REPRESENTATIVE ROSCOE G. BARTLETT

MARYLAND 6TH DISTRICT
2005 ENERGY CONFERENCE

MONDAY, SEPTEMBER 26, 2005
9:00 A.M. – 12:00 NOON

FREDERICK COMMUNITY COLLEGE
FREDERICK, MARYLAND

PARTICIPANTS:

DR. KENNETH DEFFEYES
MATTHEW SIMMONS
RICHARD HEINBERG
DONALD WULFINGHOFF
JOHN SPEARS
JOHN HOWE

Transcript by:
Federal News Service
Washington, D.C.

REPRESENTATIVE ROSCOE G. BARTLETT (R-MD):  Good morning and
thank you all very much for coming.  This is kind of like coming home to me.  I worked
here for 12 years at the community college, taught anatomy and physiology to the nursing
students and also taught a biology course.  And when the publishers saw that I taught a
biology course, they all sent me their textbooks hoping that I would adopt it for the class
of course and then they could sell some textbooks.  And so over my desk went all of the
textbooks in biology.  And all of them had chapters on energy and environment and so
forth.  And I would read those.  And so my concern about the subject that we're talking
about today is more than 30 years old because I have been reading and thinking about this
for at least 30 years now.

I really appreciate you all coming and especially appreciative of the members of
the panels that have come.  We have here today represented some of the experts from
around the country and indeed around the world.  I would just mention them briefly now
– who they are – and then introduce them in more detail a little later.

Dr. Kenneth Deffeyes, professor.  He worked with M. King Hubbert.  Many of
you may not know who M. King Hubbert is.  I'm sure you will after today's session. 
You'll know who it is.  And he will be talking to us about his concerns about the world's
energy resources.

Matt Simmons is the president.  I spoke with the president about energy and
mentioned Matt.  Oh, yes, I know Matt.  Matt was his energy advisor during his first
campaign and his second campaign.  He is president and CEO.  I guess you have
relinquished one of those titles now so that he can spend more time to education of the
largest energy investment banks in the world.

He has a new book out called "Twilight in the Desert" – intriguing title.  And it's
about Saudi Arabia and his concerns that Saudi Arabia probably has peaked in oil
production.  You may have noticed that when OPEC gets together and when the oil
sheikhs come here they don't promise that they are going to pump a lot more oil to bring
the price of oil and gas down.  I think they are not promising because they can't produce
more oil.

Richard Heinberg – and I'm really envious of him.  He has taken the two best
titles for books:  "The Party is Over," is the title of one of his books.  And the second title
– really great title is "Power Down," because as you'll see in today's conference, that is
exactly what we're going to have to do.

Then our second panel is going to do deal with what do we do about it?  How do
we transition so that we have a relatively soft landing?  Donald Wulfinghoff – and he has
written really a tall, an enormous book on energy conservation in buildings.  He is
perhaps the world's authority on energy conservation in buildings, which, by the way, is
where we use our most energy.  Most conspicuously we use energy in transportation, but
we use most of it in our buildings and he'll talk about that.

John Spears – what does sustainability look like?  How do we get there?  And
John Howe.  John is a retired engineer in New England, and he has been pioneering this. 
He has written two books.  And he has been giving these books away because he just is
so concerned that Americans need to know about the energy crisis and what is coming.

I have a couple of slides to kind of give us started here.  Okay, we need to go back
six decades to kind of put this in context.  During the '40s and '50s, and a scientist by the
name of M. King Hubbert worked for the Shell Oil Company, and he noticed the
exploitation of individual oil fields, and they all seemed to following a bell curve.

Now, most people know what a bell curve is.  If you are noting the size of people
– some of them are very short, some are very tall, but most of us is somewhere in the
middle, and if you put all those down, you get a bell curve.   And he noticed that the
exploitation and exhaustion of these oil fields followed a bell curve.  Then about halfway
through it reached a peak and the second half of oil, logically, was more difficult to get
than the first half.

The green there, the smooth green curve shows his prediction, and the more
ragged curves shows the actual data points he predicted in 1956 that the United States
would peak in 1970 and right on target the United States peaked in 1970, in spite of
feverish drilling.  I read the other day that maybe 80 percent of all of the oil wells drilled
in the world have been drilled in this country.  In spite of feverish drilling, it's been
downhill ever since.

The red curve there is Russia – a bit more oil than we.  And they picked a bit after
us.  And you see that they kind of fell off when the Soviet Union came apart.  They are
going to have a second much smaller peak because of the disarray that occurred there
when the Soviet Union dissolved.

The next slide.  The next slide is a schematic and this is a very interesting slide. 
The U-curve there or the parabolic curve there is the – the exponential curve, is a 2
percent growth, just 2 percent growth.  From the beginning of the yellow to the end of the
yellow is 35 years because that is the amount of time it takes with 2 percent compounded
growth to double.

And what this shows is that if peak oil occurs at the point where it is shown there,
that you start to have problems when the two curves diverge, because China increased
their use of oil last year by about 15 percent.  They increased their imports by 25 percent. 
And so for those who believe that peak oil is in the future -- probably.  But we're now
seeing the effects of it.

You know, there are three things that are not controversial.  M. King Hubbert
predicted that the United States would peak in 1970.  We did.  He predicted the world
would peak about now and oil this morning was over $64 a barrel.  So those are
inescapable facts.

The next curve – the next chart.  The next chart – this depicts the challenge that
we have.  And this is a little depiction of the Apollo 13.  And they had started on their
way to the moon, you noticed, and things collapsed, and they had to really make some
changes if they were going to get back alive.  This is a pretty good analogy.  It's not that
we're all going to die if we don't do the right things, and they all would have died if they
didn't do the right things.  But, boy, they had to do the right things at the right time or
they weren't going to have a smooth landing.  And there was a great movie made of that. 
I'm sure many of you have seen that movie.

Well, let's move now into our first presenter, Dr. Deffeyes.  He had the privilege
of working with M. King Hubbert.  I hope he tells us something about that.  He is author
and Princeton University professor emeritus.  He joined the Shell research lab where M.
King Hubbert had recently issued his controversial predictions that U.S. oil production
would peak during the '70s.  It peaked at 1970, some people say '71, but about then.

After reworking Hubbert's numbers, Dr. Deffeyes sought other employment.  He
is the author of "Hubbert's Peak:  The Impending World Oil Shortage," and his new
book, "Beyond Oil:  The View from Hubbert's Peak."  He makes the case that world oil
production is no longer increasing.  Dr. Deffeyes.

(Applause.)

KENNETH DEFFEYES:  This is a historic occasion in that a conservative
congressman, an independent banker, and Ivy League democrat, and a radical social critic
are telling you that we have arrived at the same answer.  And it's – you better believe it –
time.  (Laughter.)

Now, if you want to make an author feel bad, this is a logo off of the coffee cup,
my 40,000-word book reduced to a coffee cup – (laughter) – but it pretty well – it gives
the message saying that it's wakeup time and we have to take this seriously.  This is M.
King Hubbert's original 1956 graph, except I have added the dots to show what
happened.  And the peak fit pretty well, and the 19 – wrong one – this shoulder is
Prudhoe Bay kicking in – biggest oil field ever in the United States wasn't big enough to
give us new high bigger than the 1970 peak.

Now, this could have staggered on upwards.  And Matt Simmons' expression is
you only see it in the rearview mirror.  But one of the clues that I got at least was that the
Texas Railroad Commission in 1972 removed production rationing in Texas.  Before that,
they were the OPEC of its day and regulated – excuse me – he would talk in Portland late
last week.  It was a nice audience of 300 people, one of whom had a bad cold. 
(Laughter.)  I had brought it home.

But the bell-shaped curve worked out.  And this is my most recent book.  And the
reason that I'm telling you about it is that I was able to – excuse me – to simplify
Hubbert's mathematical derivation.  And this is United States oil production.  For the
reason you just heard, it's the most explored area in the world.  And after 1958, it settles
down to a pretty good straight line.  So with your permission, my computer and I draw
the best-fitting straight line from 1958 on and once you let me draw that straight line, it's
all over.

The three lines of high-school algebra up at the top are an alternative derivation of
Hubbert's theory.  And the only difference is he goes from A to B, and pages and pages
of heavy deferential equations, and I go from B to A in three lines of high-school algebra. 
You get the same answer.  The first equation is just the equation of a straight line.  The
second equation I plug in the things that are on the graph, P over Q is the vertical axis,
and I go through and substitute what is on this actual graph.  And on the third equation, I
multiply both sides by Q.  Now, that is the Hubbert theory.

And what it says is that the heavy magic is inside the parenthesis.  What is inside
the parenthesis is the fraction of oil that hasn't been produced yet.  Or if you're doing
exploration, it's the fraction of oil that hasn't been found yet.  And the analogy is to
fishing in a pond.  If you notice after fishing several months in a pond, you're not
catching as many fish, you can decide you'll go to the fishing tackle store and buy a
fancy new fly rod – you know, new technology – or you can decide that you have caught
most of the fish and you're going to go the grocery store and buy fish.

So the thing inside the parenthesis is the fraction of oil that hasn't been produced
yet and what is not inside the parenthesis is the price of oil, which gripes economists – no
end and new technology, which grips new technologists.  And the answer is new
technology and high oil prices help but they don't help very much.  The big deal is how
many fish are still left in the pond.

Now, this is Hubbert in 1968 predicting world oil production.  And the 1968
curve, the more optimistic one peaks in the year 2000, and he has – 2000 – 100 billion
barrels.  Now, Hubert's critics say, well, 2000 came and went, you know.  It didn't peak. 
Hubbert is wrong.  But, look, for the standpoint of 1968, this is pretty good shooting to
get to within five years of the year and to get to within about 3 percent of the total
amount of oil.

Now, this is M. King Hubbert in the 1930s.  He was no easier to get along with
then than he was – (chuckles) – later in life.  But it's interesting, I got a letter from a
crystallographer long since retired who said I knew Hubbert at Columbia University in
the 1930s.  And he was interested in the problem even then.  And looking back, I suspect
that the first time – 1956, that the story was mature enough that he could see the answer
he pounced.

Now, for the world – and we're getting to the core of the story here – after 1983,
the world production settles down to a pretty good straight line, and there is one more
black dot – because I had to release this to the publisher before the 2004 numbers came
out – so the 2004 numbers – another black dot jammed between there and the plus mark. 
The plus mark is when half of the oil is being produced, and that third equation, a couple
of slides back, had as one of its consequences that the peak of production occurs at the
symmetry point when half of the oil has been produced.

And so I got an enlarged version of this and counted forward.  And that is where I
got to Thanksgiving Day this year, saying that that is my estimate of the peak.  Now, I
did that to make the economists nervous.  It really is uncertain by about three weeks on
either side.  (Laughter.)

Now, this came across the Dow Jones newswire in 2003.  And to me, it's almost
an identical replica of the Texas Railroad Commission announcement that there would be
no production rationing in Texas next month, and saying we don't have any surplus
production capacity.  And Matt Simmons' book confirms this view, but I took this as the
first announcement that we knew – that I knew the world oil peak was real.

Now, this is the glubiest (ph) of the all of the diagrams, and it says that – sorry,
these are attributing the oil to the first well in the field.  When you drill a discovery well
and you don't get oil, what do you do?  Well, you keep drilling horizontally and
vertically until you drill up the oil field.  But it's an irreversible event.  You don't get to
discover that oil field a second time and you're not going to forget where your discovery
well was.  So this says that 90 percent – sorry, 96 percent of all of the oil we're ever
going to find is in oil fields we have already discovered.  And the – I don't have to
extrapolate very far.  That is where my 2013 billion barrels comes from is where that line
hits the axis.

Now, the U.S. Geological Survey has an enormously more optimistic estimate. 
They have to find another Middle East plus another North Sea to come out even to fill in
that gap between my estimate and theirs.  Now, for the United States, they have estimated
that there is another Kuwait undiscovered beneath the United States.  Of course I tell
them, hey, whisper in my ear where that sucker is.  (Laughter.)  I'll go have these with
you.  Is it South Alabama?  So – because it doesn't exist.

But this is the gloom-and-doom picture.  Now, when I put those same curves, the
actual numbers and the best-fitting curves on a cumulative graph, the Bell-shape curve
becomes and S-shaped curve.  And the thing that is labeled exploration is the 6 percent
that is not yet discovered.  But the thing I have named after my friend Bob Snyder (sp) is
now that the buzz word, "redevelopment" – going back and looking at old oil fields,
existing oil fields – not for secondary recovery or tertiary recovery, but for overlooked
productive oil sands.  And in West Texas and the Gulf of Mexico, Bob Snyder found or
bought some 60 oil fields and found several hundred million barrels of additional oil. 
And had an after-tax cash flow rate of return of 17 percent.  So just a stunning
performance.

And there are some companies doing that.  And when I talk to financial firms, I
tell them, if you find any company that is doing a good job of redevelopment, you know,
call me collect; I want to invest in those.  With the best rumor, if you're into financing, is
that XTO, Cross Timbers Oil out of Forth Worth, is doing a good job.  I haven't bought
XTO yet.  I'm looking into it.  So this is the picture saying there is a considerable amount
of the oil can be developed from existing fields.  And it's not that it's not in the estimates. 
It's something that is going to happen.

Now, everyone asks about price.  And here are natural gas prices in the United
States.  This is first sale of natural gas down the stream from the producing well.  And the
Henry Hubb's stock spot market prices look a lot like this only wilder.  And the thing –
it's very smooth up until about 1985.  Then you start seeing little wintertime peaks, and
then it just goes crazy.  And the stock spot market price at Henry Hubb Louisiana – I
think it was $17 the day before yesterday, the last time I looked.  We are going into the
winter with already high-midwinter prices.  The current price is way off the top of this
screen here.

Come on, baby.  All right, now there is some essential services.  (Laughter.)  This
is an ambulance that we want to make sure that we have got oil for.  And we don't – you
see the Red Cross on the side of the ambulance there.  Here are industries that are going
to get pretty hard.  And the big ones are at the top of the alphabet.  The zymurgy is just
the industrial use of yeast to make wine and cheese and bread.  (Laughter.)

But up at the top, agriculture is at great risk because the green revolution of 1970
that made starving to death no longer fashionable was based on new seed varieties, heavy
use of mineral fertilizers, and pesticides.  Now, the pesticides are mostly petrochemicals. 
And the mineral fertilizers, the nitrogen requires natural gas for the source of hydrogen to
take nitrogen out of the atmosphere.  And the phosphate is very energy intensive,
converting rock phosphate to soluble superphosphate.  So agriculture – excuse me – and
particularly third-world agriculture is at risk.

Now, the automotive business – it isn't a matter of simply CAFE standards,
raising the required mileage.  One opportunity that I think is being missed – there are
diesel automobiles.  And if you look up on Google, common-rail diesels, you'll find that
there are diesel automobiles in Europe that get more than 100 miles to the gallon.  And
we are not selling those things in the U.S.  I wish we were and I don't know why not.

From the standpoint of aviation, everybody is going to get hit.  And one of my
predictions is those nice vegetables that get flown from the – and fruits – they come up
from the southern hemisphere during our winter will get impossibly expensive, and we're
going to have to learn to love rutabagas and parsnips and turnips – (laughter) – a bunch of
things that I hate because they can be stored in root cellars in the region where they are
grown.

So it is going to affect us.  However, we have a family legend – my brother and I. 
After my first book came out, my brother read it and said, uh-oh, aviation is really in
trouble.  And he says, I know a vice president at Boeing.  I'm going to send him a copy
of the book.  Well, forgot about it.  Four years later, Boeing introduces the 7E7, now, the
787 with the lowest fuel cost per seat mile of any commercial airliner.  And they are
racking out sales and beating out Airbus for the first time in several years.

And my brother and I quietly agree – I went back to my brother and said, did you
send the guy the book?  He said, well, I'm not claiming credit, but I sent him the book
and I said, you better read this, you better memorize this; this is your future.  So my
brother and I claim to have bailed out Boeing from this problem.  (Laughter.)

Now, this is a reminder that there will be rationing.  The economists all think it
will be rationing by price and they'll raise the price until nobody can afford it any more
and you do without.  The next one – the next administration – fix the price of oil and
thereby invent rationing by inconvenience.  There were these long lines of cars waiting
for what little gasoline there was in the filling station.

And the third one – during World War II, President Roosevelt had us running
around with little red and blue ration coupons.  So there will be rationing where there is
going to be pressure on the government to do something and doing something might
involve something other that just letting the price rise.

I found this in Taiwan.  I don't read Chinese but I claim it should say, tell the kids
to turn out the lights.  There a lot of small-scale things that we can do.  And your
speakers – later you will hear about some of these, but changing our habits – multiple
uses every time you take the car out of the garage, turning out the lights, energy
conservation is certainly going to be a major part of what has to happen.

Now, people ask, well, how about some new technology?  Well, this is an old
technology.  This is a guy delivering in the city of Paris in 1870 a mixture of hydrogen
and carbon monoxide.  Now, a more dangerous toxic mixture is hard to imagine. 
(Scattered laughter.)  But it was used for cooking and it was used for lighting.  And you
can see a gas street lamp across the street.

Well, the modern version of this – Texaco engineers improved it with using pure
oxygen, higher temperatures, better catalysts, and once you have got the hydrogen, you
can do lots of things.  The Chinese are making fertilizer, nitrogen fertilizers with the
hydrogen.  It's used in petroleum refining.  The Canadian Tarzans – every time they
break a carbon-carbon bond to lighten up that oil, they have to stick on two hydrogens. 
Where do they get the hydrogen?  Natural gas.

So there are – there is a long list.  But one of my colleagues is very enthusiastic
about this one:  dimethyl ether, which I had never heard of – and it's an almost perfect
diesel fuel in that – excuse me – there are no carbon-carbon bonds in that molecule so it
can't make soot.  You can't get black smoke coming out of a dimethyl ether engine, is
non-toxic.  I didn't believe that.  I had to go to the drug store.  And the propellant in
hairspray today is all dimethyl ether.

The old operating room anesthetic was diethyl ether.  And it's made from coal. 
And there is a pilot plan in China turning out – I think it's in the 100,000-gallon-a-day
department.  They are selling it as a heating fuel, a cooking fuel to compete with butane
and propane, but their ambition is to get the cost down under $2 a gallon and sell it as
diesel fuel.

Okay, the hard landing, soft landing – of the soft landings, you need to get enough
new nuclear capacity, energy-efficient automobiles, energy-efficient housing, wind
energy in place by this coming Thanksgiving.  (Laughter.)  Well, you know, tough
assignment.  So what does a hard landing look like?  What are we trying to avoid?  And
the simplest of hard landings is a global recession worse than 1930, worse than the Great
Depression.

The extreme hard landing – I borrowed the four horsemen of the apocalypse.  The
pesticides, as I said, are all petrochemicals, that fertilizer is going to be expensive and
difficult to transport, so that things could get pretty bad, and the – or story – Amos Nure
at Stanford is all but predicting a war between the United States and China over access to
world oil supplies.  Now, he says, I don't want to see a war between the U.S. and China,
and I hope that by predicting it, we can avoid it.

But back to the soft landing, the announced purpose of this meeting is to arrange
for a soft landing.  And this is my reading of your chances.  My granddaughter Emma
colored this and signed it.  It's a snowball in hell.  (Laughter.)  Good luck.

(Applause.)

REP. BARTLETT:  Thank you very much.  Let me use just one little analogy to
try to put the challenge we have in perspective.  We in our country are very much like the
young couple that just got married and learned that they had a big inheritance from their
grandparents.  So they have established a lifestyle where 85 percent of all of the money
they spend comes from their grandparents' inheritance, and only 15 percent from their
income.  And the grandparents' inheritance is not going to last until they retire.  So
obviously they are going to have to do something.  Either they are going to have to spend
less money or they are going to have to make more money.

I use that 85-15 because that is exactly where we are in this country.  Eighty-five
percent of the energy we use comes from fossil fuels.  That will wind down and by and
by, we're going to have to live on that 15 percent and hopefully we can grow it above the
15 percent that it is now.  But that is the dimensions of the challenge that we face.

Our next speaker is really world-renowned.  He has just published a new book,
which I think is going to be a best seller, "Twilight in the Desert."  He has now
relinquished on of his positions in his company so that he has more time to do what he is
doing today and to help educate the American people.  Matt Simmons.

(Applause.)

MATTHEW SIMMONS:  Well, thank you.  It's a pleasure to be here.  It's been
interesting in the last six months to – I've had some unbelievably interesting educational
experiences as a result of coming out with this book and participating in – I guess this
summer – 110 radio talk shows around North America.  And I will tell you that people
hearing bad news truthfully are willing to take bad news.  It's been really remarkable. 
I've also had a really interesting experience getting acquainted with Congressman
Bartlett and seeing how amazing it is that someone can pick so quickly up on these facts. 
I happen also to be slowly but surely co-authoring an ed-op piece with another
congressman.  He's been long retired – Stewart Udall.  Fifty years ago, Stewart Udall was
sworn in as a congressman of the United States, and then during the '60s, he was
secretary of the interior in the Kennedy and Johnson administration.  And our co-
authored piece – if I can ever finish up my second draft and send it back to Stewart Udall
– is "50 Years of Energy Mistakes" because he can go back with the benefit of hindsight
and actually discuss 50 years, 25 sessions of Congress, how we made one mistake after
another.  So this is basically a big problem.

 It was also interesting – last Tuesday morning, I was at the – in London at the Oil
& Money Conference, which is probably the most important global sort of conference
held once a year where all of the sort of senior OPEC people are there and all of the – a
lot of the CEOs of major oil companies.  And on the first panel of the morning, there
were three of us – a lawyer, and then I was the first speaker, and the third speaker was Dr.
Sadad Al-Husseini, who is retired executive vice president of Saudi Aramco in charge of
oil and gas.  I think the audience thought that they were going to witness a literal verbal
battle because my views on the worry about Saudi Arabia's oil are now very public and
Dr. Al-Husseini, who is a Ph.D. from Brown, was known as the brains of Saudi Aramco
until he retired a year and a half ago.  I surprised the audience by not really getting at all
into Middle East oil.  I basically said, we're all consumed now with the fact that we've
run out of refinery capacity.  What's even more profound is we've run out of drilling
capacity.  We're out of drilling rigs.  We're just totally out of drilling rigs, and it'll take
longer to actually restore capacity in drilling rigs than refineries. 

And then Dr. Al-Husseini got up, and he – very politically correct because he
wants to still live in Saudi Arabia – gave a very possible message through a lot of
different slides.  He effectively said that the Middle East has a productive capacity today
of 21 (million) to 23 million barrels a day, somewhere in that range.  And best case is by
2025 it will be 25 million barrels a day.  Best case.  And he showed basically the decline
of Iran, and he showed the Burgan field and what would happen if it increased and then
collapsed.  He stayed totally away from his own country, but he speaking for his
countrymen.  And so it was a pretty astonishing speech.

 What I was asked to address today is the topic of today's energy reality, and in
my opinion it's a pretty simple story.  We are in a deep hole.  One of the interesting
comments that I heard from an energy economist about four years ago was that the – he
said, if you wake up one morning and you find out that you're in a deep hole, rule
number one is stop digging.  Well, our wakeup call is here because America and the
world drifted into a benign energy war.  How we drifted there was that demand was
supposed to peak.  It think it's so interesting.  If you go back a decade ago and Google
the word "peak," it was all demand is about to peak.  It wasn't supply.  Supply was
supposed to grow and grow cheaply.  Energy economist told other economists that didn't
know anything about energy that told everyone else.  And they said that one thing that's
going to happen is technology is going to basically continually bring down the cost of
extracting oil and gas – make it cheaper and cheaper and cheaper. 

That belief was so deeply embedded that by 1999 when oil prices had suffered
their biggest collapse in 50 years on a perceived oil glut that never showed up – it was
just bad data – the best minds in the oil industry said, no, $10 oil won't last.  It's going to
go to five (dollars) and stay there for almost a decade because Saudi Arabia is going to
flood the world with oil.  And that became so believe that it became the cover story of
The Economist.  And then nine months later in their millennium issue, they published one
of the funniest stories I've ever heard – "We Was Wrong" -- called it the biggest blooper
of the 20th century.

 Well, these were all great theses, but they were simply dreams.  And now the
alarm clock is ringing to wake up.  These were just simply dreams.  It turned out that
everything went awry.  Demand didn't peak; it grew too fast.  1995 – 10 years ago,
demand finally exceeded 70 million barrels a day, but it took almost the entire year
before people said, my gosh, demand is surprisingly growing again.  Then over the next
10 years every time it grew, it was deemed to be an aberration.  And the best guesses for
the fourth quarter or the first quarter of the period we're going into is that global energy
demand – oil demand – is apparently going to be between 87 (million) and 88 million
barrels a day.  That will be somewhere between 2 (million) and 5 million barrels a day
more than we can supply. 

And then in this era that costs were going to come down through technology,
turned out a funny thing happened there.  The cost to drill and complete an average well
doubled.  And we did find a lot of new supply over this period of time.  It's just that they
were all little things.  I mean, Shell Oil Company now is talking about their expiration
goal of finding some big cats.  It was only a decade ago that the lingo was, we're going
after elephants.  And it turns out that all this technology we were talking about – it was
sort of also illusory because we couldn't afford because of low prices to drill adequate
appraisal wells and core the wells so we knew what was there.  So we used the concept 3-
D seismic, which has never ever shown anything about the -- anything about the possible
structure, actually created reserves that weren't ever there.  And so we systemically
overstated our proven reserves.  And then energy reserves that we had quite a bit of 10 or
15 years ago in this efficient free market were perceived to be glut.  And so we used them
up in the mantra of we're really getting efficient, and just in time supply has arrived with
the energy patch.

 And by August 2005, our spare capacity was disappearing.  It was disappearing at
the wellhead.  It was disappearing in our system of pipeline and tankage to process to oil
and natural gas so that it would become usable.  It was disappearing in drilling rigs.  It
was disappearing in refineries.  It was disappearing in people – people.  We spent 20
years laying off about four times more people than we hired while the industry got more
people intensive.  Projects – there were no more projects to do either.  We were
effectively at 100 percent.

 Somebody want to – well, now I need some help on it.  We were at 100 percent
capacity as we drifted into the end of August.  And ironically, I spent the summer talking
a lot about the fact that this sort of smells to me like the summer of 1939.  In the summer
of 1939, all of Europe was still in a daydream that we'll never have another war.  And if
you read the papers in the last week of August 1939, they were still daydreaming, we'll
never have another war.  And then on the 2nd of September we found out that we were
already in the middle of World War II.  It had started a couple years ago. 

Well, in my opinion, Katrina was our energy 9/11.  And ironically it happened on
the 29th of August.  What Katrina took away was more capacity than we had left in a
nutshell.  The full impact of Katrina is just barely beginning to be assessed.  About the
day before we had to evacuate the Gulf of Mexico again, they were just starting to do any
inspection below the waterline.  So all of the stuff – it didn't look that there was much
damage – was also a dream.  It might be that it didn't do much damage.  The timeframe
to rebuild is very hazy.  All of these comments – well, this system is probably going to be
out for two to three weeks – is basically just in the estimate that if we had everybody
ready to go today and we knew what we should do and we were on a fast track, it would
take two to three weeks.  Natural gas got hit far worse than oil.  And a local emergency
from the Gulf will spin into a global issue.

If any of you didn't have a chance this morning to look at USA Today, there's a
very interesting on page 4B showing the path of Rita.  And what Rita did was finally
sweep right over, while it was force five, the heart and soul of the platforms and pipelines
of the Gulf of Mexico.  And I think it will probably be Thursday or Friday before we
have any sort of reports of the visual – how many platforms we don't have and what's
happened to rigs.  But it couldn't be good news.

So the question really becomes how did we dig ourselves into such a deep hole? 
Well, it was basically two decades of poor data.  We had an energy data system that
wasn't ever very good, and it got worse.  It was basically then two decades of terrible
analysis of bad data.  It was basically the fact that all of our energy experts were basically
the generals fighting the last war.  These experts were still smarting over the fact that
they got shrill in 1980 and '81 and predicted we were going to have $100 oil just as oil
prices collapsed, as we had four years respite of demand growth as nuclear power came
on.  And they said, man alive, I've learned my lesson.  Don't ever trust demand.  And I'll
tell you one thing, every time oil is high, we'll create a glut just like clockwork. 

And low prices created by bad analysis and the perception that we had a glut
created the wrong signals.  Everyone was always saying prices are good signals.  Well,
we got actually the wrong signals from low prices.  The low price signal said we'll
always have low prices.  And then turns out that strong opinions – really strong opinions
by people who called themselves experts overruled facts.  At this Oil & Money
Conference last Wednesday morning, one of my favorite people in the energy business,
Herman Franssen, who used to be chief economist at the IEA and is really respected
among his peer group of chief economists, said to his profession – he said, I think
basically, gentlemen, it's time to stop using the word I believe outside of church. 

(Laughter.)

Well, what's our next step?  Rule number one is stop digging.  Rule number two
is reform energy data.  We urgently need a global mandated field by field production
report on a quarterly basis accompanied by the number of wellheads that fields is
producing so for the first time ever, analysts can do serious supply analysis.  Rule number
three is, let's go to an energy war footing just like we were forced to go to a war footing
after Poland was invaded.  And when we went to that war footing in five-and-a-half years
from scratch, we created a war machine that was so powerful that we destroyed Europe
and Japan.  We can create a war machine and lick the energy war if we start today.

We also basically have another role model.  In June 1947, we began the Marshall
Plan.  And in five years, the Marshall Plan – 2,500 people actually fanned out around
Europe and created the blueprint and the foundation for rebuilding Europe.  So it can be
done, but not if we sit around.  I basically believe there is a plan B that works, that it's
going to work by basically addressing in the oil front – transportation energy has to be
reduced.  We have to move goods by trains and boats.  Turns out the SUV isn't the
problem.  It's large trucks moving goods thousands of miles, getting three to five miles
per gallon and clogging up our highways.  Movement of people – we don't need 5,000
people to work in the same building on the mantra we need to communicate.  And yet an
exit poll says only 2 percent know each other.  We have the technology today to work at
home or in your village and keep your same job and be more efficient.  We need to
distribute food where we grow it, kind of victory gardens.  Look at Whole Foods as a
model.  And they create a string of organic gardens with about a 30-mile radius of all
their stores, and the food is good.

Natural gas problems, unfortunately, are really far more difficult to figure out how
we fix.  In fact, I don't know how we fix our natural gas problems.  One thing we do is
we stop using natural gas to create electricity, where we use up too much while we're
creating electricity.  And then R&D has to explode.  For the first time in 100 years, we
need to get serious about inventing some new forms of energy.  Well, can the job get
done?  It has to.  And ingenuity is the byproduct of panic.  And I think what Katrina and
Rita did, we will soon find out, was basically great panic.  And I think probably
unfortunately that was good news because we needed a wakeup call.  The alternatives are
too bad.  And the longer we wait, the deeper the hole becomes.  So stop digging.  When
should we start plan B?  I actually say today would be a great time to start plan B.  Thank
you.

(Applause.)

REP. BARTLETT:  Thank you very much.  Matt Simmons used our response to
the war in Europe as an analogy of what we need to do now.  There are other analogies
that may help us understand the challenge that we face.  I think that the challenge we face
is something like a combination of our decade of putting a man on the moon and the
Manhattan Project.  Unless we face this challenge with the kind of determination that we
did those two challenges, we're going to have a pretty bumpy ride.

Richard Heinberg is a journalist, educator, editor, lecturer, and a core faculty
member of the New College of California.  He is the author of "The Party's Over: Oil,
War and the Fate of Industrial Societies," and "Power Down: Options and Actions for a
Post-Carbon World," to name a couple of his many works on the peak oil subject.  He
appears prominently in a documentary film, "The End of Suburbia," and has an award-
winning newsletter and many articles to his name.  Mr. Heinberg.

(Applause.)

RICHARD HEINBERG:  Thank you.  Well, I teach human ecology in a small
private college so that informs my perspective on this subject.  I see oil in terms of energy
and human history.  We're energy junkies, always have been, always will be.  All
organisms need energy in order to survive, and for all of our history as a species, we've
been using our peculiar intelligence to try to find ways of harnessing more energy from
our environment.  We invented – we harnessed fire, first of all, then invented agriculture. 
We domesticated animals so that we could capture their muscle power by having them
pull plows and so on.  We invented water mills and windmills.  But then, with the
beginning of the industrial revolution, we discovered how to use – let's see, how do I get
this thing to work.  The slide is not advancing.  Any suggestions? 

(Laughter.) 

Starting to use fossil fuels was like winning the energy lottery.  There was nothing
anywhere like it before.  Think of it this way: suppose you had to push your car 20 miles. 
You can use levers, you can use pulleys, but you can't use electricity or any kind of fuel. 
That would be a fairly big job, right?  Well, we get that service performed for us with a
single gallon of gasoline, for which we pay a little less than $3 right now, and then we
tend to complain about that.

The enormous benefits from fossil fuels were such that it was inevitable that we
would become hooked on them and begin to design all of our social systems around
them.  This, of course, is the situation, as we have seen with the U.S., where discovery
peaked in 1930.  Forty years later, extraction peaked.  So we learned the lesson about
peak oil – what it is, how it works.  It's no longer just a matter of projection into the
future or reading tealeaves.  We're talking mostly history here in fact.  This is a well-
studied scientific phenomenon, and it has real life consequences.

The U.S. used to be the world's foremost oil-producing nation.  When I tell that to
my 20-something college students, they look at me as though I must be crazy because
they've lived their entire lives in a situation where the U.S. was by far the world's
foremost importer.  We import almost 60 percent of what we use now, but we used to be
the world's foremost oil exporting nation.  Seven out of every eight barrels of oil used by
the Allies in World Wars I and II came from Texas and Oklahoma oil wells.  We were
loaning money to the rest of the world in those days.  Now how things have changed.  Of
course we have become the world's foremost oil importer.  China and Japan are number
two and three in that regard, and the U.S. imports twice as much as China and Japan
combined.  And we've become the world's foremost debtor nation.  We're borrowing
about $2.5 billion per day just to finance our trade deficit, and about 40 percent of that
borrowing goes to pay for oil.

So are all of these changes to our economy the result of U.S. peak oil?  Not all of
them.  Certainly some of them could be wrapped up to bad management and other kinds
of decisions, but a lot of the changes that we've seen in the U.S. over the last 50 years or
so are simply the result of the gradual exhaustion of the energy resource phase that
helped make this the wealthiest and most powerful nation in the history of the world. 
Now, as ExxonMobil has helpfully informed us, global oil discoveries peaked around
1963, '64.  And they've been going downhill ever since.  This little bit of optimistic news
at the end there is really just some discoveries in central Asia and Kazakhstan.  And since
2000, discoveries have continued to dwindle, and now they're about the level of the early
1920s.  So there's not much more to expect from discovery. 

This is a graph that's published by the Association for the Study of Peak Oil,
Colin Campbell primarily, and it shows difference between conventional oil and non-
conventional petroleum resources like natural gas liquids and tars and so on.  As you can
see, historically we've gotten most of our oil from, you know, the cheap easy stuff that
flows out of the ground under pressure.  And these non-conventional sources are
becoming more and more important in spite of the fact that they're much more expensive
and difficult to produce simply because the regular oil – regular conventional oil – is just
about at peak right now.  There's not much more to be had in that regard.

Now Chevron is beginning to take out ads in newspapers and magazines that have
a nice website called willyoujoinus.com, again helpfully informing us that oil production
is in decline in 33 of the 48 largest oil producing countries.  In other words, it's not just
the U.S. that's peaked.  Country after country is doing the same thing.  Indonesia, an
extremely important oil exporter throughout the twentieth century, this year is importing
more oil than it exports.  So almost every year we see another country move from the
column of oil exporters to the column of oil importers.  Obviously that can't go on
forever.

OPEC has informed us quietly that light sweet crude has peaked.  Since the year
2000, of course, the amount produced on a yearly basis has continued to increase.  But
the amount of light sweet crude – the easiest stuff to refine into gasoline – has actually
declined.  So total oil production has been on the increase, but light sweet crude is
actually declining.  Saudi Arabia, of course, whenever we get into a jam always steps up
and says that they will produce a little more oil.  But what they're producing, of course, is
the heavy, sour crude that no one really wants.  And so it has to be discounted 10
(dollars) or $12 a barrel.

China – Chinese National Offshore Oil Corporation chief economist Xiang Wei
Ping (ph) just this moth said he expects global oil production to peak at 94 (million) to
100 million barrels a day during the next five years.  And here's a nice little quote.  High
oil prices will have adverse effects on China's economy said Xiang.  Yes, I think so. 
That's a pretty safe statement.

Now this is an extraordinarily important report that, even though I didn't help
author this report, I want to hammer on it for a few minutes because I think it's
something that everyone should be talking about and virtually no one is.  It was
commissioned by the U.S. Department of Energy, paid for by the U.S. Department of
Energy.  Science Applications International Corporation compiled the report.  Robert L.
Hirsch was the project leader, and the title of it is "Peaking of World Oil Production
Impacts Mitigation and Risk Management."  Now U.S. DOE asked ASIC basically two
questions: is global peak oil a real problem, and, if so, what should we do about it?  Now
this is the executive summary that they came up with, and I'll read it to you.  The peaking
of world oil production presents the U.S. and the world with an unprecedented risk
management problem.  As peaking is approached , liquid fuel prices and price volatility
will increase dramatically, and without timely mitigation the economic, social, and
political costs will be unprecedented.  Viable mitigation options exist on both the supply
and demand sides, but to have substantial impact, they must be initiated more than a
decade in advance of peaking.

Now this report is extraordinary because, well among other reasons, economists
have been telling us for some time that peaking of world oil production, even if we need
to be thinking about it at all, is really a very small issue because as prices increase, they'll
stimulate more exploration.  They'll stimulate the production of alternative fuels, and
they'll stimulate conservation.  And with the combination of all three of those factors, we
should make a very smooth and easy transition so that 25 or 50 years from now, we'll all
be driving hydrogen cars down the street.  No one will know that anything even
happened.  There won't even have been a bump on the road.  We'll look back, and we'll
say, what was that all about?

Well, the Hirsch report says that, in fact, those price signals will come at least 10
years too late and maybe 20 years too late to make a real difference.  In other words, yes,
we can make a transition, but it takes time to prepare that transition before the price
signal arrives.  For example, we all know we could be driving more fuel efficient cars
right now as was mentioned.  There are European cars that are already getting 100 miles
to the gallon and more.  Problem is it takes time to change over the U.S. car fleet.  First of
all, U.S. manufacturers have to retool and start making those much more highly efficient
cars in large quantities.  That will take probably four or five years.  Then, not everyone
buys a new car every year.  I happen to drive a 25-year-old Mercedes diesel that I run on
biodiesel, but that's not too uncommon.  A lot of us drive cars that are 1-, 2-, 5-, 10-, 15-
years-old.  So that's going to take 15 to 20 years to change out the entire U.S. car and
truck fleet.  So we're looking at a process of transition there that will likely take 20 to 25
years.

It's the same wherever you look.  To produce new supplies of energy from
sources like biofuels, hydrogen, coal-to-liquids, gas-to-liquids, which of course is
ridiculous anyway because we're running out of natural gas – all of these will take years
to implement, to ramp up to any large scale.  I was recently in South Africa speaking to
the executives of Sasol Corporation, which has the world's most highly developed coal-
to-liquids technology.  South Africa also has lots of high quality coal, but in South Africa
they're getting 150,000 barrels of synthetic oil per day from coal.  Now that's good for
South Africa, but that country is at the same time importing 450,000 barrels of crude oil
per day from Saudi Arabia and Iran.  So even in the country that has the most highly
developed technology and good coal, they're still mostly importing oil.  So to think that
we could deploy that technology rapidly enough to fend off peak oil if we don't have a
decade or two to prepare is really foolish.

Yes, there are differences among the experts as to when the peak is likely to
arrive.  Some of us are saying it's virtually here now, but there are other experts saying,
well, maybe it'll be 20 years down the line.  And the effective message from that more
optimistic forecast is don't worry, be happy.  Forget about it.  We don't have to do
anything.  Certainly the government shouldn't have to do anything about this because the
market will take care of it.  But the Hirsch report gives us an entirely different message
and one that we should be talking about.  When I found out about the Hirsch report, I
discovered it on a high school website – a high school in Chula Vista, CA.  It has not, to
my knowledge, yet been published on the Department of Energy's website or by any U.S.
government agency.  It's not being discussed by the administration.  It's not being
discussed in Congress except perhaps by Representative Bartlett.  So we have a huge
pattern of denial with regard to this problem.  And even when a U.S. government report
tells us about the problem, we choose to ignore that.

So as we've already seen, this is a problem that is going to impact the global
economy profoundly.  Ninety-seven percent of our transportation energy comes from
liquid fuels, from petroleum.  Food and agriculture – the miracle of agricultural
production over the last several decades almost entirely dependent on fossil fuel inputs. 
And finally, our tendency as human beings to fight over scarce resources – we've had oil
wars in the past already during the twentieth century.  It's extremely likely that we'll
have more in the years ahead unless we do something about this.

Now, we've already heard a bit about Katrina.  I think it's important to think of
Katrina also as a metaphor for how we are responding to the problem of peak oil.  We
could see Katrina coming from miles and days ahead.  Everyone in New Orleans new that
the city was vulnerable, and yet there was a shameful lack of preparation and response. 
The next disaster, peak oil – fully anticipated by the experts – everyone agrees, in fact,
that global oil production will peak – only some disagreement about the timing.  I think
we're going to see a woeful lack of preparation unfortunately because the even is
probably so close that we don't have that 20-year cushion that the Hirsch report says that
we need.  We need mitigation efforts ahead of time.  And we, I think at this point, need to
begin to create crisis management options – what we can do immediately to reduce
demand primarily, but also to set into force alternative supply strategies.

As a result of these two hurricanes, I think our forecasts for peak oil may be
shifting somewhat.  At least mine are.  I no longer anticipate seeing a clear and sharp
peak where one day or one month or one year we can say production is on the increase
and the next year or month, it's on the decline.  There was the peak.  I think we've been
prematurely catapulted into a bumpy plateau period, which may last five years, maybe 10
years, during which we will see impacts to supply and demand from political and
economic events and probably further natural disasters.  And every time supply collapses,
we'll be able to point to a particular approximate cause – a natural disaster or a political
problem, a revolution in Nigeria or who knows.  And we'll say, well, that's temporary. 
We'll fix that.  But underlying all of that will be the fact that we are in the peak period
right now.  And perhaps five, 10 years from now we'll be able to look back in the
rearview mirror and say, oh yes, we peaked sometime during that period.  But meanwhile
we need to understand this underlying problem and be dealing with that rather than
simply trying to put out the immediate fires.

As a part of our strategy, I think we need to think globally.  And here, Colin
Campbell, who is one of the global figures – retired petroleum geologist – one of the
global figures who has been warning us about peak oil for some time – has authored a
global oil depletion protocol.  And I spent a few days with Colin in Ireland recently, and 
he helped me understand how vitally important this is because with out a global oil
depletion protocol, first of all, prices are going to become so volatile that they will wreck
any opportunity to plan our future.  Whether we're talking about a company, a town, city,
state, a nation, it will be impossible to plan our economic future unless we have some
assurance of stable prices.  And the only way we'll have that is if we have some means of
moderating supply and demand.  Also if we don't have a global oil depletion protocol, we
will have conflict in the world over remaining oil supplies.  And that conflict itself will
exacerbate the problem because that will take oil supply offline.  And it will be a self-
reinforcing, self-catalyzing problem.

So in order to deal with that, we need to have some kind of international
agreement to systematically and cooperatively reduce production and reduce imports. 
Now historically, we've almost always had some control on price and on production,
whether it was Standard Oil back in the late 19th century or the Texas Railroad
Commission starting in 1935 and going up to 1970 when U.S. oil production peaked or
OPEC from 1970 to the present.  Now none of those mechanisms work.  OPEC is
producing virtually flat out.  So unless we have some other mechanism for moderating
production and therefore price and therefore competition for remaining supplies, I think
we're in for a difficult time.  And I believe that the oil depletion protocol is our best last
shot at avoiding what could be an economic and geopolitical Armageddon.

At the same time, I think communities around our nation need to begin focusing
their strategies.  And I have been travelling around the country speaking to city counsels
and citizen groups in various places about what can be done to size up vulnerabilities and
strengths at the local level to begin dealing with the impacts of peak oil.  The pain is
going to be felt very largely at the local level, where people will no longer be able to get
to work or to get to the store where they can buy their stuff.  The stuff won't be getting to
the store because the trucks won't be running.  People will be having difficulty heating
their homes.  So these are problems that will have to be managed largely at the local
level.  And so city and county officials need to be alerted and need to be strategizing and
planning for long term emergency services – finding ways to produce food, more food at
the local level for local consumption, making sure that local water supplies are tied to
energy sources that are not vulnerable to this problem. 

I was just a couple of days ago in Flagstaff, AZ, and they're pumping their water
from 2,000 feet under ground.  Imagine the energy intensity of that.  And meanwhile
Arizona state law says that they can't capture rainwater.  Private individuals can't capture
rainwater.  This is insane.  That puts people there in an extremely vulnerable situation. 
So every community has to assess its situation in this regard and see what its
vulnerabilities are.

So there are lots of things that can be done, and of course we will be hearing more
about those in the second set of presenters.  But I think it's important to realize the
nature, the scale, and the scope of the problem that's facing us.  It is enormous.  Thank
you very much.

(Applause.)

REP. BARTLETT:  Mr. Heinberg mentioned the fact that part of the solution to
this problem is going to be the action of local officials, elected officials.  And I'm pleased
that several have joined us today – Delegate Sue Krebbs from Carolyn Howard (ph)
County, Delegate Joe Bartlett from Fredrick County, Senator Bob Cooper came all the
way from Hartford County, and Chris Shank from Washington County.  Thank you very
much for joining us.

(Applause.)

Many people will tell you not to worry because the market will take care of this. 
As the price of oil and oil products and gas and gas products goes up, people will
conserve, and we will start looking for alternatives.  I just wanted to give you one little
indication of how challenging this is.  Mr. Heinberg mentioned the energy density of
these fossil fuels.  One barrel of oil – 42 gallons – the refined product of which you can
buy at the pump now for a little over $100, will provide the work output of 12 people
working all year for you.  And you pay just a little over $100 for it.  To give you some
idea that that's probably correct, Mr. Heinberg used this little analogy.  Imagine how far
that one little gallon of gasoline takes your car.  In our Prius, it takes us an honest 45
miles.  In your SUV, it may take you 10 miles.  By the way, water is still more expensive
in the grocery store than gasoline is at the pump.  But reflect on how far that gallon of
gasoline takes you in whatever vehicle you drive and how long it would take you to pull
it that far.  Now I know you can't pull your SUV, but you could use a come-along and
chains and hook onto the guardrail, and by and by, you could – what, you get 12 miles
out of it?  By and by you could pull your SUV – would take you several days, I think,
many days to go 12 miles. 

That's the energy density in fossil fuel, and that's the challenge we have.  Another
little example of this:  If you go out this next weekend and work really hard all day long
in your yard, I will get more work out of Electric Motor with far less than 25 cents worth
of electricity.  Now that's kind of humbling, isn't it?  That you're worth less than 25
cents a day as compared to fossil fuels.  But that's the challenge that we face. 

Mr. Heinberg mentioned the necessity to anticipate peak oil so as to avoid
problems.  The National Academy of Scientists has said that if you wait until peak oil is
here, there are going to be very serious economic consequences.  If you anticipate it by
10 years, there will be meaningful economic consequences.  To avoid economic
consequences, you're going to have to anticipate it by 20 years.