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Category — Simmons, Matthew

Matt Simmons’s Failed ‘Peak Oil’ Price Wager (Julian Simon rides again!)

[This is the third and final part in a series on peak-oil theorist/neo-Malthusian Matthew Simmons (1943–2010). Part I by Rob Bradley examined the Simmons's peculiar interpretation of the Club of Rome's 1972 Limits to Growth. Part II by Michael Lynch reviewed the false arguments behind Simmons's peak-oil views.]

Matt Simmons was confident past a fault about the coming decline of world oil output–and record oil prices in the face of growing demand. His 2005 book, Twilight in the Desert: The Coming Saudi Oil Shock and the World Economy, announced that production in Saudi Arabia had peaked or was about to. In his words:

Saudi Arabian oil production is at or very near its peak sustainable volume (if it did not, in fact peak almost 25 years ago), and is likely to go into decline in the very foreseeable future. There is only a small probability that Saudi Arabia will ever deliver the quantities of petroleum that are assigned to it in all the major forecasts of world oil production and consumption.

And more generally:

We’ve run out of good projects. This is not a money issue… If these oil companies had fantastic projects, they’d be out there [developing new fields].

And at the end of the book comes the call for government to conquer the reality of peak oil by engineering an energy transformation for us mortals. Market failure yes, government failure no.

Putting His Money Where His Mouth Is

With his book out, Simmons was in full peak-oil publicity mode. It was at this time when he was contacted by New York Times writer John Tierney, a disciple of the late Julian Simon (1932–1998). A wager emerged as told by Tierney:

Five years ago, Matthew R. Simmons and I bet $5,000. It was a wager about the future of energy supplies — a Malthusian pessimist versus a Cornucopian optimist — and now the day of reckoning is nigh: Jan. 1, 2011.

The bet was occasioned by a cover article in August 2005 in The New York Times Magazine titled “The Breaking Point.” It featured predictions of soaring oil prices from Mr. Simmons, who was a member of the Council on Foreign Relations, the head of a Houston investment bank specializing in the energy industry, and the author of “Twilight in the Desert: The Coming Saudi Oil Shock and the World Economy.”

I called Mr. Simmons to discuss a bet. To his credit — and unlike some other Malthusians — he was eager to back his predictions with cash. He expected the price of oil, then about $65 a barrel, to more than triple in the next five years, even after adjusting for inflation. He offered to bet $5,000 that the average price of oil over the course of 2010 would be at least $200 a barrel in 2005 dollars. [Read more →]

February 14, 2011   8 Comments

The End of a Peak Oil Theorist: Matt Simmons in Retrospect (Part II)

[This is the second part of a series on peak-oil theorist and neo-Malthusian, the late Matthew Simmons (1943–2010). Yesterday, Robert Bradley examined the Simmons's peculiar interpretation of the Club of Rome's 1972 Limits to Growth.

Part III will look at Simmons's failed bet with different parties that the average price of oil in 2010 would be $200 per barrel or higher.]

The death last year of Matthew Simmons, author of Twilight in the Desert and a well-known peak oil advocate, offers an opportunity to review his work and draw a cautionary lesson.

Punditry

The nature of punditry has changed in the modern age, and for the worst. The original pundits were geographical surveyors in India, mostly natives working for the British, mapping areas where few Europeans dared to go (and from which many failed to return). Their work was extremely useful, highly scientific and precise, and largely unsung, none of which applies to many modern pundits.

Now, it has become normal not only to be a self-proclaimed pundit but a self-proclaimed expert. A successful pundit is one who gains an audience, which can mean they provide insightful commentary, but more commonly they have a point of view which is popular in specific circles or, occasionally, are attractive and/or entertaining.

Of course, it helps pundits that few in the public are capable of judging their backgrounds—which are rarely investigated in any case—making it easy to pass themselves off as knowledgeable in subjects of which they are only moderately familiar. Thus, Joe Romm (one of our favorites!) posts extensively on peak oil, despite the fact that he has no expertise in the area. Having written books on energy, and served in the Department of Energy, he does however carry an aura of ‘expertiness’.

And especially as pundits are not writing for scholarly journals, but rather and books for lay audiences and, in the past few years, blogs, they are under little or no pressure to provide evidence to back up their opinions: citations, data or research that might be checked or validated. Instead, not only does opinion rule the day, it is all too often passed off as fact, and then gains immortality as those who want to believe repeat it endlessly, creating a circle of citations with no true beginning.

Making of an Alarmist

Matt Simmons, an investment banker sporting an MBA from Harvard, was quite successful in his chosen field of endeavor, lending to the oil and gas industry in the Gulf. But Simmons was hardly trained as a researcher, either in the hard or soft sciences. And Simmons certainly had no expertise in reservoir engineering or petroleum geology, although he often made technical arguments (frequently in error). [Read more →]

February 10, 2011   6 Comments

Matthew Simmons’s ‘Club of Rome’ Epiphany (The strange case of an energy investment banker turned energy alarmist)

[Editor note: This (unpublished) review of “Revisiting The Limits to Growth: Could the Club of Rome Have Been Correct After All?” by Matthew R. Simmons (1943–2010) was written by Bradley in 2000.

Tomorrow, Michael Lynch will examine the Simmons's peak-oil advocacy. A third post will described the failed bets that Simmons made with John Tierney of the New York Times and with Bradley on the average price of oil in 2010. (Simmons bet on $200 per barrel or higher averaged over 2010--and lost resoundingly.)]

Matt Simmons founded the investment banking firm Simmons & Company International soon after the 1973 energy crisis to cater to oil companies. He first stepped out in a very public way by questioning official inventory statistics for oil. But then he took a decidedly controversial turn (and one that befuddled his longtime industry friends). In this White Paper, Simmons donned a neo-Malthusian hat to challenge the reality of the improving condition of mankind (particularly in market settings). 

But given the elementary errors and oddities of his attempted resurrection of the doomsday Club of Rome study, one must speculate if Simmons wanted to be a maverick for its own sake and whether he was working from his conclusions to his reasoning rather than the other way around. Such a perversion of logic appears to have also occurred in his peak-oil thinking–suggesting a strange case study of energy thinking indeed.

———————–

Simmons’s  “Revisiting The Limits to Growth: Could the Club of Rome Have Been Correct After All?” attempts to resurrect the major themes of the Club of Rome’s much maligned 1972 study, The Limits to Growth. This study used an MIT “formal, written model of the world” to assess five concerns 100 years out: “accelerating industrialization, rapid population growth, widespread malnutrition, depletion of nonrenewable resources, and a deteriorating environment.” Simmons thus concludes:

If the present growth trends in world population, industrialization, pollution, food production, and resource depletion continue unchanged, the limits to growth on this planet will be reached sometime in the next one hundred years. The probable result will be a rather sudden and uncontrollable decline in both population and industrial capacity.

Mid-course corrections, however, Simmons’ finds, could permit “a condition of ecological and economic stability that is sustainable far into the future.” This hint of optimism is joined at the end of the book with the statement, “It may be within our reach to provide reasonably large population with a good material life plus opportunities for limitless individual and social development.” Other than this sop to reality, much alarmism reigns.

Simmons defends Limits to Growth against the “premature” criticisms of economists. He cites the currently tight energy market as part of a possible if not probable era of increasing resource constraints. He chides a one-year-old Foreign Affairs article that predicted two decades of an oil glut and proudly refers to his own 1994 forecast that all three energy “bubbles” with oil, gas, and drilling rigs was about to burst. He notes that a major concern of Limits to Growth, income inequality, is still with us.

Simmons is correct to disparage those who believed that low energy prices would continue almost indefinitely. That includes a lot of the market investors and academics who assumed that technology would keep supply ahead of demand even in a low price environment. Simmons qua contrarian is to be commended, particularly if he profitably bet on his views with his investments.

But Simmons as a sustainable development theorist is open to criticism on several grounds. One, he may have fallen into his own trap by getting “stuck” on the top end of the energy price cycle (short of making a case that anti-production public policies were now overtaking the inducement effects of high prices).

Second, Simmons extrapolates from the part to the whole by asserting without proof that all or most resources now face new constraints. He does not appear to have expertise in non-energy areas and does not cite a body of research supporting resource optimism beyond short-term price cycles. His ultimate trump card is pollution, which includes the key and possibly last sustainable development issue, increasing carbon dioxide concentrations in the atmosphere from hydrocarbon energy combustion.

Fundamental Misreadings, Contradictions

Simmons misread The Limits to Growth in fundamental respects as documented by these quotations (Simmons in bold). [Read more →]

February 9, 2011   1 Comment