The Twilight of the Petroleum Age
By Donna Mosher, July 2006
In the middle of the 19th century, a curious dark liquid oozing from the ground in northwestern Pennsylvania began to attract attention. Upon examination, it was determined that the stuff could be used as an illuminant, replacing expensive whale oil in lamps and candles. In 1859, the first oil well was drilled in Titusville, Pennsylvania, and an energy adventure that would change the world had begun.
Modern energy has been the miracle of the 20th century, declared Matthew Simmons, chairman of Simmons & Company International, speaking this spring at St. Thomas University’s Global Energy Series. “In the mid-80s, we believed we had cheap oil forever,” Simmons said. “But as we usher out the 20th century, we see that the twilight of oil and gas has arrived. We have not run out, but we’ve gone over the top.”
Asserting that the price of oil is too low today and that we could be paying as much as $200 a barrel in less than five years, the energy investment banker has rocked the energy industry with his ominous insistence that “Peak Oil” has arrived, that oil fields are being exhausted, and that we must begin now to learn how to live with a lot less oil.
Sought after as a speaker around the country, Simmons is the “black sheep” of the industry, willing to tackle the uncertain future of the hydrocarbon age with a pessimistic but refreshing candor. His book, Twilight in the Desert: The Coming Saudi Oil Shock and the World Economy, convincingly demonstrates his position that the industry may be approaching a serious, irreversible decline that will have significant consequences on the U.S. economy and lifestyle.
Simmons related the meteoric ascent of the petroleum industry since 1925 when oil was a young business and the United States dominated the global oil market. By 1968, landmark events were marking a breathless pace for the industry. The U.S. oil output set a record production of nine million barrels per day. Major oil discoveries in Prudhoe Bay, the North Sea, the Middle East, Siberia, and the Gulf of Mexico fueled industry optimism. Demand, confined primarily to the U.S., “free” Europe, and Canada, began to soar, and the U.S. was exporting its oil.
The pace however, Simmons said, was unsustainably high; it began its downward turn in 1970 when the U.S. oil supply peaked. In 1973, we saw a first glimpse of an oil shortage, the peak in U.S. supplies of natural gas, and soaring costs for new energy projects. In the winter of 1977-78, a natural gas crisis hit the Midwest. In 1979, the Three Mile Island incident brought atomic energy to a halt. Another oil crisis led to lines at the gas pump again. And $100/barrel oil appeared imminent.
The drilling boom peaked in 1981 and was followed, almost overnight, by an industry-crushing depression, which Houston remembers all too well. And by the mid-1980s we believed the oil shock was an aberration; we would have cheap oil forever. Certainly supplies bounced back, Simmons noted. But for how long and at what cost?
That question prompted Simmons to delve into more than 200 technical papers published by the Journal of Petroleum Technology, the official publication of the Society of Petroleum Engineers. Interpreting data and engineering concepts, Simmons extrapolated estimates of remaining reserves. His conclusion? The giant oil fields of Saudi Arabia, a country that supplies a quarter of the world’s petroleum and that the U.S. Department of Energy asserts will be the world’s largest oil producer for the foreseeable future, are getting old and are at risk of production collapse. Despite intense exploration efforts over the last 30 years, few new reserves have been found in the kingdom. Other oil producing countries like Iraq, Nigeria, and Russia simply cannot make up the shortfall and fulfill anticipated demand.
With the benefit of hindsight, Simmons said, he believes we will realize Russia’s oil supplies peaked in 1988. He argues they destroyed their own oil fields in eastern Siberia by injecting water in them to extract oil more quickly to fund the Soviet arms race.
“We’ll never run out of oil,” Simmons noted. “We will run out of sweet oil. We have an abundance of heavy oil. Canada has perhaps two million barrels of usable oil in tar sands. But it takes so much natural gas and potable water to convert it into a usable form that it is like turning gold into lead,” he said.
Oil-producing nations, where the majority of the population lives in poverty, are nationalizing their oil resources to retain a greater benefit from the high price of petroleum. “We have been ‘slum lords’ in countries like Nigeria, taking all the wealth and leaving them in horrid conditions,” said Simmons. “Now these third world countries are insisting on keeping this precious resource since it is worth so much. We’re seeing a very different world being shaped by increasing oil prices.”
Simmons asks what he claims are the 21st century’s most serious questions. How much do we really know about the world oil supply? How sustainable is it? How soon could “peak oil and gas” arrive? How fast could supply then decline? Why did the debate start so late? The world must assume we have reached the peak for both oil and gas; a denial leads to the ultimate energy crisis. The issues must be addressed globally.
The peak oil crisis can be solved. But it will take time to develop a new generation of cars, suitable bio-fuels, and other alternatives. In the meantime, Simmons predicts a concern for moving products, food, and people. Seventy percent of our energy use now goes to transportation. Simmons calls for a massive restructuring in the next five years of our dependence on over-the-road transport. Transporting goods by truck will be less feasible; we must find ways to make rail or water transport more viable. Companies must utilize existing technologies more to allow employees to work from home, rather than travel by car to a common facility. Distribution of food and manufactured goods must be addressed; Simmons predicts a return to local farming and manufacturing.
A radically different, less oil-intensive economy is essential, he asserts. Without a fundamental change in our society, a massive increase in wars is inevitable. Our current path is unsustainable; we must start conserving to reach a sustainable oil position. Ultimately, Simmons acknowledges that new forms of energy must be developed. In the meantime, Americans must learn how to live with a lot less oil.
One can only speculate on the possibility that the great American energy adventure begun in Pennsylvania a little more than a century ago will lead back to a similar, simpler time – a time of small towns and family farms, a time of working from home and traveling less, a time of small businesses and locally produced merchandise – before the discovery of that curious dark, oozing liquid that so thoroughly and so dramatically changed the world.
