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By Robert Rapier on Jan 14, 2008 with 3 responses

Debunking Matt Simmons

I don’t suppose this essay is going to make me any new friends, but what’s good for Vinod Khosla is also good for Matt Simmons.

A couple of years ago, I took on Vinod Khosla because I felt like he was unduly influencing energy policy in the wrong direction. I pointed out a number of incorrect comments from him that I felt called into question his understanding of the issues upon which he was pontificating. I had no personal animosity toward Mr. Khosla, and in fact we have communicated numerous times over the past couple of years. He has even offered to put me to work in the biofuels industry. So, definitely no hard feelings exist between us. He believes in what he is doing, and I believe in what I am doing.

Now, in the same spirit I turn my attention to investment banker Matt Simmons. Let me first say that I think Matt wrote a fine book in Twilight in the Desert. He did a lot of research and read a lot of papers, and thoroughly presented his case. I have read the book, and have gone back to it many times as a reference. I think he is generally correct on the big picture, and I couldn’t agree with him more on the need to prepare for peak oil.

But even when I was reading the book, Simmons sometimes made comments or arguments that were (to me) either bizarre, or just wrong. For instance, in Twilight, I can recall him becoming alarmed by the term “fuzzy logic.” I had been around control systems based on fuzzy logic, so I was familiar with the term. But Simmons said he had never heard it before, and interpreted the phrase as one might interpret “hunch.” He went on and on about how Saudi didn’t really know how much oil they had because they were using fuzzy logic. Simmons tells the story himself:

There was a presentation that we had at the Expec (ph) Center at Saudi Aramco where one of the guys said the reason we are applying this technology is because it now takes fuzzy logic to make sure we are maximizing our natural resource base. I had never heard the term ‘fuzzy logic’ before’ so during the Q and A, I raise my hand, and actually I had two questions: “Was that model that you did of Ghawar with all those dots, were they wellheads?” And he said, “Oh yes.” And I said, “How come they’re all in the very north of the field?” [And he said] “Oh we just make an orderly progression from north to south.” And secondly, “What does ‘fuzzy logic’ mean?”

And he said that fuzzy logic (which is a very common scientific term, but I just had never heard it before) is the difference between the other end of the spectrum from crisp logic. Crisp logic is true or false. A man of ten is young, true or false; a man of 20 is young, true or false; a man of 30 is young, true or false; a man of one hundred is young, true or false. When you get towards the center there is no true, there is no false, and it now takes fuzzy logic, and I said to myself, “if they have 260-billion barrels of reserves, if they can basically just keep turning on a tap, why does it take fuzzy logic?”

I didn’t want to be facetious – there was just something there that didn’t smell right, and I never realized (even doing this giant oil field study) it took me in the hotel in Dhahran, looking at this nice book we were given on the eastern province, to suddenly start realizing that you could draw a ring around these handful of great fields, and it would fit within the Great Salt Lake. I grew up in Utah – it’s not a very big territory.

I would say that most technical people are familiar with fuzzy logic, so I figured that Simmons was just not a technical guy. And I wouldn’t even tell this story, but this week my attention was called to this:

An Interview with Matt Simmons

In the interview, Simmons made several other claims that raised more flags with me with respect to his ability to interpret technical information. Such as:

Sour, heavy oil is really not worth very much.

That’s preposterous. Refiners with crackers and hydrotreaters love heavy, sour oil, because they can make a lot of money with it. I explained this in detail in The Assay Essay. Furthermore, refiners can get almost as much liquid product out as they can from light sweet oils. It may very well be worth nothing to a refiner who can’t process it, but to say it isn’t worth very much is ludicrous. It does trade at a $10-$20 discount to light, sweet oil, but that’s simply because more refiners haven’t yet adjusted to process it. But more are installing the equipment (cokers and hydrotreaters/hydrocrackers) every day.

Here’s another example: “It [ammonia] has 111 octane, whereas corn-based ethanol has a very low octane.” For all its faults, ethanol has a very high octane, and is used to boost the octane of gasoline.

So, the point is that I am learning to take Simmons with a grain of salt when he is discussing technical subjects. He may be an ace investment banker – and he has certainly made a lot of money – but he has given me no reason to put stock in predictions like this from him:

MS: Ocean energy, on the other hand, could actually be very surprising. Liquid ammonia created by warm seawater could turn out to be a surprisingly fast replacement, and a high-quality replacement for motor gasoline.

BC: Liquid ammonia? We’ve never heard of this.

MS: Well, no one has because there’s only about five people that are working on this. But we have transported liquid ammonia, and we have a history of almost 50 years of using it. It can be moved with exactly the same sort of pipeline system as motor gasoline. It has 111 octane, whereas corn-based ethanol has a very low octane. The biggest rap on it is that it’s dangerous to your health if you drink it. Well, I keep telling people, “Have you ever had a good swig of motor gasoline?” (laughter)

Or his claims on algal biodiesel, in which he is investing in, and proselytizing on:

“Call it seaweed, if you want,” Simmons said. Whatever you call it, Simmons said the world must start harvesting this micro algae using what he called “underwater lawnmowers.”

Simmons acknowledged that any plan for large scale harvesting of micro algae likely would be strongly opposed by environmentalists. His blunt message to them: “Get over it. We’ve already destroyed the fish stock.”

Simmons has been putting his money where his mouth is. He founded an ocean energy institute to investigate the potential of micro algae as a new source of oil. According to Simmons, micro algae has a fat content of roughly 25%, far higher than the 2% to 3% fat content of corn and the 6% to 7% fat content of palm oil.

I have addressed algal biodiesel challenges here previously.

The point of this essay is not to tear Matt Simmons down. Rather, I am just scrutinizing the claims of someone who is frequently put up as an authority. He has demonstrated to me a lack of knowledge in several key (technical) areas of the energy sector. So then we need to take his peak oil claims with a grain of salt:

My opinion is that it’s increasingly likely that we actually set an all-time record in May 2005 of 74,252,000 barrels per day. And for the first three months of 2007, we’re almost a million barrels per day behind that, and we’re dropping fast. If that record still holds a year from now, I’ll bet someone ten-to-one that we set peak oil in May 2005 and it’s now past tense.

Incidentally, I will take that bet. 10 to 1? You have to be kidding me. Anyone else want a piece of that? Of course more recently he has been more emphatic about his claims that we have peaked, as he stated this in several interviews in late 2007.

Personally, I don’t think we have peaked, although I think we are probably pretty close. I personally think we have a 90% chance of peaking by 2015, and I think we will experience the symptoms of peak – Peak Lite – until then. I do think we need to take swift action to mitigate something that could potentially be very unpleasant. But when people – especially people who are considered to be authorities – go on record and are wrong on this issue, I think it diminishes the urgency to act by giving people a false sense of security given that we will have once again cried wolf.

  1. By Tony on July 16, 2010 at 5:51 pm

    What do you think of Matt Simmons’ outrageous claims about the Gulf of Mexico oil gusher ? He claims there is a crack in the ocean floor that continues to release 120,000 barrels per day. Here is a July 15, 2010 interview on the Dylan Ratigan Show (MSNBC) –

  2. By Tony on July 16, 2010 at 5:52 pm

    What do you think of Matt Simmons’ outrageous claims about the Gulf of Mexico oil gusher ? He claims there is a crack in the ocean floor that continues to release 120,000 barrels per day. Here is a July 15, 2010 interview on the Dylan Ratigan Show (MSNBC).

  3. By Robert Rapier on July 16, 2010 at 6:09 pm

    Over the years, I have begun to view Matt as someone who gravitates from one oil-related disaster to another, makes big proclamations of doom that generate headlines, and when they fail to materialize he simply moves on and waits for the next opportunity.

    I have reporters often e-mail me for comments on this or that. I got one recently asking for specific comments on the nature of this leak. I answered that I am not an expert in that specific area, and provided her some names of some people who are. That’s what I do when I don’t know a topic in great detail. Matt doesn’t suffer from that problem. He is out there frequently commenting on things he knows very little about.

    It may have been the link above, but I saw him on a show where the interviewer was showing footage of the leak underwater and said “I can’t look at this like you can, Matt, and understand exactly what is going on.” LOL. Matt is an investment banker. He is not a geologist or a petroleum engineer. He can’t look at that footage either and understand any more than most people.

    People give him far too much credit for expertise in areas that they shouldn’t. And I know a great many professionals who share that opinion.


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