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Simmons: We've Peaked Already!

The argument over whether the world's oil and natural gas supplies are peaking/have peaked is metaphysical, says Matthew R. Simmons chairman of Houston-based Simmons & Co. International. And Simmons comes down distinctly on the side of the pessimists.

"Hunches, opinions and hopes prop up the peak oil scoffers," he says. And "fuzzy, unreliable proven reserve data make the pessimistic scientist's work hard to understand."

Oil in the United States peaked in 1970 and gas in 1973, and the 1970s peaking of natural gas was missed for more than three decades, Simmons maintains. In 2000, a study by the National Petroleum Council said that gas supply can easily grow, but in 2003 the NPC assessment was that, in Simmons' words, "gas supply can stay flat."

And 2005 was "the year of the crow" in the energy patch. "Nothing good happened to energy." Exploration success was "dismal;" cost overruns were "astonishing; people, rigs, refineries were in short supply, not to mention the devastation caused to industry capacity by hurricanes Katrina and Rita." One of the biggest shocks to the industry in 2005 -- one that should have been anticipated, in Simmons' view -- has been China and its burgeoning demand for energy. "China was the big surprise; we didn't see China coming."

Natural gas is at "far worse risk" than oil, Simmons told attendees at Deloitte's 2005 Oil & Gas Conference in Houston last week. He asserts that too many key gas production areas have passed peak supply and that most "stranded" gas has never been discovered. Add to this the fact that gas reserves deplete faster than oil.

Simmons believes that even the growth of coal supplies is limited. High-quality black coal is becoming scarce and lower BTU brown coal is the next generation supply. He notes that figures for proven coal reserves don't make a distinction for the quality of coal available and that most reserves are volumetric estimates. He says that nuclear power needs "a big comeback" and that renewables such as wind, solar, geothermal, waste and hydro all work. Oil should be used as a transportation fuel and petrochemical feedstock while natural gas is "the world's best heat source."

Any cure for the nation's and the world's energy woes is a long way off. However, Simmons, the author of "Twilight in the Desert: The Coming Oil Shock and the World Economy," says a good place to start is with transportation. Move more goods by train and boat and fewer by long-distance trucking. Workers' commutes should be shortened or eliminated through telecommuting. There should be a reduction in the amount of imported food with more supplies grown domestically. The same is true for manufacturing, with more goods being produced closer to where they are used/consumed.

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