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.
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. While I agree with Simmons that corn ethanol is “a terrible, tragic mistake”, I can’t agree with his assertion “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.
That was it? I thought it was going to be better than pointing out a few bits of technical confusion that most of us likely caught and didn’t think twice about (other than “yep he’s an investor not a scientist”).
I thought it was going to be better than pointing out a few bits of technical confusion that most of us likely caught and didn’t think twice about
But if he is an investor and not a scientist, why is he being taken seriously on matters of science? That’s the point. It was more than a few bits of technical confusion. Some of those comments aren’t remotely accurate. I have heard him say that heavy sour oil isn’t worth much on a number of occasions, and others have repeated it. People are lead to believe that it’s not very useful. That’s garbage.
So what does he do? He goes on and on about how algae or ammonia are going to save us, and he is taken seriously. Why? Then, when he says “We have peaked”, then that’s good enough many people. Because after all, he’s Matt Simmons.
Another great piece by RR.
But, it seems to me we are reaching Peak Lite completely for political reasons. Venezuela, Mexico, Iran, Iraq, Libya, former SWU states and on and on. All could produce far more, and could in the future, with a change in the political winds.
They are Thug States, and, unfortunately, Thug States have staying power. But nothing lasts forever. Thug States might also become worse.
In any event, we might see a whole ‘nother scenario: Thug States slowly improve, and this oil production slowly rises for generations.
The good news is that ofssil oil demand is probably retreating at this point, not growing. Western states, combined with huge gobs of venture capital and democracy, re developing wonderful technologies.
In the USA, we should strive for clean, domestic energy, and it is doable, probably through solar.
By the way, Toyota announced they have a plug in hybrid on the way, for fleets, by 2010.
Look for fossil oil consumption in the developed world to fall, maybe for decades in a row.
The oil picture is ugly, but Western technology is incredible.
Never bet against well-financed free people.
Planning on posting this @ TOD? Man, those guys are going to lynch you!
But more to the point, thanks for staying true to the truth, it is becoming such a rare (and, as you point out, unpopular) trait…
BTW, I think Simmons may be right about marine algae, but I would feed the algal biomass into a gasifier. That way the lipid content is irrelevant.
Benny, have you seen the news about the biodiesel industry in Asia? Things are going to get more eh…interesting before they get better.
This is a really interesting piece, I have never read any of Matt Simmon’s books and always assumed he was an authority, only because other people said so.
I am less sure we are yet to see the peak, I would put it around 75/25 that we have peaked. I just don’t see where the extra supply would come from.
optimist:
That’s too bad about palm oil. Hope for better news in the future–jatropha?
My previous reply not withstanding, I do agree with your post in principle and I’m glad to see it brought forward.
Not really “debunking Matt Simmons”, is it? Got to back dcla on that. Maybe you should have used some more moderate term, Robert.
Simmons fame rests on the fact that, long before publication of “Twilight”, at a time when many people were more worried about low oil prices than high, he beat the drum about long-term oil & gas supplies. And, with all due respect to your fine blog, that fame stands entirely un-debunked.
For all his flaws, you have to love the man!
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.
The sad fact is that NO large-scale energy source is acceptable to the anti-human environmental extremists. Those are the people who really do need to be debunked.
And, with all due respect to your fine blog, that fame stands entirely un-debunked.
But there was no intention or attempt to debunk regarding his book on Saudi. It’s like when I debunked Vinod Khosla. One could say “You didn’t debunk his success with Sun Microsystems. Therefore, you didn’t debunk him.”
Again, I think Simmons has done a lot of good. But I also think you have to take his comments with grain of salt – which is what I wanted to stress.
RR
The sad fact is that NO large-scale energy source is acceptable to the anti-human environmental extremists. Those are the people who really do need to be debunked.
Kinuachdrach,
You seem to be facinated by these weirdo’s. I don’t think there is enough of them to make a difference. Most people understand that some hard choices will need to be made, and are fine with it.
Perhaps we can work out a deal with Castro and send the anti-humans to paradise at the same time…
But there was no intention or attempt to debunk regarding his book on Saudi.
Then find some other title than “Debunking Matt Simmons”, Robert. If you did not intend to debunk, then why claim that you are going to?
You seem to be facinated by these weirdo’s. I don’t think there is enough of them to make a difference.
I hope you are right. But that is a triumph of hope over experience.
China is now producing something like 4 times as much steel as the US — and exporting some of it to the US. Because some (influential) people in the US don’t like steel mills.
Can’t drill for oil or gas within many miles of the coast of Florida — except where the Cubans are doing it. Because some (influential) people don’t like drilling.
Can’t explore in Alaska, or in much of the Rocky Mountains. Can’t put a wind factory offshore where Teddie Kennedy might see it. Because …
Haven’t built a nuclear power plant in 30 years — and when the next one is evetually built, it will probably be imported. Because …
You are right that only a small number of fanatics are behind the de-industrialization of the US, but they are having a big impact. Some day that will change, but I am afraid there will have to be blood in the gutters first.
Then find some other title than “Debunking Matt Simmons”, Robert. If you did not intend to debunk, then why claim that you are going to?
The way I see it Simmons is beginning to comment on issues he knows little about. RR is basically warning him to stick with what he knows. There is nothing wrong with that.
Some day that will change, but I am afraid there will have to be blood in the gutters first.
Blood in the gutters? Snap out of it, already!
I think it’s more like $5/gal will do it. Assuming we can keep the clever politicians from solving the problem for us.
Can’t put a wind factory offshore where Teddie Kennedy might see it. Because …
Yes, Ted’s dedication to the environment is really touching.
China is now producing something like 4 times as much steel as the US — and exporting some of it to the US. Because some (influential) people in the US don’t like steel mills.
I think you missed that dianosis: I suspect the US can’t do it cost efficiently, for a number of reasons.
I suspect the US can’t do it cost efficiently, for a number of reasons.
Definitely a number of reasons. Short-sighted management, definitely. Equally short-sighted unions, for sure. But the big issue has been chronic under-investment.
When Andrew Carnegie was building up the US steel industry, he avoided paying dividends and instead plowed all the money he could find back into newer technology. But the US steel industry stopped reinvesting — and government regulations and tax policies have had a lot to do with that.
Look at Japan. No resources. Have to import everything, yet they can still make steel efficiently. Why can the Japanese with no resources make steel more efficiently than the US which has resources?
Because the Japanese are not carrying the dead weight of excessive government interference & anti-development litigation promoted by the anti-humanist minority.
The unfortunate (& unnecessary) state of the steel industry bears thinking about. Too many proponents of alternate energy think they can win by cheating (government mandates, subsidies, etc). The only secure way to win in the long term is by bringing a better & cheaper source of energy to the people.
If you did not intend to debunk, then why claim that you are going to?
You are confused. I did debunk. Simmons is saying a lot of bunk. I debunked several of these claims. What you are confused about is you seem to think that I needed to debunk Twilight before claiming to debunk him. But Twilight is not the bunk. Twilight gave him the platform to bunk.
RR
RR: “I did debunk. Simmons is saying a lot of bunk. I debunked several of these claims…”
For your point to be true it would mean that the weight of Simmons’ authority rests more on the technical elements that he is mistaken about rather than, eg, his book. Your title is a global one and, given how much you agree with him, misleadingly so. You could have called the post ‘Simmons is great, but gets technical elements wrong’ and you wouldn’t need to have changed any of the text.
Our host wrote:
You are confused. I did debunk.
‘Fraid not, Robert. Simmons had a reputation for years before publication of “Twilight”. You did not lay a finger on that reputation. I have to agree with Sam Norton here.
Now, if you had used more moderate language in your title … But you didn’t, you claimed “Debunk” — and you failed.
To be brutally blunt, you made some accurate but snarky little corrections and expressed disagreements on some of Simmons more recent statements.
My apologies for having to be so direct — just consider it “Debunking Robert Rapier”.
But the US steel industry stopped reinvesting — and government regulations and tax policies have had a lot to do with that.
As I am sure did the culture of focusing on quaterly profits. Wall Street is the source of a lot of our problems, including the coming crisis if they succeed in pressurizing Bernanke into more interest rate cuts.
Because the Japanese are not carrying the dead weight of excessive government interference & anti-development litigation promoted by the anti-humanist minority.
Let it go, there aren’t that many anti-humanists around. OTOH there are legitimate concerns about pollution. And a culture of NIMBY.
The only secure way to win in the long term is by bringing a better & cheaper source of energy to the people.
Ain’t that the truth. Unfortunately now that Big Ag has its snout in the trough, it’s going to be hard to return to sensible energy policy.
To be brutally blunt, you made some accurate but snarky little corrections…
Correcting for “heavy sour crude isn’t worth much” or “what the heck is fuzzy logic” isn’t snarky. It is fundamental to the issues he is commenting on. Your objection is really that I didn’t debunk Simmons, because I didn’t debunk Twilight. But, any time someone is debunked, their entire body of work is never debunked. That’s a ridiculous threshold to expect. Rather, what was debunked was a lot of claims he has made regarding energy issues that he clearly knows nothing about. If you can’t understand that, there isn’t much else I can do about it. I mean, we could have had this same argument over “Vinod Khosla Debunked.” You could have gone on and on about his stellar record with Sun. But that’s irrelevant to the claims I debunked.
I have to agree with Optimist here.
But I am not going to argue about this any longer. No time for that. I just came home after a 14 hour day to over 100 responses and e-mails. I don’t have time for disagreements that are really insignificant in my opinion. Feel free to have the last word.
Incidentally, the one other thing I will say is that Matt Simmons and I are on the same page on the big picture issues. So, I actually toned down the first essay I wrote. I felt like it wasn’t necessary to really go after him; only poke him a bit and make sure people understand that he is human. It’s just that lately I have seen a lot of “Matt Simmons said it, therefore I believe it.” That’s the whole reason I went after Vinod Khosla. I want people to think for themselves.
So if it makes you feel better to believe that I only partially debunked Simmons – which was admittedly what I did – then that’s fine. But his errors were pretty serious, and thus his claims should be taken with a bit of caution.
Our host wrote:
Your objection is really that I didn’t debunk Simmons, because I didn’t debunk Twilight.
Not at all. Unlike some of the commenters, I have read “Twilight in the Desert” — but I bought it because of Simmons’ reputation from his previous years of talking about impending oil & gas deliverability issues. You don’t seem to be aware of the long period for which Simmons was a voice in the wilderness.
I don’t consider “Twilight” to be the peak of Simmons’ contribution, or even to be a particularly important part of it.
“Debunking” does not mean pointing out errors which were obvious to all of us who read his book(except, apparently, his editor). “Debunking” would mean convincingly refuting the central tennets of his work — for example, in the way that Hansen has been repeatedly debunked.
No-one has debunked Simmons long-expressed concern that global deliverability of oil & gas is likely to crest & decline. I fear that no-one can — and we are all going to have to live with the consequences.
Robert, since you earlier offered me the last word, let me use it to agree sincerely & wholeheartedly with you.
Rober Rapier wrote:
It’s just that lately I have seen a lot of “Matt Simmons said it, therefore I believe it.”
Agree totally — that is very poor! Reflects really badly on the people saying it.
We are all responsible for our own decisions. Blindly handing over responsibility to some “authority” is dreadful, and should be discouraged (and mocked where necessary!) Let’s debunk the sheep who follow blindly, not the trail-blazers who forge ahead (and sometimes choose the wrong direction).
One of the nice things about Simmons long journey is that he did not say — “1,000 scientists tell me …” He did not say —
“this is too complex for a non-specialist to understand ….” He recognized that the global supply of oil & gas was a key issue, and he dedicated a lot of his time & talents over many years to finding out at much as he could.
Let’s hope more people use Simmons inquisitive behavior as a guide, and don’t just blindly adopt his conclusions.
I disagree that most technical people are familiar with fuzzy logic. That’s probably true regarding control / process engineers, but certainly not true of computer engineers I work with.
I have read Bart Kosko’s book, so I am familiar with fuzzy logic, but I tell you most english speaking people are too quick to assume
fuzzy logic = fuzzy thinking
and dismiss it out of hand. I am told in Japanese the term they use translates closer to “clever logic”, so it has less resistance in Japan.
Regarding MS, it is a shame that there are so few engineers who end up as consultants and investment bankers.
The comment about environmentalists being “anti-human” is really tired. The whole point of environmentalism is to protect the environment to improve the human condition. The Clean Air act came about when LA smog was close to unbreathable. In the 1960s, the Cayuga River in Ohio was so polluted that it caught on fire. The bald eagle was on its way out (along with dozens of other species) before the Endangered Species Act… The were mostly regional problems. Today the problems are more global, especially climate change. The world came together and we banned ozone depleting fluorcarbons and technology found replacements. Simmons is probably right about algae, but it will be grown in vertical tubes not harvested from the sea.
I strain to understand the fascination for the fine points of this subject, i.e., exactly when the world experienced – or will experience – peak oil. Whether or not you agree with Matt Simmons’ analysis and conclusion (which I happen to, personally), I think you have to concede that CO2 levels of 385 ppm and climbing means taking an unacceptable risk with the future of our planet – in terms of both global climate change and ocean acidification. I’m less interested in the rhetoric surrounding peak oil and more interested in creating what I know will be a monumental effort to create legislation that creates a level playing field for renewables, as I’ve written in numerous blogposts at 2GreenEnergy.com. e.g., today’s: http://www.2greenenergy.com/general-electric-invests-in-renewable-energy/1283/.