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By Allen Best Photo By Paul Hartmann Q&A with State Geologist Vincent Matthews Vincent Matthews was among the 275 people who attended a conference held in Denver last winter on the topic of the world reaching its peak in oil production. For Matthews, a former petroleum geologist who now directs the Colorado Geological Survey, the topic was not new, as his own research in the late 1990s led him to a similar conclusion: The production of oil and gas that has been the foundation for the world’s increasing prosperity during the last century will soon peak, if it has not already. The repercussions of that simple proposition are broad, complex and powerful. While some have branded the prediction as sky-is-falling environmentalism, it is not new. In 1956, American geologist M. King Hubbert predicted that oil production in the United States alone would peak in 1969. He was off by only a year. But even before that happened, he also predicted that world oil production would peak in about 2000. Some think we may have indeed peaked by now, although others more optimistically project another five, 10 or even 25 years of increasing production in the face of growing demand. The peak-oil conference was co-sponsored by the Carbondale-based Community Office of Resource Efficiency, directed by Randy Udall, and the City of Denver. Denver’s participation was driven by Mayor John Hickenlooper, a former petroleum geologist. "Given the potentially powerful financial impact on the Denver area, we will need proactive responses and we’ll need them soon," said Hickenlooper. But the most prominent speaker was Matthew R. Simmons, a Houston-based investment banker who specializes in the energy sector. An advisor to the administration of George W. Bush on energy, Simmons is also the author of a 2005 book, "Twilight in the Desert: The Coming Saudi Oil Shock and the World Economy." Simmons has credibility, says Matthews. But Matthews, who is officially Colorado’s state geologist, also has credentials. First coming to Colorado in the 1960s to teach at the University of Northern Colorado, he jumped ship to Amoco in the 1970s to improve his salary - and was immediately put in charge of exploration in the Overthrust Belt of Wyoming and Utah, the nation’s most exciting energy frontier at the time. But, like Hickenlooper, who he met in the mid-1980s, Matthews was soon out of work in the up-and-down world of oil extraction. From Denver, Matthews went to Houston, where he was vice president and regional manager for Union Pacific Resources, handling everything east of Colorado, including the Gulf of Mexico. He then worked for a small company in Philadelphia, taught for a stint at Arizona State, and directed the Center for Energy and Economic Diversification at Midland, Texas, before joining the Colorado Geological Survey in 2000. He became director in 2003 and was the lead editor in a well-received book, "Messages in Stone: Colorado’s Colorful Geology." Recently ColoradoBiz sat down with Matthews to talk about how Colorado is likely to be affected by a world with decreasing oil production, but also how the booming economies in China and India will - and already are - affecting Colorado. The interview was edited for clarity and length: CB: What should the public understand about oil and gas exploration? Matthews: How risky it is. Walter Cronkite used to talk about the obscene profits that the oil companies are making. Nobody ever talked about the obscene losses. Where were all the screams in the late 1980s when oil was $10 a barrel and 750,000 people lost their jobs? Nobody cared, nobody gave a hoot. I lost my job three times in the industry, and each time I started back at a lower salary. CB: Why do you find Matt Simmons so credible? M: I first met him when he was giving a talk in Houston in the late ’80s. His speech was on the drilling-rig industry and why it wasn’t profitable and what it needed to become profitable. It was such a clear analysis, and it all came to pass. I just think he’s a very, very astute analyst. And if you look at the guy, he has completed $60 billion dollars worth of mergers and acquisitions. He understands production and production declines. The USGS (United States Geological Survey) says that the world will be producing 50 percent more oil than it is today in the year 2030. Just on the face of it, that’s not reasonable. A lot of smart people have been looking across the world for oil for a long, long time, and there just aren’t that many undiscovered resources sitting around. USGS puts way too much faith in the technology of getting it out. We’re where we are today because we’ve made such great technological advances: 3-D seismic, tertiary recovery, horizontal drilling, bright spot seismic, and computer processing that has increased by three to four orders of magnitude. CB: Why do you believe that the same revolution in computing power that you describe will not lead to the extraction of more oil? M: Because so many things, major things, have been done - and we’re still declining. We still haven’t turned it around. So what on earth is it that we haven’t thought of? We have been coming up with incredible leaps in technologies all along, and still production in the U.S. has gone down. CB: What about some of the proven reserves, such as Arctic National Wildlife Refuge? M: It will be the same thing as Prudhoe Bay. It will be a blessing if you want more domestic production, but it will only be a blip. An important blip, but only a blip. It will turn things around for a little bit, but it will never take us back to the peak where we were in 1970. We didn’t get back to peak U.S. production with Prudhoe Bay, nor can we do so with ANWR. You can’t turn oil shale on fast. Oil shale and most other forms of energy are 10-year projects, or more. You can’t ramp up wind power. You can’t ramp up solar. But we’re going to need them all, every single thing we can do. That’s why I have a task force on geothermal energy in Colorado. I think there’s a lot of potential there. But that’s way down the road. Really the only thing we can turn on quickly is by turning off: conservation. That’s the only thing we can do immediately. CB: Are there any real big gains to be had in conservation? M: I think you can look back at what we did when the oil price went out of sight in the 1980s. A lot of that reduced demand was from conservation. Now, it’s time for more improvements. CB: I am not sure most people understand the concept of peak oil. You said that when peak oil production occurred in the United States during the 1970s, there was a head-in-the-sand response. M: I was teaching environmental geology in Greeley at the time, and after I heard that oil had peaked in the U.S. I wanted to talk about it to my class, to show it in a graph. And I remembered that the Oil & Gas Journal each week had published the production curve. But when I went to the Oil & Gas Journal to find it, it was gone. Later, I discovered that when oil production in the U.S. peaked, they just stopped publishing it. People just didn’t want to admit that oil could peak, because it has implications for stock prices that people don’t understand. CB: What should be our response to peak oil? M: Petroleum is too valuable to be burned in motor cars. We need to cut back on our use in transportation in order to have oil for use in other things for which there are not necessarily substitutes. CB: How will this decline in world oil supplies affect Colorado? M: Declining oil supplies are likely to result in more nuclear power plants. But we have declining supplies right now of uranium, about 80 million pounds per year. The result we saw was 8,500 new mining permits for uranium filed in Eastern Utah and Western Colorado. The pressure will mount to develop those resources. CB: How broadly will this increasing demand for scarce resources affect businesses in Colorado? M: We have seen the price impact in oil and gas this last winter. But in 2004, the spot price for coal also jumped 77 percent. Inflation in core prices is headed our way for all the minerals, and those minerals affect every single thing we do. We even face a problem of getting the raw materials we need, at any cost. But the cost increase is staggering in some cases, with molybdenum going from $2 a pound to $40 a pound in a little over two years. The real question is, can we even get it? CB: How about Colorado’s geological resources? What do we have that most people don’t realize? M: The revenue from minerals and mineral fuels is greater than that from agriculture. I don’t think most people know that 63,000 wells have been drilled in this state, and I just don’t think people really understand the stringent controls that are imposed on the mining and the oil and gas industries. It is very tightly regulated. CB: In your public presentations, you have praised Thomas Friedman’s book, "The World is Flat." Why would the director of the Colorado Geological Survey care about foreign affairs? M: Because I care about the United States, and I think that Friedman’s book tells us that every business in the United States today is in a global market. Any small business that does not realize that had better look out for the health of their business. And Friedman points out that what happens in China and India is likely to, and is already profoundly affecting, the United States. The competition for natural resources will obviously affect Colorado. CB: What consequences do you expect from this flatter world? How exactly will developments in China and India affect the natural resources of Colorado? M: Those booming economies are demanding more and more of virtually every resource, causing prices to go up during the last four or five years. Colorado has many of those resources. We have already seen the tremendous demand for oil and gas, and the conflicts it is creating. CB: What other sectors do you see impacted other than oil and gas and uranium? M: Molybdenum. Phelps-Dodge is re-evaluating opening its mine at Climax. People will also begin to look at Mt. Emmons, near Crested Butte. The price of titanium has shot up. We have the world’s largest titanium resource near Gunnison. CB: Is it in operation? M: No. CB: Many analysts point out that despite declining production of oil and gas, the world - including Colorado - has ample supplies of coal. M: Colorado coal is becoming increasingly desirable. Our coal production has been increasing for the last 25 to 30 years, and the demand is there. We have the largest reserves of compliance coal - coal low in sulphur, mercury and ash - in the nation. The power plants back East want it badly. CB: What about cement production? You’re saying that what is happening in Asia will affect production or, perhaps more importantly, cost of cement in Colorado? M:: Absolutely - and not just cost, but a shortage, which we already have. China was exporting cement three years ago. They are the No. 1 producer in the world, but now they are importing it. We are the world’s No. 3 producer of cement, but we still have to import 22 percent of our cement. At least 40 states, including Colorado, are experiencing tight supplies of cement. CB: Do we have the basic resources for making cement? M: Sure. It’s basic stuff, limestone and shale. We have lots of both. CB: The picture you present is that mining, with the exception of oil and gas, has receded in Colorado steadily in the 20th century. M: The value of total mineral and mineral fuel production in Colorado is now bigger than agriculture. If you include oil and gas, we’re expecting it to be over $10 billion in 2005, compared to $8.5 in 2004. Gold production has been increasing for the last decade, as the result of a single mine at Victor. But, it is nowhere near the levels of the early part of the last century. CB: Does that mean other mines, gold and silver, perhaps in the San Juans, will be coming back? M: Most of the metal mining companies moved out because the environment in Colorado was so hostile to getting something permitted that they just couldn’t afford the time. As the price continues to rise, people may find the time. CB: How will all this shake out? Colorado’s economy is premised on the mountains and the canyons as a backdrop. M: I don’t know how that will shake out. It could be that Colorado says "not in my backyard." Or the state can try to look for ways to do this in harmony, and maintain a lot of the values we have. You talk about the mountain backdrop. After being gone for 15 years I returned and drove through the mountains. I wanted to cry, because of what was allowed to happen with building on ridgetops, trophy homes everywhere, and filling the valleys with ticky-tacky.... I was shocked, and I just couldn’t believe that was allowed to happen. Last modified on 4/4/2006 1:18:46 PM. Click here for a printable version. READER RESPONSE - Leave your comments Nickname: Email: Your email address will only be used to contact you about your posting. Comments: (required field) ColoradoBiz Online welcomes and encourages reader comments. Permission to post reader comments is assumed, and we reserve the right to excerpt or edit for clarity any comments that are posted. We won't be able to publish all comments. 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