Viewpoint: Could it be, $10 gas this winter?

StoryImage( ‘/Images/Story//Auto-img-112854199012700.jpg’, ‘Image courtesy of’, ‘Author Richard Heinberg addresses the end of oil in his new book, The Party’s Over, about peak oil extraction and the possible effects on the decline of industrial societies.’);

So you thought $3 gasoline was bad. It may get much worse than that. Even though pump prices have recently dropped a bit, that is only a temporary respite as more storm-closed Gulf Coast refineries come back on line.

Hurricanes Katrina and Rita will prove to be a watershed in U.S. history. They are a wake up call for everyone.

While most of the nation remains in denial about Peak Oil and demand continues to rise, one oil industry expert warns that prices could skyrocket in the months ahead.

Matt Simmons, founder of Simmons & Company International, a Houston-based investment banking firm managing more than $60 billion in assets, stated: “We’re almost at the verge of having real energy shortages. We could be looking at $10-a-gallon gas this winter.” How about them apples?

Simmons made his declaration in a lecture at the University of Wyoming’s Ruckelshaus Institute of Environment and Natural Resources. He reviewed the developments leading to the current energy crisis. Simmons is an energy adviser to President George W. Bush.

Only recently has President Bush said much about global consumption of oil and gas outpacing production; but even before the hurricanes hit the Gulf Coast, consumption was close to 99.8 percent of the world’s ability to produce, refine and distribute transportation fuels.

Katrina raised Cain with domestic supply, tipping the energy market upside down. “The storms,” said President Bush on CNN, “have shown how fragile the balance is between supply and demand in America. We can all pitch in by being better conservers of energy. People need to realize the storm has caused disruption.”

While pump prices jumped upward after Katrina, they were still well below what Simmons considered indicative of the true scarcity of oil. Oil discovery peaked in 1960, he said, and after that, no new major oil fields were found. He is in line with other analysts who say we are at or very near peak output, and after that point, no greater amount of oil can be produced. Despite that hard fact, global demand for fossil fuels continues to escalate rapidly.

Simmons told his audience: “Peak Oil is the single most important issue of the 21st century. The hurricanes, Katrina and Rita, may well be remembered as the start of our great energy war, just as Fort Sumter was the beginning of our Civil War. Fort Sumter was the tipping point of a pending war over slavery that John Adams predicted we were going to have to finally resolve, just two weeks before he passed away, on the 50th anniversary of the founding of the United States.”

Similarly, Simmons said, our energy crisis did not begin or end with Katrina or worsen with Rita, but began years ago as we piled one false assumption atop another. One of those assumptions was basing the price of oil on political expediency, ignoring its real cost, and creating the idea of cheap oil forever.

“Our best quality natural gas was simply flared in the 1930s and ‘40s, seen as having no use,” he said. In 1956, a Shell Oil geologist, Dr. M. King Hubbert, warned the U.S. would hit Peak Oil by the early 1970s. That forecast resulted in the destruction of Hubbert’s reputation.

“Too many papers were written about ‘Remember that old geezer who said the United States was gonna run out of oil? Look, we’ve never produced more.’ That was the very year we peaked,” Simmons said.

By the early ‘70s, there was another false assumption; namely that the 38 super huge oilfields in the Mideast would turn out nearly unlimited amounts of oil from a few fields and wells. Another problem, Simmons said, was that no one understood what influences energy demand or how big it could get. During the 20th century, he said, there was a focus on glut on the oil market and how it would be handled. No one took a close look at what was really happening with the oil supply.

Oil production in Iran and Kuwait peaked in 1972, but few took notice. People still thought Mideast oil would last forever. Then in 1979, prices abruptly soared from $18 to $40 a barrel, the equivalent of $105 per barrel in today’s dollars. The result was demand in the U.S. was curbed for a period of four years, and we turned to coal and nuclear power as cheaper fuel sources to make electricity.

At the same time, we moved a big part of our heavy manufacturing to Europe and Japan. When demand dropped for those four years, people concluded that high fuel prices depressed demand, but no evidence existed to support that belief, Simmons said.

Oil was discovered in Siberia in 1967, on the Alaskan North Slope in 1968 and the North Sea in 1969, the last fields to come on line. “It took a decade to bring all these fabulous sources into production,” Simmons said, “creating an enormous last amount of brand-new oil, but all three peaked years ago, and are all now in steady decline.”

This time was followed by a 10-year period of serious depression in the oil industry. The belief that there was too much oil on the market led to job losses and bank closings. In actual fact, he said, the “glut” probably was never more than 10 or 15 percent of demand.

Gas prices, by December 2000, were at $10 per million cubic feet. California experienced blackouts, just as New York and New Orleans did in preceding summers. By 2004, Simmons said, “My worry of energy dots had connected so tightly that the future of energy looked extremely dark to me.” He said despite supply peaks amid rising demand, the industry insisted technology would bring more supply, demand would drop because of high prices, and the Mideast would pump out more oil.

“The world based its future prosperity on an energy myth,” he said.

Earlier this year, the Bush administration projected that Saudi Arabia would increase its oil production by another 12.5 million barrels per day. His reaction was: “The likelihood of Saudi Arabia being able to produce 20 to 25 mbd [million barrels per day] is so low that it should almost be deemed impossible. The likelihood that they could hit 12mbd and keep this up for 20 years, let alone 50 years or more, is not very high. We are in a deep energy hole. We must create a Plan B to ensure the future of energy, or we won’t have a future of energy.”

From the Oct. 5-11, 2005, issue

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