That's what Matthew Simmons, President of the Houston investment bank that bears his name, said in a recent telephone interview. He thinks it's a serious problem. If you read the speeches he's made over the last two years, as I have, you'll probably agree with him. In speech after speech he has outlined how every aspect of the global system for the production and distribution of energy has been hollowed out so that it now faces the almost insurmountable task of major expansion in every facet--- even as it struggles to replace declining reserves.
"The world has never run out of food. But we've had famines. It's a problem of distribution," he explains, pointing out that "spare capacity" can literally mean life or death for people or economies.
"The problem we are facing is that expanding (from current capacity) by just 1 or 2 percent globally can take years--- but demand can grow that much in a year.
"In fact, we're at capacity all around. We're at capacity at the well head. We're at capacity in refineries. We're at capacity in power plants. And we're at capacity in power transmission lines."
Could he give some examples?
"If you look at the last 30 years you'll see that we've added about 10 percent to the power base of electric plants every five years. But in the 90's we didn't do that. We added 4 percent in the first five years and 2 percent in the second five years. We added half that amount in transmission lines. But those who worried about it were labeled Cassandras."
How about oil capacity?
"In the Middle East we've added one substantial field in 20 years. It is just about to reach peak capacity of 500,000 barrels a day. But that's only a small percentage of the 75 million barrels a day that are consumed. In the Middle East some data is now emerging that the major fields are in decline.
"The non-OPEC oil supply grew by only 2 million barrels a day through the nineties. That probably happened because the (original) production base is only 60 percent of what it was. We've been running just to stay in place. In natural gas we've been producing flat out but only increased production by 1 or 2 percent.
"We're on the decline curve," he said, referring to the inevitable depletion of oil production from existing oil fields.
Ironically, even if a valve could be turned in the Middle East, our energy problems would not be solved. We'd need new ships to transport it and new refineries to crack it. Similarly, while small turbine producers like Calpine may deliver dozens of small electric generators in the next two years, the increased demand for natural gas to run the turbines may exhaust gas supplies.
Basically, there is no slack anywhere because we missed a full decade of investment in new capacity.
What will it take to solve the problem?
Simmons' answer was startling. "Something like the Marshall Plan," he said, referring to the investment the United States made in rebuilding Europe after World War II.
Mr. Simmons was quick to explain that he wasn't being literal. What he envisions is an effort of that scope, one that involves the public sector as well as private industry because it will take a 30 percent expansion in capacity (over ten years) to meet demand and restore a degree of spare capacity.
Do less than that, he is certain, and we'll stay inside the problem.
Visit the Simmons & Company International website
Read his speeches and examine other energy data
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