A Charred Life 
The Gospel According to Matthew
For more than twenty years, an extremely successful Houston investment banker has been trying to convince the world that the end (of oil) is nigh. Now that people are finally starting to listen, is it too late?
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Simmons’s private research showed something very different. He didn’t believe there was a glut at all. Instead, he thought the oil business was being ruined by bad math and a lack of common sense. “I don’t think we were understanding demand,” he says. During this time, he took a trip to China and got a glimpse of the future as he watched the country muscling its way into the modern age. He realized that, with developing nations driven by mobility and a passion for prosperity, “there is no glass ceiling to how big demand can grow.” As Simmons began to speak on this topic, he once again became the odd man out, disparaged this time for not being a trained economist.
In February 1999 oil was at $10 a barrel, and the experts believed that the price would stay low indefinitely. Instead, just a few days after the Economist published a story called “Drowning in Oil,” the petroleum ministers of Venezuela, Mexico, and Saudi Arabia took two million barrels off the market and prices went back up again, to $37 a barrel. Simmons, who had always suspected that the glut was a product of smoke and mirrors, was vindicated. He had come to distrust the International Energy Agency’s accounting. “I thought [that] either they had found data I’d never seen or they’re lazy,” he says. Or, perhaps, they just didn’t know: In 2000 Simmons served on a government energy task force; at meetings there was often no one else in the room who could name the largest oil fields in the Middle East, Mexico, or Angola.
Simmons went back to his studies, teaching himself not just more about oil but also about electricity and natural gas and how the businesses worked together. In February 2004, drawing on the lesson he’d learned in high school debate, he conducted a personal examination of the world’s largest oil fields, generating his own research data. His analysis suggested that production was already in decline throughout the Middle East. Though the Saudis were claiming to control 25 percent of the world’s oil field reserves, Simmons began to suspect that, in fact, their oil fields were aging rapidly and already required expensive and complex technology to extract their remaining reserves. This could only spell trouble for a world that was predicted to increase its oil needs by more than 50 percent by 2025. It seemed like a good time to hold the first peak oil conference. Fifty people attended the event, which was held in Sweden.
Shortly afterward, in 2003, Simmons was invited to Saudi Arabia by oilman Herbert Hunt. On a visit to an oil field there, he noticed the Saudis were using water pressure to get the oil out of the ground—a sure sign of an aging well. When he got back home, Simmons undertook another study, assembling 240 peer-reviewed papers on Saudi oil fields written by the Society of Petroleum Engineers—“It was about a foot tall,” Simmons says—and spending the end of a Maine summer reading through the stack, pinpointing evidence of decline. The research finally proved his long-held suspicions: Saudi supply was nowhere near what had been claimed for years.
But proving his hypothesis was bittersweet. Feeling something like a surge of panic, Simmons reported his findings in Twilight in the Desert: The Coming Saudi Oil Shock and the World Economy, a dense, four-hundred-page tome published by John Wiley and Sons in 2005. The book became an international best-seller, and Matthew Simmons became a true prophet of doom, the global authority on peak oil.
Mention the name Amy Myers Jaffe to Simmons and you will provoke a lot of sputtering. Jaffe is the Wallace S. Wilson Fellow in Energy Studies at the James A. Baker III Institute for Public Policy, the associate director of the Rice University Energy Program, and a frequent oil authority in the pages of, among other publications, the New York Times. In her forties, Jaffe also happens to be startlingly beautiful—almond eyes, flowing auburn hair—with a distinctively nasal New England intonation you might find particularly annoying when and if she’s disagreeing with you, which is a position Simmons finds himself in regularly these days.
“The question isn’t what’s left under the ground but where is it located and do I have access to it,” Jaffe tells me. In her opinion—and she is far from alone—there is plenty of oil but geopolitical issues and resource nationalism in oil-producing countries prevent investment by American firms. In addition, internal political problems in those countries inhibit their production capacities. This notion impresses Simmons not at all: “I’ve never tried to integrate geopolitics with the physics of oil and gas,” he sniffs.
Like Jaffe, Daniel Yergin’s CERA believes there is enough oil in the ground to keep us going for quite some time—3.74 trillion barrels, as opposed to the 1.2 trillion barrels the peak oil proponents claim. The group has produced a $499 downloadable report titled “Why the ‘Peak Oil’ Theory Falls Down—Myths, Legends, and the Future of Oil Resources.” Yergin likes to point out that this is the fifth time the world has been said to be running out of oil and that new sources or technologies always appear on the horizon to save us. CERA has argued that oil production won’t peak but will follow an “undulating plateau,” which should leave us plenty of time to come up with a solution to the problem of diminishing resources.
These opinions aren’t as reassuring as they sound. If Simmons believes the end is upon us, CERA’s time frame is just a few decades away. According to one of its papers: “During the plateau period in later decades, demand growth will likely no longer be largely met by growth in available, commercially exploitable natural oil supplies. Non-traditional or unconventional liquid fuels such as production from heavy oil sands, gas-related liquids (condensate and natural gas liquids), gas-to-liquids (GTL), and coal-to-liquids (CTL) will need to fill the gap.”
Simmons does not believe that the great industry hopes of Canadian tar sands or South American oil shales can ever fill this gap in time. They simply cannot produce the volume necessary to sustain the current levels of 80 million barrels used around the world every day. Simmons further counters that CERA’s plan to use this remaining time to squeeze the last drop of oil from declining wells is a fool’s errand. Companies will be spending more to get less and less out of the ground. “I’ve always said Dan [Yergin] was a fabulous historian,” Simmons says. “He’ll write the best history of how we crash.”
Then there are those who argue that simple economics will keep the oil business from imploding: As prices go up, demand will go down, until the price goes down and demand goes up again. “These were the same old arguments as to why oil would never stay above thirty dollars a barrel,” Simmons counters with impatience. “Free markets do not work when demand outstrips supply.”
One way of looking at the peak oil contretemps is to say that Houston boasts two Ivy League—educated oil authorities who are equally pessimistic about the future of petroleum but who disagree virulently with each other about the reasons why. Peak oil critics and peak oil supporters lob the same accusations at one another—that both camps use fuzzy data, that they don’t understand oil reserves, that they don’t understand the way markets work in this day and age. The fact that both sides believe that we have to move from a petroleum-based economy sooner or later is constantly and conveniently—for the major oil companies—overlooked. “We agree there’s a problem but for different reasons” is the way Jaffe puts it. “We know we’re moving to a carbon-restrained world. We know there’s a high risk of war in the Middle East over the next ten years.”
Fortunately, each side does offer a few solutions that are not necessarily contradictory. For a Republican zillionaire who thinks Nobel Prize winner Al Gore’s movie was “crappy,” Simmons’s proposals are surprisingly green. First, he believes the workforce should be liberated from the nine-to-five grind, because 70 percent of our oil is used for transporting people and goods. “The biggest inefficiencies are long-distance commuting and traffic congestion,” he says. “People shuffle into work and get on the Internet. You can have staff meetings by webcam.”
Simmons also thinks we should put an end to the global food distribution system that allows us to have Chilean watermelon in December. “We can’t afford to do this anymore,” he says. We should also harness the power of the oceans and move more goods over water, a proposition that isn’t as quaint as it sounds. It’s currently being done off the coast of Washington State. Most important, the public should insist on data reform that includes quarterly reports on reserves and field production numbers. It isn’t just the Saudis who are stretching things, he says. Exxon Mobil, for instance, ran into trouble with its 2004 data; after the company boasted that it was replacing its own production to the tune of 125 percent, the SEC calculated that the actual number was 83 percent. “We’ve wasted four years,” Simmons says.
Jaffe’s solutions are more concrete but probably no easier to enact: Make the oil companies put more of their money into research and development instead of shareholders’ pockets, and make legislators commit to improved education so that more students will study science and math and speed up the technological curve.
Not coincidentally, both Simmons and Jaffe agree that if Houston doesn’t step forward and embrace these changes, it will lose its place as the energy capital of the world and that as Houston goes, so will Texas. At one time, the city prospered whenever oil prices were high; since then, the reluctance of the oil companies to innovate and the foot-dragging of anti-tax politicians to support education have changed the calculus. The economy is shifting away from a dependence on natural resources to a dependence on knowledge. Blue-collar jobs that once defined the city are rapidly disappearing. The population will be, increasingly, poorer and less educated. Meanwhile, Department of Energy funding for research that once came this way is heading out of state, to places like California and Virginia, where progressive, innovative thinking is more welcome. “If Houston isn’t the intellectual incubator for new carbon management,” Jaffe warns, “someone else will be.”
Simmons concurs, in his way: “If Houston grasps the issue and the magnitude of the issue, it can lead the way,” he says, allowing himself an uncharacteristic moment of hope. Then, of course, he reverts to type: “If we keep our head in the sand, we’ll be like Tulsa in 1965,” he says, referring to a city that, until the seventies, was more important in the world of oil than Houston. “I am trying to scare people. To tell them to wake up. This is a real defining moment.”
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