Sunday, November 2, 2008

Technosanity #18: Matt Simmons discussing oil supply disruptions

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Matt Simmons is Chairman of Simmons & Company International, a specialized energy investment banking firm. Mr. Simmons' recently published book Twilight in the Desert: The Coming Saudi Oil Shock and the World Economy has been listed on the Wall Street Journal's best-seller list. He has also published numerous energy papers for industry journals and is a frequent speaker at government forums, energy symposiums and in board rooms of many leading energy companies around the world. Mr. Simmons is married and has five daughters. His hobbies include watercolors, cooking, writing and travel.

His presentation is to warn of a 'run on the bank' as it applies to oil supplies. He warns of how this can cause a major disruption very quickly and which is a gravely serious problem. There's an analogy to how quickly the financial system melted down.

Slides: http://www.aspo-usa.org/aspousa4/proceedings/Simmons_Matthew_ASPOUSA2008.pdf

The meltdown demonstrated various flaws in the financial system which had been built. The lack of regulation, the high leverage figures, it all made for a nonresiliant system which collapsed like a house of cards. There was an illusion that the bigger the financial institution the more it was too big to fail, but we saw giants fall.

Risk is a very real thing. Leverage can be dangerous. Audited financial numbers do not always represent genuine reality.

In the oil industry there is even less knowledge about the true situation. In the financial system there is regulation and required disclosures, even as much of that system has been deregulated. In the oil industry there is no regulation, there is no federal reserve, no watchdogs, etc.

Just like the quick collapse of the financial system, can the oil industry also go through a quick collapse and what is the effect if it does? The question to be concerned over is how resiliant is the oil delivery system to disruption. How easily can oil supplies be disrupted? How much cushion is in the system to even out disruptions? What alternatives do we have if oil supply is disrupted to us? What is the effect on our daily life?

The system collapsing means we could still have oil in the ground but have a society unable to function to the level required to deliver it to market as a finished product.

Energy Oxymorons:

"We need Energy independence" -- 100% impossible to create

"Technology is a game changer" -- Technologies have zero impact on these risks

"Drill our way out of this mess" -- No spare rigs and no places to drill where oil can be retrieved easily

"Energy system is efficient and transparent" -- Much hidden data rather than the great transparency of the financial system

Technosanity #18: Matt Simmons discussing oil supply disruptions

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