Analysis of Simmons January 14, 2009 Brief

You'd better sit down.

Things are really bad. Worse than anybody ever imagined.

Allow me to strongly suggest you visit Matthew Simmons' January 14, 2009 briefing on Peak Oil.

My summary analysis is as follows:

1) The 2008 oil price "spike" was not really a spike but just the culmination of a multi-year rise in oil prices due to fundamental changes in the oil industry.

2) 2008 high price was NOT due to speculators!

3) Recent new oil discoveries were unfortunately small and deep. (inadequate to compensate for crashing production from existing fields).

4) IEA's November 2008 WEO (World Energy Outlook) "yanked the covers" off the naked truth of some very ugly facts about the world's 800 largest oilfields and revealed (confirmed) the fact that most of them are in irreversible decline.

5) Cheap oil/energy is OVER!

6) "Hard data" now confirm that Global Oil Production PEAKED IN 2005!

7) Oil prices are way too low!

8) Oil should be at least $150.00 per barrel with a permanent pricing "floor"

9) The world is facing the reality of the "twin cancers" of the oil biz, people and rust.

The "People" problem is due to the upcoming retirement of the bulk of the oil biz

The "Rust" problem is due to the fact that the world's oil infrastructure is built out of steel and is way too old and must be replaced immediately

10) Even at just an 80% replacement rate the rust problem is bigger and more complex than World War 2!

11) Obama does not know what is going on.

12) The world cannot adjust given the current "blueprint" of oil dependency

There obviously is a lot to discuss here.

If it turns out to be true that Global Oil Production has already peaked in 2005......we don't have enough time to fix the problems.

I want to make it clear that I am not attacking President Obama just for the sake of attacking somebody. I have always had great respect for the commander in chief.

But on a daily basis I talk to people who seem to think that Obama's concept of "change" is the magic potion that will wipe away the current inconvenience and bring back the heady days of cheap energy. It won't.

And, most importantly, many experts are warning us that Obama does not have a PLAN!

Look, don't be pissed at me as if I am calling your favorite football team names. We mean that Obama does not have a plan that is SCALED UP big enough to deal with the huge energy gap!

Obama's recent speech, as analyzed professionally here on The Oil Drum might sound good to a layperson. It sounds good to "double" the alternative energy in three years. But that is nowhere near enough to avoid massive problems. It is too little, too late.

Please don't confuse realism with pessimism. I'm not particularly pessimistic. But the reality of the Peak of Oil production is very, very real.

It is very important for as many people as possible to instantly develop an AWARENESS of the SCALE of the problem.

That is the most important concept. The scale.

This is very difficult for most people. Thinking about really big numbers doesn't mean that much to people on a day to day basis. A million here, a billion there. What does it matter to somebody working for an hourly wage at Wal-Mart?

I think the thing that scares me the most is that Obama doesn't even use the term Peak Oil in every paragraph. I'm talking about "mindshare." Not enough mindshare.

Forget about the "terrorists" and everything else. Peak Oil is the enemy within. We are killing ourselves.

How much of the new Obama "Stimulus Package" is dedicated to the estimate 100 TRILLION dollars we need for oil infrastructure replacement?

Doesn't anybody understand that all the stuff we built back around World War 2 has now rusted away? It's so simple.

Just take a walk near any refinery or pipeline or oil field or port and you can see for yourself that everything is in really bad shape.

Making just a "down payment" on fixing the economic crisis is not going to solve the CAUSE of the economic crisis, Peak Oil.

I don't even have the courage to try to discuss the last point. "The world can't adjust" is too negative, too extreme. Even for an old hang glider pilot like me :-(

The Energy Revolution, and the consequences of not having one.

The World's energy system is at a crossroads. Current global trends in energy supply and consumption are patently unsustainable--environmentally, economically, socially. But that can- and must- be altered; there's still time to change the road we're on. It is not an exaggeration to claim that the future of human prosperity depends upon how successfully we tackle the two central energy challenges facing us today: 1) securing the supply of reliable and affordable energy; and 2) effecting a rapid transformation to a low-carbon, efficient and environmentally benign system of energy supply. What is needed is nothing short of an energy revolution.

So says the IEA's (International Energy Agency- for those of you who "don't habla" peak-oil-ese) just released report, World Energy Outlook 2008.

This is the big one. The report that all of us analysts have been waiting all through 2008 for.

The bottom line is that the world's energy situation is really, really bad.

The big news from this report is that for the first time the IEA included an analysis of the world's top 800 oilfield's DEPLETION RATES.

This is the first time the IEA has included such an analysis. This seems really strange to any sensible analyst. Why didn't they think to analyze the depletion rates before? Or did they?

The worst thing is that the IEA foolishly claims that "there is still time to change the road we're on." This is ridiculous, almost criminal, and certainly negligent.

There is no way we can change the road were on now. This isn't some fantasy world lost in the lyrics of a Led Zeppelin tune....this is the real world, not a drill.

The time to change the road we were on was back in 1974 when Hubbert CONFIRMED the Peak Oil problem was real. Or I guess you could say that the time to change the road we are on was back in 1962 when Hubbert reported to President Kennedy about the Peak Oil dragon that was sneaking up on us.

Here's the scary thing, the GLOBAL ECONOMIC CRISIS is not the big problem. Peak Oil is way bigger.

It is just hard for people to accept the reality that all the stock valuations of all companies are hugely overstated because no company has yet accounted for the cost of Peak Oil!

The IEA is right. We do need an energy revolution. Yesterday.

But the consequences are just hard to fathom. The biggest one is the certainty of the reversal of the "green revolution" as soon as Peak Oil prevents the production of the vast amounts of fertilizers and pesticides that we currently use to feed the world.

If this doesn't keep you up at night, you are either living in an illusion or smoking some good dope or both.

Americans are directly responsible for this problem. America uses 25% of the world's oil. The american lifestyle based on cheap oil for transportation is crashing to a halt and killing the rest of the people in the world.

Forget the financial crisis. The Peak Oil crisis is what is causing the financial crisis.

It is not patriotic to ignore reality and continue to live a life of wastefulness that is driving the world towards starvation. Americans need to get a clue and change the vibration.

But, make no mistake about it, it is too late to change the road we're on. There is no chance of changing the american infrastructure enough to become sustainable. That is what the Invasion and Occupation of Iraq is all about.

President Obama needs your help. If you are powerful enough to get some face time with the guy, do us all a favor and help him to understand the the SPR (Strategic Petroleum Reserve) is supposed to be saved for a real EMERGENCY, which by design means something like the closure of the Strait of Hormuz or a Saudi Terrorist event crippling Saudi production capacity.

And Mr. Barack needs to know that bailing out the dinosaur automakers is the wrong plan. GM should be taken out back and shot and left to die. All those autoworkers should be re-aligned to make vehicles that get 50-60 or 100 miles per gallon, not just meet the ridiculous CAFE standards that the corrupt auto industry lobby sold to the congress.

We need an new, New Deal. There is plenty of work for everyone. How about fixing all the thousands of bridges that are completely corroded and unsafe?

How about a New, New Deal that promotes communities to grow food locally, to avoid the oil expense it takes to truck food all across the country? These things are so basic, we just have to open our AWARENESS, of Peak Oil.

Otherwise, get ready for the consequences....

A "Dangerous Situation?"

Fatih Birol, the chief economist for the IEA (don't you love the alphabet soup of acronyms in the energy biz?; International Energy Agency) was quoted Thursday in the online Wall Street Journal as saying that the "oil investments might be much, much higher than what people assume. This is a dangerous situation"

No shit sherlock!

much, much?

Your honor I object. Denied. I strenuously object.

much higher. Much, much higher. Hmmm.....

The great and powerful Oz, I mean the IEA, has already spoken on the Peak Oil issue. They told us that the world's supply could meet the rising demand. They told us that it would go from 87 million barrels per day to 116 Mbpd in the year of our lord 2030.

But now, apparently, the IEA is conducting a new "study" of the world's 400 biggest oilfields and is scheduled to release the info in November 2008. Sounds great. It's about time we got some better info.

Dangerous situation? How about catastrophic situation? Global crisis? Here we come.

The question is, where is all the money going to come from to invest in the development of all those oilfields? Abu Dhabi? Gazprom? China's sovereign fund?

I find it interesting that information is again the problem. Just this week the oil traders freaked out when the inventory information turned out to be wrong.

Didn't Matthew Simmons already suggest that the system of gathering data on oil inventories was broken and needed fixing? And now we are told that The IEA is trying to get better info about all these oilfields. Hmmm....

Lucy! You got some 'splainin' to do!