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Is Matt Simmons Credible?

By Robert Rapier | Tue, 27 July 2010 20:00 | 11

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.

Matt Simmons
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 laid out the arguments that Saudi Arabia had overstated their oil reserves, that their crude 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

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 oil 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.

By. Robert Rapier

Source: R Squared Energy Blog

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  • Anonymous on July 28 2010 said:
    I always had a hunch that Simmons was full of crap.He made wild claims that are naturally difficlut to prove or disprove and they all involved armageddon-like scenarios.I've said this before,he's just a lonly old man who loves all of the attention by pretty girls in the media.
  • Anonymous on July 28 2010 said:
    Huckster, you said (amid all the rest your goofy nonsense): ...I have spoken to several experts who say the chance of that is zero.NAME THEM< NAME ONE.There's a flake in da woodpile all right...
  • Anonymous on July 28 2010 said:
    An investment bankster, huh? Aren't those the same boys who said the economy would magically grow forever and could not ever collapse? Why would anyone ever believe one of those?
  • Anonymous on July 28 2010 said:
    This is a useful article.Simmons made the point that he watched a video of the leak and saw a fish swim through it unaffected. He presented this in support of his claim that what we see is not the real leak.I have seen the same video. It is impossible that the oil/gas from that leak in under pressure of 6700psi. The fish would have been shot out. Simmons is right about that there is something wrong with the video.Second I have a lot of problem with the narrative that goes: BP tries fitting a cap on the pipe and a couple of other things that don't work. Months later they try putting a tighter cap on the pipe and, whaddya know, it works.Unless the field lost a great deal of pressure there is something wrong with that story.That deos not mean Simmons is right, of course, but the discussion is useful.
  • Anonymous on July 29 2010 said:
    In this article Rapier does not provide a compelling case to not believe Simmons' assertions. On top of that, the government has consistently lied about the scope of this disaster. I'll put my money any day on Simmons over the U.S. Federal Government.-Johnhttp://www.ncoalblog.com
  • Anonymous on July 29 2010 said:
    Mr. Simmons says that 120,000 barrels of oil a day are gushing into the gulf of mexico.Mr. Simmons says that there is a lake of oil 400-500 feet deep on the bottom of the gulf.Mr. Simmons says that some 40% of the gulf of mexico is covered in oil, the oil lake.MSNBC went under the water in a sub and could find no evidence of any oil, despite being on the main "highway" of the gulf stream current. http://www.msnbc.msn.com/id/21134540/vp/38377148#38377148I do not trust mr. simmons.
  • Anonymous on July 30 2010 said:
    Then.., Matt Simmons is the biggest liar that ever lived so far in the history of the planet and he will go down in history as a total alarmist nut case. You know, I doubt that this is true – I’ll bet you there is a sea floor leak still going down there, and it means bad things. Matt called it like he saw it and he spoke up to try to save lives, millions maybe – even if he is wrong, he might not have been – better save than sorry when millions of lives are at stake. And, BP is an S.O.B. isn’t it?
  • Anonymous on July 30 2010 said:
    RE: Beau...That expedition was in Florida. You really think they did that without already knowing it was a safe zone? You know what, nevermind. http://www.youtube.com/watch?v=EJ91G3e0OBQ I stand corrected, of coursethis 20” diameter pipe blowing sulfurous yellow gas and billowy puffs of insubstantial smoky residues is what filled the gulf with viscous volcanic sludge and thousands of acres of tar boulders in less than 90 days...Read more: http://www.myspace.com/blkrs39/blog#ixzz0vAosZiRr
  • Anonymous on July 30 2010 said:
    Glad somebody is pointing out what many of us in the industry have known for a decade - Matt Simmons is an idiot who has his facts wrong. Twilight In the Desert was a fanciful tale - it sounded good and played well to an ignorant public and brain dead media. But it has been proven resoundingly false. And now this lunacy about the GoM mess allows even the ignorant and gullible a chance to see what this clown really is - an incompetent investment bankster who has a penchant for the spotlight and self promotion...
  • Anonymous on August 03 2010 said:
    Mr. Rapier forgot to mention that Matt´s investment banking expertise was evaluating oil and natural gas companies prior to mergers or buyouts.
  • Anonymous on August 08 2010 said:
    Yes, Matt is a fearmonger. He is wrong almost all of the time. Why, exactly, do people still listen to him?Now that the leak is over and all of his predictions have again been proven false, people will start to get a clue.The guy has a vested interest in talking up oil prices.

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