Editorial comment

	Vol. 228 No.11
PERRY A. FISCHER, EDITOR

Peak thoughts. The recent 2007 Houston World Oil Conference (not to be confused with a World Oil conference) had some interesting presentations. World Oil was a media sponsor for the event, which was a production of the Association for the Study of Peak Oil (ASPO). Regrettably, there were no ardent anti-Peakers, which I had hoped for, so it came close to being a mutual admiration society. For example, no one delineated the dismal history of peak predictions. The audience probably would have ignore it, but it might have helped inform the press, which was there in force.

Consultant Richard Nehring had to fill the unenviable role of being the lone moderate presenter, with his charts showing the full range of uncertainty as to when a peak might occur. In short, his charts (actually, an AAPG committee that he chaired) showed a 20 to 30 year plateau in oil production beginning by 2020 to 2040, then a permanent falloff in production beginning in 2040 to 2070. The exact timing would depend on the amount of resource that could be produced, among many other things, such as demand.

Consultant Jeremy Gilbert’s presentation concluded that at most, reserves growth would add about 180 billion barrels of oil, which is much less than the US Geological Survey’s mean estimate of 674 billion. A debate ensued between Nehring and Gilbert.

Gilbert said that reserves growth was already factored into most oil fields, since more than 70% of oil production is, and will increasingly occur, on national oil company land, and those fields do not have to adhere to stock market, SPE or any other standards. Nehring pointed out that reserves growth was an historic fact because of better reservoir delineation and understanding, as well as improving recovery factors; all of which is helped by better technology. However, most of that production was from fields that adhered to SPE and stock market rules concerning reserves, a situation that is largely in the past, when American and international oil companies ruled.

The question is simple: How does one determine the total world endowment of recoverable oil? The pessimists say two trillion barrels, the optimists four trillion, with most of the governmental agencies and moderates halfway in between. All of which tells me that there is no way of knowing the ultimate amount of recoverable oil globally, which makes Nehring’s approach of embracing the full uncertainty the wiser one.

I should mention that many of the presenters mentioned, in passing, that they could not be sure of the timing of a peak, after which they showed various data showing that the peak was near. Robert Hirsh, from the firm SAIC, presented a view that few could disagree with, namely, that regardless of when a peak occurs, it would take at a minimum 20 years at a “crash program” level to create the systems, businesses and infrastructure necessary to make up for the growing annual supply shortfall. We published his work in the May and October 2005, and April 2007 issues of World Oil.

The subject of what constitutes oil was dealt with rather unevenly; some mentioned the constituents of their “oil,” some did not. This was, no doubt, confusing to the press and those in the audience who are not thoroughly versed in condensate, NGLs, GTLs, DME, bitumen, refinery gain and other liquids that came and went from graph to graph.

The stars of the show were T. Boone Pickens and Matt Simmons, who received standing ovations. They both said that the world was close to a peak in production. Pickens said world production would peak at 85 million barrels a day, which is close to today’s production, assuming that he was counting all hydrocarbon liquids as oil. Both men said that oil prices would soar to $100 a barrel and above before it would go back down to $80. Simmons said $100 to $200 a barrel.

While they were predicting these extraordinary prices, I was thinking about the issue of full disclosure. Although oil is a commodity rather than a stock, and disclosure of ownership of positions on futures contracts isn’t legally required, ethically, it would still be good to at least mention the self-interest involved when making predictions in front of so much press. Something like, “Oh, and by the way, if my predictions of impending $100 and above oil come true, I’ll make millions of dollars.” In T. Boone Pickens’ case, it’s more like a billion. In January, I called it the Matt Effect. I should have called it the Matt-Pickens Effect.

Is that giving too much credit to two of the most outspoken Peakers in the world? Hardly. It would be naive to think that people could not be motivated by large sums of money. Boone Pickens is a chess player. He plays to win. What these guys say is reported by every major newspaper, and oil traders know how to read.

Matt Simmons is chairman and founder of an energy and investment bank that “has the leading market share in its specialized merger and acquisition and public offering practices,” among other energy-investment activities. Pickens made hundreds of millions back in the 1980s by perfecting corporate raiding and “greenmail.” He simply held companies “hostage” until they paid him off. As a result, companies changed their bylaws, adopted “poison pills” and other measures to make it very difficult to do what T. Boone did. More recently, Pickens made nearly $1 billion in 2005 and, according to Forbes (5/21/07), well over a billion last year from his trading company. That’s more like the budget of an independent state than a trader.

One irksome note was that during Simmons’ presentation, he often referred to “soaring demand,” which is something that he says perennially. That has not been the case in 2005 through 2007. Those years have been, at best, below average no matter what agency’s data you use. Fortunately, Henry Groppe of Groppe, Long & Littell set the record straight. His data showed global oil demand going flat to negative this year. It would seem that, not surprisingly, high oil prices dampen demand.

All told, though, the ASPO conference was worthwhile, an outstanding lineup with excellent presenters showing good, very interesting data.

Of course, if oil does go to $100 or more a barrel-maybe by the time you read this-although my wallet will get hit just like everyone’s, I’ll probably net out a small gain, since I work in a branch of the oil business. I thought I should mention this, just in the interest of full disclosure.