energy in the 21st century - uni-goettingen.de · 2019. 2. 6. · simmons & company...

Energy In The 21st Century:

A Rough Ride Ahead

Energy In The 21st Century:

A Rough Ride Ahead

byMatthew R. Simmons

ChairmanSimmons & Company International

SIMMONS & COMPANYINTERNATIONAL

Ladies’ Home Journal 1900:Predictions For A New Century

Ladies’ Home Journal 1900:Predictions For A New Century


Halfway Through First Decade Of A New CenturyHalfway Through First Decade Of A New Century

� 1.6 billion people with a life-span of40 – 50 years.

� Railroads’ golden age.

� “The horse is here to say.” Automobiles a novelty.

� Andrew Carnegie: Wealthiest man in the world.

� Wright brothers take to the sky.

� Harley motorcycles hit the road.

� Montgomery Ward “suppliers for every trade and calling in the world.”

� Einstein invents “Theory of Relativity.”


20th Century “The Age Of Energy” : Part I20th Century “The Age Of Energy” : Part I

� Spindletop: Era of big oil begins (1901).

� Discoveries in Los Angeles Basin, East and West Texas: USA oil era comes into full bloom.

� WW I & II perfect energy as finest weapons.

� 1938 – 1965: Middle East oil era come of age.

� Natural gas captured by pipelines: World War II.


20th Century “The Age Of Energy” :Part II20th Century “The Age Of Energy” :Part II

� Electrification of free world:– TVA: Texas Dams, Columbia River, Colorado River

� Atomic energy era begins (1950s).� Interstate highways and suburbia (1950s – 1960s).� Modern energy facilitated miracles.


First Chinks In Energy’s Miracles: The Cheering Fades

First Chinks In Energy’s Miracles: The Cheering Fades

� USA’s oil peaks (1970).� USA’s natural gas peaks

(1973).� First oil shock (Oct 1973):

prices triple by Christmas eve.

� 1977/1978 winter shuts down mid west.

� Fuel Use Act bans use of natural gas.

� 1979 Three Mile Island shuts down atomic energy era.

� 1979 oil shock sends oil to $102 (in 2005 prices).

� 1982 – 2002: 20 year oil field depression.� 1990’s price collapses: 1992, 1993, 1998, 1999.


First Five Years Of 21st Century: Flashing Red Light

First Five Years Of 21st Century: Flashing Red Light

� Crisis or aberration debate begins.� Natural gas prices rip through $3 on way to $10.� Oil price rises from $10 in January 1999 to $37 in

October 2000.� Blackouts in summer of 1999 led to explosion of new

power plants.� Enron blows up power industry.� 9/11 “destroys energy demand”; the last big price

collapses.� The August 14, 2003 blackout.� $30 oil becomes $50 oil.� Natural gas rises to $10 - $12 level.


2005: The Year Of The Crow2005: The Year Of The Crow

� Nothing good happened to energy.

� Exploration success dismal.

� Cost overruns astonishing.

� “Where have all the people gone?”

� What happened to the rigs and refineries?

� “China was the big surprise.”

� The hurricanes finished the job! Katrina/Rita took away more then world had left.


Might This Become A Winter Of Discontent?Might This Become A Winter Of Discontent?

� Winter weather creates peak energy demand:– January – March is seasonal

global oil use– Winter blizzards create record

electricity and natural gas use

� Energy stocks are low.� Energy supply is flat or in

decline.� “We” have no “Empty” on our

global fuel tank.� Running short creates surge in

demand.Source: DOE


The Big Issues As We Head Into 2006The Big Issues As We Head Into 2006

� Are we in a crisis?� Do “free markets, technology and

ingenuity” work?� Do high prices usher in era of

alternative energy?� Will “normal energy prices” soon

return?� Is there a “new generation” on the

way?– People– Energy assets– Projects that add capacity

� Is the cupboard and blackboard bare?

FE


Where Does “Fixing The Problem” Begin?Where Does “Fixing The Problem” Begin?

� “For lack of a nail, the war was lost”: Important concept.

� The fix begins…At home (where is “home?”).

� Plan 3 times…cut once (where to begin planning?).

� Digitized oil fields still need people and iron.

� Conceptual energy is a great concept.

� Usable energy is a physical reality.

� Demand can grow.

� Use equals supply.


Is The World Entering Peak Oil And Gas?Is The World Entering Peak Oil And Gas?

� What does peak oil mean?� How do you know when it happens?� Is peak oil crying wolf?� Peak oil debate growing exponentially.� The debate has 2 strong sides.� The arguments are theological

(“I believe, I believe”).� Leave “I believe” inside a church.

We need factual data to prove the issue


Peak Oil IssuesPeak Oil Issues

� Can non-OPEC oil begin to grow again?

� Why did growth peter out?� Do oil reserves appreciate?� Does modern technology find and

produce more oil?� What is average decline rate today?� What will it become by 2010?� Does Middle East have plentiful oil

left?� Are there still new oil frontiers?� Is non-conventional oil now coming

of age?


Depletion Does Not Mean “Run Out”Depletion Does Not Mean “Run Out”

� All supply questions anchored on need to understand “depletion.”– When does an oil field peak?– How fast does it then decline?– Do all fields ultimately decline?– Do light oil fields decline faster

than heavy oil fields?– Can intense drilling modify rate

of decline?

� The furor of depletion is astonishing.

� The ignorance about depletion is amazing.

Analogy


The Depletion Picture Is SimpleThe Depletion Picture Is Simple

“The Tail”

Exponential Growth In Production Wells

“Conservation”

100%

0


Questions Are Easier Than AnswersQuestions Are Easier Than Answers

� Serious energy questions inexhaustible.

� Lack of solid data prohibits answers.

� Conceptual fixes are easy to theorize.

� Physical realities deter concepts from materializing.

� Ignorance can become false bliss.

� Reality can be harsh.


Non-OPEC Oil Supply Must Be PeakingNon-OPEC Oil Supply Must Be Peaking

� Too many non-OPEC producers are in irreversible decline.� Rates of decline are accelerating.� North Sea is scary case study.� Ignorance of USA peaking is still alarming.� When non-OPEC peaks oil world is all about the Middle East.

Gannet A

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Gryphon

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Middle East Oil Is Old And FragileMiddle East Oil Is Old And Fragile

ShaybahLordAbqaiq

Queen I

GhawarKing

SafaniyaQueen II Berri

Lord

Zuluf/MarjanLord/Lord

Year Discovered 19511948 1940 1964 1965 / 1967 1968Peak Production[MB/D] / Year

5,800 930 1,500 586 658 500

� Royal oilfield families get old, too.� 30 – 40 super giant oil fields were the backbone of Middle East Oil.� All are now reaching exhaustion stage.� When the oil royal family declines, there is still lots of oil and gas left.� But, it will not be easily extracted.� The Middle East will become hot bed of drilling rigs.


Saudi Arabia’s Oil Story Is The Oil StorySaudi Arabia’s Oil Story Is The Oil Story

� Saudi Arabia was the only place oil could grow “forever.”

� 20 – 25 million barrels per day oil was a concept.

� “Cheap oil” forever was a concept.

� Neither were factual.� Facts rule the future.� Facts are that Saudi Arabia’s oil

fields are too old.� Six decades of steady growth

took its toll.� The growth in Arabian fluid is

brine and seawater.

BusinessWeek Online April 5, 2004


The Peaking Of Middle East Oil Is Oil’s Twilight Era

The Peaking Of Middle East Oil Is Oil’s Twilight Era

� When Middle East oil begins to decline, oil enters its end game.

� “The Wolf” is either:– Approaching the door

– Knocking on the door

– Or is now “In the room”

Reacting to peak oil will shape the 21st century


Natural Gas Could Be A Bigger Surprise

Natural Gas Could Be A Bigger Surprise

� Natural gas depletes faster than oil (Fact).

� 65 – 70% of world natural gas supply is in decline.

� Most natural gas future “reserves” are still undiscovered.

� We flared the best natural gas.

� We sold most of the rest as waste product of oil.� Natural gas is world’s finest heat source.� Natural gas was misunderstood until its era faded.


All Forms Of Modern Energy Face Limits To Growth

All Forms Of Modern Energy Face Limits To Growth

� Black coal is depleting. Brown coal has low BTUs.

� Unconventional energy is energy intensive.

� Nuclear era must begin anew.

� Alternate energy is real but tiny.

Both create kilowatts

� Electricity is poor generator of heat.� Electricity does not create efficient transportation.� Electricity is not a feedstock for petrochemicals.


Can The World Cope With Passing Peak Oil And Gas?

Can The World Cope With Passing Peak Oil And Gas?

� World is on path to using 120 million barrels per day of oil.

� Projected growth in electricity and natural gas 50% higher.

� If supply starts to decline, use will also.

� If “the gap” is quickly understood, a “Plan B” works.

� If the crisis is ignored, we enter the dark age.


How We Solve “Peak Oil”How We Solve “Peak Oil”

� We reduce transportation intensity of oil.– Shipments of goods by

truck becomes train to boat

– Liberation of employees to work close to home�End 9 – 5 check in�Begin era of “pay by

productivity”– Grow food locally: End

era of ornamental food– Reverse globalization:

make things at home


Oil Prices Need To SoarOil Prices Need To Soar

� $65 oil is $.10 a cup.

� High prices do not kill economies.

� What should we do with high oil price era?– Rebuild the energy infrastructure

– Create an OPEC middle class

– Unlock R & D era for new energy source

� High energy prices are salvation.

� Low energy prices are a curse.


Solving The Total Energy Problem Not An Easy Task

Solving The Total Energy Problem Not An Easy Task

� Electricity is the elixir of modern life.� Natural gas is the world’s best source

of heat.� Substitute for either is impossible

today.� A new generation of energy is the

ultimate answer.� In meantime:

– Buy time (no new supply is too little)

– Conserve– Use at highest best use


Let’s “Win One For Rick Smalley”Let’s “Win One For Rick Smalley”

� Richard Smalley had an energy vision.

� It was rooted in fear about peak oil and natural gas.

� If we win an energy victory, we avoid an energy crisis.

� If we ignore the issue, we will live in a far darker world.

1. Energy

2. Water3. Food4. Environment5. Poverty6. Terrorism and War7. Disease8. Education9. Democracy10. Population

HUMANITY’S TOP TEN PROBLEMS FOR THE NEXT 50 YEARS


Twilight Can Turn Into “A” New DawnTwilight Can Turn Into “A” New Dawn

� Twilight creates illusion of light getting stronger.

� Twilight then fades into a dark night.

� It is always darkest before dawn.

� If we solve our energy crisis, the 21st

century will be our greatest dawn.

� If we fail, we will have a dark future.


Investment Bankersto the Energy

IndustryFor information and/or copies regarding this presentation, please contact Laura Russell at (713) 546-7351 or [email protected] This presentation will also be available on our website www.simmonsco-intl.com within seven business days.

energy in the 21st century - uni-goettingen.de · 2019. 2. 6. · simmons & company...

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