November 15, 2004
Simmons Says Energy Industry, World Must Face Consequences of Depletion
by Sandie Taylor

Some years ago, Matthew Simmons, the chairman and CEO of Simmons & Company International, extracted himself from overseeing his company’s daily operations to act as a full-time global energy analyst. Now, he finds himself in the interesting position of being simultaneously one of the country’s most controversial global energy analysts and one of its most frequently-cited global energy analysts.

Speaking at the McCombs School of Business Nov. 8 as part of the VIP Speaker Series, Simmons explained why, in his 40 years in the industry, he has made it a point to talk about an issue that no one wants to face: depletion.

“We’re living in an enormous energy illusion,” Simmons said. Specifically, the illusion is that energy will soon be so plentiful that we can keep reducing the price. According to Simmons, however, the world is very likely to see oil peaking on a global basis. In other words, while we have not run out of oil, the supply is not growing: “Peaking generally means that we could very soon go into a decline and the decline could be fairly steep.”

The problem on the supply side is exacerbated by the fact that demand for energy is just emerging. Currently, one billion of the planet’s six billion inhabitants use the vast majority of its energy, said Simmons—but now, those other five billion would like to change that.

Countries such as Vietnam and India are becoming increasingly prosperous. While prosperity is good, it is not uncomplicated. “Unfortunately, prosperity means the use of energy in an ever increasing amount,” Simmons said. Also, he added, “We have the disastrous results from creating CNN and satellite TV, and showing the rest of the world our wonderful lives.”

As a result, Simmons predicted, the demand for oil will soon significantly exceed the supply. The next 20 years are therefore crucial in addressing these problems in the energy industry and stabilizing the situation.

“Once we wake up to the reality that we’ve dug ourselves into an enormous hole over the last 20 years by making energy so prominent and pricing it so cheap, we could actually start thinking about progress,” he said.

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