Posted on 08/22/2005 10:16:07 PM PDT by neverdem
I don't share Matthew Simmons's angst, but I admire his style. He is that rare doomsayer who puts his money where his doom is.
After reading his prediction, quoted Sunday in the cover story of The New York Times Magazine, that oil prices will soar into the triple digits, I called to ask if he'd back his prophecy with cash. Without a second's hesitation, he agreed to bet me $5,000.
His only concern seemed to be that he was fleecing me. Mr. Simmons, the head of a Houston investment bank specializing in the energy industry, patiently explained to me why Saudi Arabia's oil production would falter much sooner than expected. That's the thesis of his new book, "Twilight in the Desert: The Coming Saudi Oil Shock and the World Economy."
I didn't try to argue with him about Saudi Arabia, because I know next to nothing about oil production there or anywhere else. I'm just following the advice of a mentor and friend, the economist Julian Simon: if you find anyone willing to bet that natural resource prices are going up, take him for all you can.
Julian took up gambling during the last end-of-oil crisis, in 1980, when experts were predicting a new age of scarcity as the planet's resources were depleted by the growing population. Julian had debunked these fears in "The Ultimate Resource," the bible of Cornucopian economics, which showed how human ingenuity had kept driving down the price of energy and other natural resources for centuries.
He offered to bet the pessimists that oil or any other resource they chose would be cheaper, in real terms, at any date they picked in the future. The ecologist Paul Ehrlich, author of "The Population Bomb" and "The End of Affluence," took up his offer and chose copper, tin...
(Excerpt) Read more at nytimes.com ...
Where is Matthew Simmons' #? I want to make a bet. :-)
Until they figure out how oil is created, it is probably wise not to bet that there will be some shortage of it in the near future.
The doomsayers always lose these kinds of bets. Why, oh why, do they persist? More importantly, why, oh why, do people believe this tripe, go paranoid, and go hog-wild speculating?
Dead dinosaurs? That's what I was taught in publik screwel...no joke!
A company called Changing Technology has figured out how oil is made - to the extent that it is now building plants that turn waste (such as turkey guts) into oil...
If you ask geologists, they are not really sure where it comes from. There are some theories that it is created as a byproduct from organisms living deep in the earth's crust. A parallel to this would be the bacteria that have been found to live near superheated vents on the ocean's floor. If these theories turn out to be correct, then that would mean that oil is a renewable resource.
Whether or not they are developed is entirely dependent on if they believe the price will stay at levels profitable for marginal sources in the medium term. Either way, it means that the price will plateau one way or another.
And what's so special about dinosaurs. Why aren't dead elephants, say, up to the task.
I don't think there is any good reason why the price of oil should jump so, but demented traders might drive the price up if there is some spurious crises happening.
Why, indeed.
Unfortunately, many of those marginal wells were plugged and abandoned in the late '90s when oil prices could not match operating costs. (But people were orgasmically happy about cheap gas and didn't see the damage being done to the domestic industry.)
Now it is time to pay the piper.
Don't expect to see anyone dashing out to drop a couple of million per well re-developing those depleted fields. For now, at least, there are far better returns to be had on other prospects, and right here at home.
I do not disagree that it is somewhat irrational. There is an emotional premium attached to oil, such that the price is the consequence of psychology as much as it is basic economics.
Gold is much the same way, simply because it is 'gold'. The cost of production of an ounce of gold is currently $175/oz, plus or minus $25/oz. Major new mining sites are coming on-line with a cost of production averaging $125/oz, plus or minus $25/oz. The spot price is currently well north of $400 per ounce. There is no shortage of gold supply and the unambiguously profitable reserves at $400/oz are so vast that they probably are not even known because no one cared to measure 'low-grade' ore reserves. But the gold producers are not exactly complaining, and are milking the market for all it is worth.
The US actually comes out way ahead in the case of gold, since if Nevada was a country it would be the second largest producer of gold in the history of the world all by itself (ignoring California, Alaska, etc), after South Africa, with very deep reserves. It is one of the few metals we actually export (along with Nevada's vast silver deposits).
Oh, I know, but it is encouraging development of sources that have been mostly ignored due to cost of extraction never mind the vast quantities of cheap oil and gas we could (and should) get at, tar sands being the interesting elephant in that room. For example, I learned last week that a small oil field is being opened up a couple miles from my ranch in central Nevada, based on some 'yellow gold' bores in a hydrothermal system that kept finding black gold instead. I have to think that they would not be developing a field there unless the price was what it is. In this particular case, it must have been really shallow -- most gold bores aren't more than around 25 feet deep, and they generally don't like drilling near hydrothermal systems anyway since it is hazardous to people and equipment.
But all that said, I'd really like to see them fully exploit oil and gas in California, Alaska, the Gulf Coast, and some of the interesting deposits in the mountain West, almost all of which are currently unexploitable due to environmental nonsense.
I (I'm a wellsite geologist) went back to work after the late 90's crash about the time oil hit $15, and things have become increasingly busy since. The pay raises (first real raises in over a decade) started when oil hit $20 as service companies could begin to raise rates.
Now my rates are on par with what I was making in 1980, corrected for inflation.
After 26 years of doing this sort of work, I want more, but service price increases (and raises) lag behind oil prices by about a year.
I worked a few wells in Nevada years ago, Including Eureka County. Are you perchance anywhere near Carlin or Cortez, or are you further over near Battle Mountain?
A good distance South of Battle Mountain, in eastern Pershing County. Right in the middle of the old gold fields. According to the article in the paper about an oil field being developed there, there are no other fields anywhere near it. However, many of the abandoned mineshafts in that area slowly backfill with tar, and there is a large, rich shale deposit under the range they are drilling at the base of on top of an extremely old and active hydrothermal system. If I had to guess, I would imagine that the super-heated water has been cooking down the shale over the last 20-40 million years. But I really have no idea. I've told local geologists (gold and silver usually) in the past that the old abandoned mine shafts in the lower parts of that range were slowly filling with tar and thick crude, but none was ever apparently aware of the fact despite working in the region. I've never seen a surface seep in those mountains, but the deteriorating 19th century mines are full of them.
(Of course, going into those old shafts in the first place is unambiguously dangrous...)
"Why aren't dead elephants, say, up to the task."
You mean,"up to the tusk?"
The hydrothermal system might bring organic rich sediment to thermal maturity, much as cooking an oil shale. IIRC, oil we got from a test across the valley from the Blackburn field had an API gravity of about 11--tarry enough to solidify at 80 degrees into a gummy paste. It would not have flowed to surface if the subsurface temperatures had not been so high.
It would not surprise me that something similar could be happening further west. If there is an igneous intrusive down there somewhere, they should drill/be drilling off of the flanks of that if seismic indicates any structural deformation. That is where/how the Blackburn field trap was found. The limit of the field was found by drilling into the intrusive rock body.
A dissenting view that does not fit the New York Times political agenda*.
http://realclearpolitics.com/Commentary/com-8_21_05_SC.html
*Only Democrats in office can provide abundant supplies of oil.
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