Today, the price for crude oil hit $134 per barrel and on the way home tonight I noticed that gas had reached $4.15 per gallon. Why the high prices? Well, I just read a really interesting book by a guy named Matthew Simmons called Twilight In The Desert that brought alittle clarity to that question for me. Simmons is a very well respected guy in the oil industry and in economics. He works for an investment bank in Houston that specializes in energy and he offers a pretty grim view of what's ahead.
Simmon's thesis is that the world's dependency on cheap and plentiful oil is going to meet with some tough economic times because the world's top supplier, Saudi Arabia, is not the bottomless pit of crude oil that people keep telling the public they are. Their national oil company, Saudi Aramco, has kept details of their oil fields behind closed doors for the past 3 decades. But in this book, Simmons combed through gobs of research demonstrating that Saudi's 5 major oil fields. . . the ones that are basically feeding the world's energy needs. . . are in bad shape and could peak and begin declining any day now. At the very least, they are simply incapably of keeping up with the growing energy demands coming from China and India.
I was reading this book last week when Bush went to visit Saudi Arabia to beg them to start pumping more oil. Of course Aramco said they'd start pumping out a few 100,000 more barrells a day (bringing them to about 9.4 million barrels/day), but that hardly made a dent in the oil prices. Everyone said Bush failed. But did he? Why wouldn't they start pumping more? Don't they have enough oil? For years, energy analysts have said that Saudi Aramco will need to start pumping somewhere in the order of 20 to 25 million barrells of oil a day over the next decade to keep up with the world's energy demands. Until recently, most have said that shouldn't be a problem. Simmons says the reality is that Saudi Arabia is simply incapable of pumping more than around 10.15 million barrells a day for any sustained period of time, and sometime soon that number may begin declining. All that means, if Simmons is right, very soon demand is going to start exceeding supply on a global scale. And that's when things are going to get REALLY painful! Here's a link to a NY Times article from 2004 that explains in a few pages what Simmons did in 350 if you don't have the time or the patience to read the full deal.
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