Is Matt Simmons Credible?
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Introduction
I am going to address a touchy subject in this essay, but I simply can’t ignore it any longer. I have noticed that a lot of people are finding my blog through keyword searches of “Debunking Matt Simmons.” About two and a half years ago, I did write an essay called Debunking Matt Simmons. Because of Matt’s recent claims about the disaster in the Gulf of Mexico, there has been a spike in interest over whether his claims related to the disaster are actually credible. So now seems like a good time to revisit the subject.
Claims like "BP will file for Chapter 11 by July 9," and that "the 'real, untold story' is another leak that is 5-7 miles away spewing 120,000 barrels per day" are ruining Matt Simmons' credibility.
The topic is touchy because Matt Simmons has long been revered in the energy business, and some of his fans will be upset with me for writing this.
But Simmons has lately been making what I feel are very irresponsible and sensational claims that don’t hold up to scrutiny. So I will review his history here to show a pattern of Simmons making sensational predictions based on meager and/or misinterpreted data; predictions that later proved to be grossly inaccurate.
Matt Simmons, Investment Banker and Author
Matt Simmons is an investment banker to the oil industry, probably most well-known for writing the book Twilight in the Desert
The book became very popular, especially when Saudi production began to decline shortly after the book came out.
My view was that Saudi production fell not because of the arguments Simmons put forward in Twilight, but rather because the Saudis were holding production back to keep prices up. So my feeling was that the Saudi decline was unrelated to many of the arguments that Simmons put forth. And in fact a couple of years later as oil prices climbed, Saudi production climbed back into record territory.
But I thought the book was important for two reasons. One, it put a spotlight on Saudi Arabia and really highlighted the importance of that country to the rest of the world, especially once oil supplies began to shrink. Second, it called a lot of attention to the issue of peak oil. I have always said that Twilight and The Long Emergency
That isn’t to say the books don’t have flaws. They do. In Simmons’ book, I felt he frequently came to conclusions that weren’t warranted by the arguments he presented. A famous example is his “fuzzy logic” argument. Fuzzy logic is the basis of many control systems, but Simmons incorrectly interpreted the phrase to mean “hunch.” So when the Saudis used fuzzy logic in their control systems, Simmons made an argument that they were really guessing about their oil reserves. In his own words, “if they can basically just keep turning on a tap, why does it take fuzzy logic?” The comment was nonsensical, but as later events would show not simply an isolated example of Simmons speaking out when he didn’t know what he was talking about.
Matt Simmons, Layman
Twilight in the Desert made Simmons famous, and he began to be called upon as an expert on all things oil-related. There were two very big problems there. First, Simmons is an investment banker, and is not remotely an expert on all things oil-related. In fact, I don’t know anyone who is. But the bigger problem is that he either thinks he is, or just can’t say no to requests to do interviews and presentations. And when he does those, he frequently makes sensational claims and predictions. I am on an e-mail list where I saw this recent comment about Matt from a long-time admirer of his work, which I think hits the nail squarely on the head:
I think something happens to the psyche when the media pay attention to you for so long. You stop all self criticism, believing that whatever thoughts come to your mind have validity and import. In truth, it doesn’t matter if you are eventually proven wrong, because by then you’re off on the next topic.
Simmons’ Blunders at ASPO 2008
In my previous essay on debunking Simmons, I provided some examples of Simmons making factually incorrect statements. These statements were based on him not having enough information (or bad information), yet still speaking authoritatively on a topic. There were two later examples from his talk at the 2008 ASPO conference — where I also presented. (See his presentation here). He claimed in his presentation that we don’t have a good idea of our gasoline inventories, and because of Hurricane Ike we were just beginning a gasoline crisis that could bring the entire country to a halt. He spun quite a frightening tale, and I could see the shock on some people’s faces.
Contrary to Matt’s argument, the evidence was just the opposite. Even as he was speaking, refineries were coming back online from the hurricane outages and inventories were recovering. I caught up with Simmons later and told him that I used to work in a group in a refinery that provided inventory data to the Department of Energy, and we do indeed have very good data on gasoline inventories. So his fundamental premise was wrong. I was asked about Matt’s comments on a later panel session, and I said that gasoline inventories were beginning to recover and that I predicted they would be higher in a month. They were. Matt’s frightening scenario based on Hurricane Ike didn’t come to pass.
Another example is his argument about the $100 trillion corrosion issue in the oil industry. The gist is that he argues that the oil industry is full of rusting infrastructure, and he questions whether we have the money or even the iron resources to fix the problem. Further, he questions aloud how it is that he – Matt Simmons, investment banker – has ‘discovered’ this problem that the oil industry has missed. I won’t go into all of the reasons that Matt is way off the mark on this, as that would be an essay in itself. A corrosion engineer at The Oil Drum once weighed in on this issue, and explained that corrosion is well-understood, and not something that Simmons discovered. Oil companies are full of corrosion engineers who work to replace corroded equipment as needed. But it was another oil-related “crisis” Simmons “discovered” and he ran with it.
And that brings us to his recent interviews over the spill in the gulf.
Sometimes Silence is Golden
Personally, I have a rule about presentations and interviews: If the topic is outside of my area of expertise, I decline. If CNN calls up and says “Can we interview you on the future of the solar industry?” I will tell them no and give them the names of some experts in the field. Lately I have been asked a lot to comment on specifics on the disaster in the Gulf of Mexico. I always decline, again because there are plenty of people who know more about the specifics than I do.
Simmons doesn’t seem to have a filter that tells him to pass up an interview if he might not know what he is talking about. Here is a sampling of some recent interviews in which he makes numerous extraordinary claims. I have included some of the more extraordinary claims below, but there are plenty more out there that I didn’t list.
On Bloomberg: Simmons Says Government Should Take Over BP Oil Clean Up
On CNN: The Gulf Coast oil spill’s Dr. Doom
With Dylan Ratigan on MSNBC:
Simmons’ Sensational Claims on the Gulf Spill
In these and various other interviews, Simmons claims:
1. Use of a small bore nuclear device is the “only option” to stop the flow of oil.
I don’t want a banker who doesn’t know what fuzzy logic is being taken seriously on the issue of using nukes in the Gulf of Mexico.
2. BP would be insolvent by July 8, 2010. He has also stated several times that the stock is going to zero.
While I have said that I don’t think the BP brand can continue in the long run, I wouldn’t call them insolvent and it will certainly take some time for the legal issues to play out. A prediction of insolvency by July 8th was ridiculous. Simmons has also shorted BP stock, so some of this may be wishful thinking on his part.
3. The “real, untold story” is another leak that is 5-7 miles away spewing 120,000 bbls/day.
I haven’t the faintest idea where he came up with this, but I have spoken to several experts who say the chance of that is zero.
4. That there is an underground lake of oil that is 500 feet thick, 100 miles wide, and may be covering 40% of the Gulf of Mexico.
As one person calculated, that would equate to 500 trillion barrels of oil; total global reserves are estimated in the region of 2 trillion barrels.
5. The leak could last 24 years.
He believes this, because short of the nuclear weapon idea he sees no other way to stop the leak and thinks we may have to wait for all of the oil to come out of the reservoir. Meanwhile, the news is that BP is starting to get the leak under control.
6. The gulf states need to be evacuated.
Simmons says “We’re going to have to evacuate the gulf states. Can you imagine evacuating 20 million people? . . . This story is 80 times worse than I thought.”
That last claim was in the Washington Post, leading one critic to ask of the story’s author:
Did he consider that Simmons is a financial analyst and may have an agenda in creating heightened hysteria surrounding the spill?
Did he consider the effect printing this claim could have on the people of the Gulf Coast?
When Appealing to Authority, Make Sure the Authority is an Authority
Here are some comments I recently read from an actual petroleum expert (geologist) on some of Matt’s arguments:
He doesn’t seem to understand that the rig was connected to the well by the riser before it sank, and it was spewing oil and gas into the rig from the blow out. He also doesn’t seem to understand that most old blow outs occurred when drilling – and the drill string would get blown out of the hole – not the casing. And he doesn’t seem to know that blow outs are more common than we are currently aware and that relief wells are tried and tested means of stopping this. And he is the foremost oil expert in the World!
This is the problem in a nutshell. He is making authoritative, alarming, and far-fetched claims, but the real experts aren’t backing him up. His claims are quite consistent with his claims of recent years where he goes out on a limb, finds himself all alone, and eventually just jumps to another limb. I can’t figure out if he is simply after publicity to sell his book, or whether he is really as deluded as his comments seem to indicate.
Yet one thing interviewers almost always do is play up Matt’s experience. The danger in this sort of appeal to authority comes about when the supposed authority isn’t really an expert, and yet has the potential to cause mass hysteria and/or influence public policy. Simmons thinks it would be a good idea to set off a nuclear explosion in the Gulf of Mexico. He thinks we should evacuate 20 million people in the Gulf Coast. He has influence. But I think the media needs to start doing a better job here and stop facilitating this nonsense.
Conclusions
The purpose of this essay was not simply to dump on Simmons. But he is involved in sensationalistic fear-mongering, enabled by the media’s mistaken belief that he is an expert in all things oil-related. I want to make sure people know that they should take his claims with the grain of salt they deserve. As I have documented here, that grain of salt is warranted based on his history of sensational claims that never materialized.
Sadly, I believe he is in the process of destroying his credibility, and I ultimately do not think history is going to judge him kindly when it looks back on these events. This is very unfortunate, because despite the sensational claims, I still believe he is correct on a lot of the big picture questions of peak oil, long-term prices, and the need to take action. But if he loses his credibility, he will diminish his ability to convince people of the importance of the big picture issues.
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Rufus: Good, if corn ethanol really becomes subsidy and mandate free, then we can move to starting up Obama’s urban liquid fuel program, utilizing urban wastes. Let’s give it 40 years of mandates and subsidies.
Why not? We’ve given OIL a Hundred.
Ethanol will ALWAYS be “Mandated.” No way the oil companies would use it, otherwise.
Rufus, you are missing the point here;
The oil companies are not the actual users – that would be you and me and the collective drivers across the continent.
The oil companies are merely the blenders, and they don’t have to be, it’s just that no one else is doing it at the moment.
There is nothing to stop any independent gas station from buying ethanol from POET and blending it themselves (and claiming the credit).
There is nothing to stop POET from buying gasoline and blending it themselves (and claiming the credit).
In fact, I don’t understand (maybe you know?) why POET doesn’t blend gasoline into its product to make it all E85, claim the credit on every gallon, and then sell it on, to be used either as E85, or mixed to E10.
And here we have the nations second largest ethanol producer, Valero, coming out and saying they don;t need the VEETC;
Now, your point is still that they wouldn’t buy any ethanol unless mandated to, but is that really true?
In 2005, the year the mandate came in the ethanol industry already produced 3.9bn gallons a year, no mandate required. Now, since then the industry as tripled, but what would it have done without the mandate? It would certainly have grown, the auto makers would still be making flex fuels and people like you would still be driving them, so there ethanol inbuustry would certainly have grown, say 50% to about 6bn gal/yr.
But without a mandate, who then has the incentive to “use” ethanol? How about the people of the corn belt?
The states of Arkansas, Indiana, Iowa, Kansas, Nebraska, Missouri, N and S Dakota collectively use about 13bn gallons of gasoline per year. This could be replaced with 17bn gal of ethanol, which is 50% more than the industry size today.
Do the people of these states want to give their (hard earned) fuel dollars to oil companies, or corn farmers and ethanol producers? Do POET and ADM want to sell more ethanol without the cost of transporting it? Do these states have any desire to move themselves towards oil independence.
I think there is plenty of potential for the “use” of ethanol without a mandate (or even a subsidy). If both of these were taken away, then Poet, ADM, Valero, etc would have to get a bit more enterprising about developing the market for their product.
It’s not that it can’t be done, it’s just that it is easier and more profitable to have a government mandate requiring the use of the product. Nobody “requires” the use of gasoline, the oil companies just developed (very aggressively) their market. The ethanol industry should do the same. If they developed and marketed as aggressively as they lobby, they wouldn’t need to lobby, as they would already be selling more than they do today.
How much fuel and ethanol, gets used is ultimately up to the drivers. The ethanol industry can bypass the oil companies altogether, if they choose, but so far the industry has not stepped up to the plate. If John D. Rockefeller was running the ethanol industry, he sure wouldn’t be trying to grow it by selling through the oil companies!
Paul N said: Rufus, you are missing the point here;
Paul: I agree with you. Profits drive industries, not gov’t mandates. And Rufus (plus millions of other global citizens) mistakenly visulize that in order to produce an alternative fuel of any kind – that something needs to be planted, fertilized, watered, weeded and harvested via the agricultural community. Not so at all. This is the most obvious misconception about fuel alternatives beginning with fermented corn or sugar cane ethanol.
Carbon is carbon is carbon as a basic fuel building building block and ole’ J.D.R. would be focusing on how to utilize less expensive carbon obtained from a host of different sources entirely, even petroleum coke waste residues from oil refineries. Next his engineers would simply apply a well-known change of processing tactics via thermal steam-driven chemistry sets — instead of inefficient batch processing methods using enzymes and bio-bugs as the process drivers.
Why?
It would make the Standard Oil Company tons more money.
J.D.R. could choose F-T to produce expensive and clean – albeit float-on-water oils OR he could choose Methanization GTL to produce water soluble, biodegradable higher mixed alcohols which are 20% stronger BTU than corn ethanol.
Again, profits alone would dictate this choice for him. J.D.R. probably wouldn’t be worried about industrial emissions, vehicular emissions or resulting climate change phenomena. The first green is the money. The second green might become near-term environmental improvements effecting the lives of both terrestrial and oceanic inhabitants…
-Mark
Hey Robert,
Since he is an investment banker, when he said the BP’s stock was going to be insolvent and would zero out, did he mention how alot of British retirement systems are heavily dependent on BP’s stock. Needless to say, if BP’s stock completely fails, those British retirement systems are in trouble. Therefore, due to the political ramfications for both England and the U.S., I don’t see the two governments allowing the stock to fail. Yes, it will and has take a good hit, but I don’t see it failing anytime soon. Also, over time, I see BP’s stock slowly rising back up.
Great to hear people finally waking up to what a whack job Simmons really is. How that old fool investment banker managed to get himself branded as an insightful “expert” on energy is a testament to people only listening to what they want to hear and the penchant of the press to gravitate to sensationalism over science or facts every time. Even that moron GWB had Simmons as part of his “energy advisory team” – with “experts” like that offering opinions, is it any wonder why the US energy policy is so dysfunctional?
TITDesert was a crock of chit as anyone paying the slightest attention to detail knew from the start. The book was a conspiracy theory telling us that OPEC had grossly misstated reserves and big(gest) fields like Ghawar were in imminent danger of collapse. That he based his “science” on 30 year old data (ie before modern seismic, modern modelling, modern drilling, modern completion techniques) was absurd. That “data” said Ghawar should have died (not just declined) by ~2000. Yet Ghawar is still happily producing ~5MM bpd – so far producing ~15B bbls more than Simmons’ data said was possible. Once you spent 5 minutes and figured out everything else he was saying was based on his absurdly incorrect “data”, the rest of his book was little better than badly written children’s fiction.
I’m pleased that Simmons’ latest comments about the GOM blowout are so extreme that even the most uninformed now ask what planet the guy is from.
And it will be funny to see Simmons pay up his share of his infamous bet with the NYT that oil would average $200 bbl this year. The excuses/rationlizations of why oil is $75 with ~4-5MM bbls excess supply will be most interesting, particularly since Simmons said it was impossible and that oil could easily be $500 bbl by now (in itself an amazingly incompetent statement showing the old fool has no idea that the world economy would enter recession long before that happened, dropping demand and pulling prices back down, which is exactly what did happen).
My only problem with your blog is that you pulled too many punches. Incompetent media whores like Simmons need to be hounded out of the debate with as much scorn and derision as we can muster. And a blog every few years isn’t sufficient to overcome the nonsense that gets spewed – reading many of the amazingly ignorant comments to your blog is proof positive…
Keep up the good work.
Robert,
Nice post. One more point to note about Simmons’s motives and agenda for scaremongering about the oil spill: he is getting into the wind energy business. See this interview for example:
http://www.portfolio.com/compa…..ng-on-wind
What is it about old guys
who make a fortune in the oil industry make them think that making
electricity is easy.
“The ocean-energy stuff is
not really capital intensive, and it’s clean and it’s safe.”
It sounds like Simmons is
trying to get in touch with his inner child. It is hard to tell if
Simmons is naïve or just telling the press what they want to
hear.
I agree with the comment at the end of the article that the onus of responsibililty is also with media companies who need to do more than look at a resumé, find the phrase “years in the oil industry” and assume a person is an expert in the entire field. They need to peel the onion back further than a Google search and realise that, in all industries, not just the oil industry, there are massive areas of specialisation. This entire episode has seriously degraded my trust in US news outlets and the sources they use.
Steven Gail said:
Steven how old are you, 12?
The reason I ask is that the
rational part of the brain turn on about 12.
I do understand. I voted
for Jimmy Carter. I was over 25 and a navy officer.
To be honest, I do not know
if news outlets have become lazy in their reporting or if I have
become more skeptical. It would interesting to go back and read old
issues of Time and Newsweek to see how accurate reporting was.
…and now he suddenly dies…
Was Matt Simmons perfect? Obviously not. However could he be right on the evacuation? It’s hard to say but all I can say is that I do not trust corporations or the government…..example using corexit.
As everyone knows this is toxic and it is already in the food chain. Thus just like the 9/11 rescue workers there will be thousands perhaps millions of people who are dying as a result of BP using it.
If this comes true over the next couple of years, how does this effect BP’s stock price?
In terms of Matt Simmons $200 a barrel oil prediction? Let’s just wait to see what happens to the price of oil when the events with Iran develop later this year.
I do not think that Matt Simmons was a shill, or a media whore, or after money. that is slander. I do not think that his information was made up. For instance, regarding the “oil lake”he reported in the Gulf, he was basing this on the following information and other similar reports from research vessels “http://energyandenvironmentblog.dallasnews.com/archives/2010/08/peak-oil-activist-matthew-simm.html”>l The fact that the stuff is mixed dispersed oil and floating deeper int he water is exactly would be expected. Check your facts before calling the guy names.
Helga Vierich said:
Helga, I am not sure whether your comments are in response to the article, or to another reader’s comments. But I was quite clear that I was not speculating on Simmons’ motives.
First, I don’t see anything at the link relevant to what you are suggesting. Second, I know where he got the information. But it was misinterpreted and blown completely out of proportion. But an underground lake of oil is very different than plumes that are slowly rising to the surface.
Again, not sure who you are talking to, but my facts are correct and I didn’t call him any names.
RR