HOUSTON (Reuters) – The world’s oil supply is headed toward a crisis state that could flare as early as next year, fueled by steaming demand and declining production, a longtime sector investor and analyst said on Wednesday.
“I think we’re basically seeing the oil markets headed toward a literal brick wall,” said Matt Simmons, chief executive of Simmons & Co. International, a Houston-based investment firm.
“We’re basically about to see demand surge above supply if we have a normal winter in the Northern Hemisphere. If we don’t have a mild winter, then ‘Houston, we have a problem.”‘ he said at Deloitte’s annual oil and gas conference in Houston.
Simmons acknowledges he is perhaps the industry’s most bearish voice when it comes to supply. Still, he refused to waver from his dire predictions of shortages even as another speaker at the conference contradicted him.
Sarah Emerson, a Harvard research fellow and petroleum director for Energy Security Analysis Inc., believes the world is in a workable situation.
The combination of competent public policy and advancing technology can extend the oil supply, Emerson said.
“I’m not ready to bet against technology yet,” she said.
For instance, Emerson found that if the U.S. Energy Information Agency’s demand forecast is tweaked to include an increase in fuel efficiency in the U.S. vehicle fleet average by 5 miles per gallon by 2020, rather than the current 1.4 mpg, that alone could shave 2 million barrels per day off demand.
She added that U.S. government mileage rules in the late 1970s helped increase efficiency by 6 mpg over the following decade.
“We could do the same thing in two decades instead of one,” Emerson said.
Simmons counters crude supply issues run deeper than demand curbs. For one, he believes the Middle East is headed toward decline.
“I call it ‘twilight in the desert,”‘ he said. “All (those fields) will soon experience the aging process, and post-1960s exploration has been bleak.”
Despite his warnings, Simmons does not expect the world to run out of oil any time soon. He merely expects worldwide production to start declining.
“Peaking is at hand, whether that’s five years from now or in the past tense,” he said.
Simmons, joined by Pierre-Rene Bauquis, a former industry executive who now teaches at the Petroleum Institute of France, supports aggressive near-term production and heightened research on replacement fuels in the long term.
Simmons wants to see all access limits on exploration freed, the maximum use of all conventional energy forms and better understanding of unconventional energy.
Ultimately, he said, the world must find a “form of energy that does not presently exist,” citing space-borne sun energy, magma energy and water energy as three possibilities he likes.
Bauquis, who rejects hydrogen fuel cells as a solution to power vehicles and prefers synthetic hydrocarbons instead, also agreed with Simmons that a renewed push for nuclear power is inevitable.
Bauquis, who cited several “experts” who predicted imminent decline of world oil supplies dating to 1919, said he did not think Simmons will join the list.
“I think this time we’re in a different situation,” Bauquis said. “After nearly a year of research, I decided to join this club.”
Simmons welcomed him.
“History has shown man’s greatest creativity seems to come at times of great crisis,” Simmons said. “Solving this crisis will be an utterly world-class job.”
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