Simmonns Spells It Out - But When Will the Ostriches Get Their Heads Oupt of the Sand?
Simmons said he regretted not making his predictions for the future of Big Oil much more dire than had been portrayed in his controversial book, Twilight in the Desert, published two years ago.
"If I was redoing Twilight in the Desert today, I'd sharpen the severity of the warning quite significantly.
"May, 2005, still stands out as the all-time record high for global crude production … 74.3million barrels per day, and now we're down 1.2million barrels per day. The IEA shrug that off, saying that if you look back over the last few years, records have been set several times; a peak followed by a falling off, then another peak, and so forth.
"That's an interesting thesis. But as we watch Mexico start into its big-time decline and UK and Norway continue their rapid declines, plus Indonesia, Egypt, Argentina and others besides … you can see several years of relentless decline. Add them up and say, find me one area coming on in the next few years that will halt such a collective decline … it's just not there.
"Major oil companies have quadrupled their spending over the past five years and, other than acquisitions, basically they're in liquidation."
Simmons reiterated his tough stance on drilling, which is the key to unlocking new resources. Given the criticality of a sustained offshore effort in that regard, he said the level of understanding of the current rig crisis and the need for renewal, let alone growing the global fleet was woeful.
"We had our two-day conference at Gleneagles at Offshore Europe time and what impressed institutional investors the most was just how tight order books are for offshore rigs and how long that order book is going to stay intact. I had a long talk with one of the senior guys from National Oilwell. He said, 'I don't think your audience quite understood what I was talking about'.
"He said, for example, that a thorough survey of all the jack-up systems in the world (for jack-up rigs) revealed that a very high percentage are performing jacking operations far beyond the original design life of their jacking systems. 'They're obsolete', he said.
"I look around the system and have come to the view that we're right out of capacity."
On "Great White Hope" projects, Simmons was equally scathing.
"What about Kashagan … or Cashisgone, as it's now being called. If I were the Kazakh government, I'd take the project away from these guys (the Eni-led consortium).
"Given the terms of the project and given the extraordinary high costs, it could be 2040 before the Kazakh government gets any proceeds off the project. But that begs the question: should we even be doing such complicated projects and at such a cost when Kashagan might not even work?"
Because of his views, Simmons attracts plenty of criticism. He is even accused of not having a clue about what he is talking about. But he shrugs it off.
"I have the luxury of having a highly detailed track record … look at the talks I've given and see how controversial they were at the time. Then pick me one that was wrong.
"One that I occasionally get pointed to as being probably the biggest mistake I ever made … a paper I did back in 1997 on the case for 450 more offshore rigs. What I basically said is that, if we want, 10 years from now, to have a platform from which to continue growing offshore oil supplies, we obviously need more rigs.
"The question is: 'How many would we need?' I remember spending a weekend going through a fairly careful methodology and thinking through some basic assumptions. And I finally added the numbers up and said that, to be in good shape by 2007, there would be the need for 450 offshore rigs.
"Whatever the number, fact is that we're now in 2007 and we have no excess rigs and there's going to have to be massive attrition as the rust-buckets fall apart."
Another line that Simmons is regularly hammered on is depletion rates of fields that have peaked.
Picking on a new CERA (Cambridge Energy Research Associates) report that points to decline rates across several hundred oilfields of 4.5% per annum, Simmons challenged CERA to come clean on how it arrived at such a number.
"I was talking 4.5% more than a decade ago and decline rates have turned out to be a lot greater than that … 10% and more. Then they're (CERA) saying that decline rates are not increasing with time.
"In May, 2005, they came up with a report saying that, based on the most detailed field-by-field study, between now and 2010 the world would add 16.4million barrels a day of new supplies!"
The Simmons view is that, with few exceptions, everyone is going flat out in an attempt to stem decline.
"I continue to watch table six of the EIA (US Energy Information Administration) monthly report. If you look at Saudi Arabia's imports into the OECD, there is a fairly steady decline over the past four years. There is no sign that, a year ago, they cut back (output) by a million barrels per day. That's significant."