of decline rates is like saying to your parents not to get old.

What role do you think Gulf producers will play in the future supply-demand scenario?

They will remain dominant oil producers for a long period of time. The question is: Realistically, do any of the Gulf producers have the ability to increase their production by even 35 per cent and maintain it for a decade? The fields in Kuwait are frightfully old. They have not been badly-managed, it is just that they have produced for too long. They are embracing tertiary recovery projects, steam floods water flood, gas injection. The remaining oil that they have is tough to get out. Iraq has three great fields and two lesser fields. They have never really done any exploration in the deserts of Iraq. If I were asked to be an investor, I would say look at the pitiful success of 75 years of exploration in Syria, Jordan and the entire Arabian Peninsula, outside of the Eastern Province [of Saudi Arabia].

In the first quarter of 2008, we are consuming about 88 million barrels per day. Some of that is coming from inventory liquidation. The worldwide crude production now is struggling to stay above 73 million barrels per day. At an all-time peak in May 2005, we had a record of 74.3 million barrels per day. We have yet to get back to that.

There are too many major regions of the world that are in steep decline. Look at the North Sea: By 1999, you had the UK and Norway collectively hit 6.1 million barrels per day. The UK now struggles to produce 1.1 million barrels, Norway struggles to produce 2.2 million barrels. It is an example of what the same aggressive use of technology [to enhance oil recovery] and artificial injections to keep reservoir pressure high do.

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