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274 comments on Matt Simmons on Bloomberg: Peak Oil is Now and Oil Is WAY Too Cheap

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westexas on February 1, 2007 - 5:14pm

Following is a link to the 11/1/05 interview with Matt Simmons and Jim Kunstler. Matt and Jim had actually never met until that night. During the interview, Jim was in the studio at KERA Radio, and Matt was calling in on the phone.

http://www.energybulletin.net/19686.html

Matt's book, "Twilight in the Desert," was published in May, 2005. As everyone knows, Matt specifically warned about a Saudi oil production collapse.

Based on EIA data, Saudi crude oil production started falling in October, 2005. Current production appears to be somewhere between 8.0 to 8.5 mbpd, down from 9.6 mbpd in September, 2005.

But of course, the production decline was "voluntary."

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ace on February 1, 2007 - 11:40pm

Calling Peak Total Liquids of 85.52 million barrels/day on Aug 2006

Based on the recent IEA monthly report data
http://omrpublic.iea.org/archiveresults.asp?formsection=tables&formdate=...
I have updated the chart above and peak total liquids production is on August 2006. This assumes that Saudi Arabia’s recent “voluntary” production cuts are actually involuntary. If Saudi Arabia really does have spare capacity then peak total liquids will probably be deferred. Even if they do have spare capacity and no other country does, Saudi Arabia may choose not to use this capacity since increasing oil prices will make their remaining oil reserves increase in value.

Forecast assumptions:
World total liquids supply declines at -0.5%/year and demand increases at 1.7%/year.(updated for new IEA Jan 2007 monthly report)
The demand growth comes mainly from China, Other Asia and Middle East while growth rates from OECD vary from 0.1% to 1.0%. These growth figures are based partly on the IEA monthly market reports. Liquids include crude oil, lease condensate, NGLs and processing gains. Although forecast demand is greater than supply, the gap is closed by increased price because ultimately demand must be approximately equal to supply.
Mild northern hemisphere winter weather is assumed to continue and the price forecast from Jan2007 to Jun2007 is assumed to be a simple linear regression forecast based on the oil price (SDR) historic trend from Jan2002 to Dec2006.
Price elasticity of oil demand is assumed to increase from 0.10 in Jul2007 to 0.52 in Dec2010. The elasticity is assumed to be the same for increasing and decreasing prices. Elasticities are assumed to constant for all countries. For an interesting paper on elasticities –
http://cta.ornl.gov/cta/Publications/Reports/ORNL_TM2005_45.pdf
The oil price is forecast is SDRs (Special Drawing Rights) which simulate a global currency. The USD has devalued significantly against the Euro during the last few years and oil price increases measured in the USD gives a distorted view. It is assumed that the USD:SDR exchange rate remains constant at 1.50 from Jan2007 to Dec2010. The SDR is explained in http://www.imf.org/external/np/fin/data/param_rms_mth.aspx
The time dimension unit of a month was selected because supply figures are given monthly. Demand data is quarterly and is assumed to be the same for each month in the quarter. Prices are assumed to be month end and are from http://tonto.eia.doe.gov/dnav/pet/pet_pri_wco_k_w.htm
“All Countries Spot Price FOB Weighted by Estimated Export Volume (Dollars per Barrel)”

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Freddy Hutter on February 2, 2007 - 12:38am

Ace: "The time dimension unit of a month was selected because supply figures are given monthly."

Your Peak is the quarterly peak. The IEA monthly Peak 86.13-mbd. And it is July, not August.

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ace on February 2, 2007 - 12:49am

You're right - peak liquids is July 2006 according to IEA and you.

I suppose it doesn't matter whether peak liquids is July or Aug 2006.

We could assume that World Peak Liquids has occured in the third quarter of 2006 (this should make the data from EIA and IEA agree) if Saudi Arabia's production cuts are involuntary. Other countries will not be able to offset Saudi Arabia's declining production.

Maybe I will open a bicycle store.

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Euan Mearns on February 3, 2007 - 6:19am

Ace, this is interesting stuff.

One observation - it seems your "All Liquids" are in fact all petroleum liquids and exclude syn-crude, bio-fuels etc. So I can't help but notice that your supply gap of around 7 mmbpd by 2010 is approximately equal to these sources as estimated by Michael Smith.

http://europe.theoildrum.com/node/2229#more

I liked your oil price forecast, but was a bit disappoited to see that this is based on linear extrapolation. Since around 2000, price has been closely linked to demand, moderated by surplus capacity - so a rather more sophisticated model should be possible.