Is Matt Simmons Credible? | R-Squared Blog Posts | Forums

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.

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 laid out the arguments that Saudi Arabia had overstated their oil reserves, that their oil production was on the cusp of decline, and that prices were set to soar.

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 were both influential in causing me to become more involved in writing and talking to people about energy.

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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I have wondered at times if Mr. Simmons says what he says in order to create favorable market movement which would benefit whatever financial position he has.

Peter, many people are wondering whether that's it as well. It's a really troubling possibility; one I didn't want to delve into here. But we did debate whether to just lay that out on the table and discuss it. I know many people who do think that money is the driving factor in many of his comments, but I personally can't quite come to grips with that possibility yet. A willingness to cause mass hysteria and spread disinformation to make a few more dollars would paint him as a despicable person. I prefer to believe he is simply deluded.

RR

I quit paying attention to him two years ago when he said gasoline had a higher Octane Rating than Ethanol.

I highlighted that one in the previous story. That was one of his factually incorrect claims.

RR

I also heard him speak at a luncheon in Lafayette and he was absolutely the worst speaker I have ever heard. He read from a power point, never looked up at the audiance…

I was trying not to excessively pile on him in the essay, but that was my experience at ASPO 2008. In fact, I said to the people at the table with me "I can read, you know." This, after Simmons simply read the bullet points off of one slide after another in a monotone voice. Nothing like his persona when he is being interviewed on TV.

RR

Should I bother reading it?

When people ask that, I usually tell them it depends on what the rest of their reading list looks like. It was good at the time for bringing awareness to peak oil. But you will find questionable logic throughout the book.

You say that the Saudis hold back reserves
when it's to their advantage, but is there an actual risk that they may
be running out of oil?

The world is certainly in a risky position relative to Saudi. I don't think they are running out of oil, but I also don't think they have massive production offline. They are probably sitting on 1 to 2 million bpd right now, but many give them credit for far more excess capacity than this. The problem is that many governments are expecting them to continue increasing production. What happens when they can't? What happens when they earnestly start down the decline slope? These were the sort of important questions I think Matt raised in Twilight.

RR