Matthew Simmons: Peak Oil is Real and Has Arrived

The rise and fall of oil prices over the past few years has lead many to consider the finite nature of petroleum reserves. Optimists talk of the current price of natural gas, normalization of crude prices, and technological advancement that shall lead us to bountiful and stable energy reserves. Pessimists view structural limitations in creating a non-carbon based energy economy and a decline in fossil fuel reserves.

Matthew Simmons, who wrote "Twilight in the Desert: The Coming Saudi Oil Shock and the World Economy," offers the thesis that sudden and sharp oil production declines could happen at any time. Even under the most optimistic of scenarioes, Saudi Arabia (the world's largest producer) may be able to maintain current rates of production for several years, but will not be able to increase production enough to meet the expected increase in world demand. Eventually, a day of reckoning will arrive and the world economy will be confronted with a major shock that will stunt economic growth, increase inflation, and potentially destabilize the Middle East.

In Foreign Policy (FP) magazine, he offers a riposte to a number of critics who have recently dismissed his assertions.

First, alarming data from the International Energy Agency and the U.S. Department of Energy shows that the flow of global crude oil peaked in 2005 and is now sliding steadily. The world will never "run out of oil," but its flow is in decline. There may still be ample oil reserves left in the ground when oil flows fall to half of today's use. But these remaining reserves are all either very low-quality heavy oil, which is difficult to process, or tainted with toxic elements that make it hard to refine into usable petroleum products.

He goes on to argue that his opponents arguments, which he describes as being based on belief rather than hard empirical data and meaningful econometric arguments, are unsound. His years of experience and insights into the current situation need to be fully appreciated by consumers and world leaders alike. How many times in this past decade have we heard, "Don't worry, trust us!"