Current energy crisis may be worse than 70s-bankergreenspun.com : LUSENET : Grassroots Information Coordination Center (GICC) : One Thread
Current energy crisis may be worse than 70s-banker Updated 6:22 PM ET April 30, 2001 By C. Bryson Hull HOUSTON (Reuters) - The current energy crisis will become worse than the oil crunches that rocked the U.S. economy in the 1970s, one of the energy industry's top bankers and prognosticators said Monday.
"This crisis will be likely be far worse than the two oil shocks of 1973 and 1979," Simmons & Company International president and founder Matt Simmons told an audience of offshore oil industry executives during a speech at the 2001 Offshore Technology Conference in Houston.
"Why I believe the world faces a genuine energy crisis is that we have accidentally used up virtually all of the spare capacity with increased demand," said Simmons, who served on the Bush-Cheney transition team as an energy adviser.
Simmons' namesake firm is a Houston-based boutique investment bank specializing in the energy industry. Simmons and Company research is closely watched by industry players.
The 1970s crises differ from the current problems because it is not just an oil shortage today. Now, natural gas, oil and electricity are all in short supply, he said.
"This convergence created the perfect energy storm," Simmons said.
Where OPEC once had 20 million barrels per day of extra capacity, there are now fewer than two million barrels, he said.
The only solution is rebuilding the lost capacity and keeping up with demand growth, but it is a daunting task that requires a complete overhaul of the energy industry's infrastructure over the next 10 years, Simmons said.
Currently, the world has the capacity to deliver 185 million barrels of oil equivalent per day (BOE/day). Achieving 30 percent growth in a decade entails the total refurbishment of refineries, pipelines, tankers, drilling rigs and dozens of other parts of the industry's aging infrastructure, he said.
Simmons pegged the cost at $5 trillion, which he conceded was "a rough guess."
The industry must also reevaluate the current pricing system for oil commodities, and make an effort to introduce long-term purchase contracts and long-term financing to help smooth out volatile markets.
The industry's reliance on spot markets like the New York Mercantile Exchange for sales invites volatility, because traders generally look at short-term indicators and react minute-by-minute, he said.
"NYMEX is a casino. It really is a screwball way to price energy. These people are reading two-minute charts," Simmons said.
Simmons advocates greater use of long-term contracts, which give buyers and sellers a better chance to price commodities without making poor judgments based on incorrect information.
"If you have bad data, it becomes reality overnight," he said of trading on a spot market like NYMEX.
-- Martin Thompson (email@example.com), May 05, 2001
Would someone set a time for the kickoff meeting. Talk talk talk.
-- David Williams (DAVIDWILL@prodigy.net), May 06, 2001.