Excellent in-depth interview with Matt Simmons (43 minutes, flash video). That is on the oil drum, the actual Reality Check page requires some viewer or other.

This is one of the most comprehensive overviews of the entire oil production and peaking process I have ever heard, and Matt Simmons speaks extremely clearly, without the aid of the somewhat annoying powerpoint presentations he tends to favor.

This is a one on one interview that covers his writings and analysis over the past 16 years. As he says: what has amazed him most is just how wrong the mainstream views have been, and continue to be.

This guy knows what he’s talking about, with one glaring exception: his belief that the global economy can function when it’s paying producers more than 100 or so a barrel.

He uses this example constantly: Europe is paying the equivalent, after taxes, of about 3-400 per barrel, at the pump. But what he ignores is that ALL that money, except the actual barrel price, is being returned directly into the economy of that state, and thus is not a net loss at all, but rather simply a reallocation of those economic resources, to for example domestic high speed rail development.

But nobody can be great at everything.

To me, it’s starting to look more and more like in fact, in terms of raw transfer of financial assets for petroleum products, we may very well be unable to afford oil at its current production costs per new barrel of around 50 to 80 dollars per barrel.

Keep in mind, in the recent petroleum price hikes, the global air travel industry said that their economic model failed to function at prices above $100 a barrel. Not, note, that it could be modified to function with such prices, but rather that it simply did not work, due obviously to economies of scale required to maintain sufficient traffic loads to spread costs.

In other words, as ticket prices go up, trips go down. When trips go down, the industry must shrink. When it shrinks, costs rise per traveler. At some point the model becomes totally unviable.

And that’s not the only area you see this in, the same is happening with global ammonia prices – they are getting too high for farmers to afford, which means less fertilizer applied, less food grown, and… no food is a problem for a lot of people out there.

This entry was posted on Sunday, March 22nd, 2009 at 10:08 and is filed under Our World. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.