Some interesting happenings in the Oil department, further indicating that "peak oil" has come in out of the cold.

First, there's a book out by Matthew Simmons, the head of an old and respected oil investment company, called "Twilight in the Desert". Therein Simmons lays out the case that Saudi Arabia is, contrary to conventional wisdom, reaching the end of its tether, and its main supergiant fields will soon pass their peak of production. Though Saudi officials have vehemently denied the claims made, Simmons responds simply and powerfully: prove it. Provide some convincing documentary evidence for your reserve numbers; otherwise no one has any reason to believe you.

Second, a study was just performed by the National Commission on Energy Policy. They projected results from removing just 3.5 Mbd of production out of 83 Mbd global production. Some of their fearsome news:

• Gasoline prices of $5.74 per gallon
  
• Global oil price of $161 per barrel
  
• Heating oil prices of $5.14 per gallon
  
• Fall of gross domestic product for two consecutive quarters
  
• Drop in consumer confidence by 30 percent
  
• Spike in the consumer price index to 12.6 percent
  
• Ballooning of the current accounts deficit to $1.087 trillion
  
• Decline of 28 percent in the S&P 500
  
• Aggressive pressure on the U.S. from China to end arm sales to Taiwan
  
• Demands from Saudi Arabia for changes to U.S. policy regarding the Mid-East peace process
  

Fortunately, both of these were recently featured on On Point. You can take a brief half hour out of your life and edify yourself greatly. Despite On Point's tag-line of "worst-case scenario", Jason Grumet, the NCEP director, is careful to point out that their scenario is not a "Robert Ludlum" worst-case, but an eminently reasonable one drawn from the legitimate and rather unsurprising concerns of experts in the field - a bit of minor, low-tech terrorism here, some civil unrest there. As I say, 3.5 Mbd is not a huge production drop.

Also pay attention to Matthew Simmons' final comments: "The most important provision in the energy bill is the most contentious provision, and that's at the very least doing a scientific survey of our outer continental shelf to see what energy we might have. If the Senators are so haughty about that that they say 'We won't do that,' then we should start today dismantling the U.S. economy." I.e., when push comes to shove, the environment may have to take a back seat to vital energy considerations. (Meanwhile, Grumet says that before we do anything so rash as offshore drilling and exploration, we should be revising CAFE standards.)

Simmons also has some interesting things to say about what the decline side of an oil production curve looks like (and the influence of technological advance on it), and the real need to have a better understanding of it in this era of depletion.