Berman, Rapier and Staniford on Matt Simmons and BP Horizon  

TOD's Arthur Berman had an interview on CNN last week about BP's oil spill in the gulf - Berman on CNN.

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. ...

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?

I am uncomfortable having to deal with this kind of thing: I have talked with Matt on several occasions, and emailed with him more often. He is a decent and well-intended man, has been helpful to me personally, and he has in the past had a track-record of good calls in the oil and gas industry, back before he got so famous. However, I'm afraid that Robert is now right: there is a history of sensationalistic overstatement in recent years, and since Matt is the premier peak oil spokesperson that can actually get attention from the mass media, that is a real problem. Robert shouldn't be the only voice to say so.

I think the most salient issue to me is the famous Tierney-Simmons bet, where Matt intentionally set the terms of the bet far out of the money. 2010 oil futures were $59/barrel back in 2005, so setting the terms at $200 was very disadvantageous to his chances of winning. It now looks extremely unlikely that oil will break the $200 level before the end of this year and so Matt will lose, and this does no good at all for the cause of getting people to do what is required to reduce their dependence on oil. It didn't have to be that way if Matt were a little less certain of his own rightness.