When oil prices have doubled to $80 and a second great depression threatens global political stability, the president of the United States will impanel a Sept. 11-style commission to explain the intelligence and policy failures that led to the crisis. The verdict will be familiar: The stunning blow to the world economy brought about by the sudden, unexpected depletion of fossil fuel should've been anticipated and prevented.

When that day comes -- in five years or perhaps 20, who knows -- many of the key exhibits will have been penned by Matthew Simmons, a Houston energy analyst and banker at Simmons & Co. International.

Simmons is now shouting from the rooftops -- writing think-tank white papers, giving speeches and finishing a book set for publication next year -- that the world is fast running out of affordable oil and gas, and that no amount of Middle Eastern pumping can bail us out.

While much of the so-called “peak oil” story is well known, what's news is Simmons’ startling claim, based on personal analysis, that Saudi Arabia’s pumping capacity is in decline.

Aramco, the company in charge of Saudi oil operations, disputes Simmons’ assertion and has debated him in public policy forums. But Simmons isn't easily dismissed, as he's no anti-establishment crank. In addition to his role as chief executive of a major energy-focused investment bank, which counts Halliburton and the World Bank among its clients, he’s a member of the Council on Foreign Relations and was an advisor to President Bush’s election campaign and Vice President Dick Cheney’s infamous energy task force. Check out your options.

A pervasive, regressive tax
Simmons’ point of view is especially relevant today because the price of oil appears persistently stuck at $35-plus despite Saudi officials’ vows to help push it down by increasing supply. Higher energy prices act like a pervasive, regressive tax, robbing consumers of money that would otherwise go to buy discretionary goods such as cars, clothes and computers. The role of higher energy prices so far seems lost as a culprit in the failure of the stock market to advance this year, and yet it could be considered a root cause.

In a nutshell, peak-oil advocates note that U.S. oil production -- once the highest in the world -- topped out in 1970, while natural gas production topped in 1973. Both are now in decline. With world consumption of oil at about 1 billion barrels every 12 days, oil companies have pressed hard to find oil and gas in other parts of the globe. Indonesia’s fields are old and declining, as are Russia’s and Canada’s. Simmons and others say that most of the world’s easily obtained large oil reserves have already been located in remote areas such as Arctic Alaska, the deep-water Gulf of Mexico, deep-water West Africa and the North Sea, and that new reserves being brought on line offer only marginal amounts.

As an example, ExxonMobil, ChevronTexaco and Petronas of Malaysia have teamed with the World Bank to develop the Doba oil fields in the landlocked northern African country of Chad at a cost of $1.5 billion, and to build a shipping facility on the coast of neighboring Cameroon at a cost of $2.2 billion. Yet Chad has only an estimated 900 million barrels of reserves, and the field will pump just 50,000 barrels a day, an amount that would boost the local economy tremendously but barely make a dent in world production.

Technology will help make many old fields more productive, but the amounts again are relatively tiny. New field production worldwide is moreover limited by safety concerns. U.S. environmentalists have blocked the exploitation of the Arctic National Wildlife Refuge, a 19-million-acre section of northeast Alaska sometimes described as America’s Serengeti, and shut down exploration off the Pacific, Atlantic and Florida Gulf coasts. Supporters, including Simmons, argue that modern drilling techniques will minimize the environmental impact on the Arctic’s coastal plain, but even if it’s exploited, he notes that it would generate only 300,000 to 1.5 million barrels of oil a day and natural gas for 10 to 20 years before depleting.

The big assumption
It’s always been assumed, by the United Nations as well as European and U.S. policy makers, that Saudi Arabia would be able to pump more of its oil to fulfill increasing world demand. The Saudis are pumping, at most, 9 million barrels a day now and have boasted that they could pump as much as 15 million barrels a day for the next 50 years. Indeed, Saudi leaders promised that they would start pumping more a few weeks ago.

But since world oil production hasn’t increased any since those promises were made, economists and energy users have wondered whether Saudi Arabia has elected, for political reasons, not to fulfill its vow.

Simmons says it's worse than that: Much like the biggest problem in the Enron fiasco was that analysts always trusted Enron managers’ declarations about the strength of its financial assets, he says that the world has always taken Saudi Arabia at its word for its oil assets. He now believes that it cannot be trusted.

He notes that the six major oil fields in Saudi Arabia, all discovered between 1940 and 1967, produce about 95% of Saudi oil. The Saudis produce 10% of the world’s oil from them at the world’s lowest prices, and the Saudis are the only serious provider of “spare” capacity on the planet. A single field, Ghawar, which is the world’s largest, was discovered in 1948 and produces up to 60% of the kingdom’s total.

He believes that production at these mature fields has peaked. While that doesn't mean they'll run out tomorrow, they're becoming much harder and more expensive to exploit efficiently. It’s much like a person getting older and suffering from arterial sclerosis: They slow down and become increasingly less capable. The Saudis are now using intense water-injection techniques to improve production, he says, a technique that can ultimately lead to catastrophic pressure failure.

Aramco disputes his claim, but Simmons notes correctly that its principal answer comes down to an Enron-like, “Trust me.” There's no solid independent data source of Saudi oil production. “A lack of verified data leaves the world in the dark,” he told the Hudson Institute.

The rebuttal
Aramco’s response: Current oil output can reach 10.5 million barrels a day, proven reserves are 260 billion barrels; there are 200 billion more barrels of “undiscovered” oil underground in such unexploited zones as the deepwater Red Sea, the Iraq border and the bottom section of the Empty Quarter; finding and development coasts are “incidental” (50 cents per barrel), and the kingdom can safely produce 10 million to 15 million barrels a day for the next 50 years.

Aramco’s argument essentially boils down to a claim that new horizontal, “super-straw” drilling and pressurization techniques will save their day; Simmons in turn argues that new techniques are simply accelerating the production of the last “easily produced” oil. He also contends that new projects in areas known as Qatif, Abu Sa’fah and Hawtah are only offsetting declines in other fields. And finally, he asserts that the old-timers of Exxon and Chevron who ran Aramco through the 1970s used valid techniques to estimate Ghawar’s reserves at 61 billion barrels and all Saudi fields at 108 billion barrels. If those estimates prove accurate, he says, “the end is in sight.”

Simmons is calling for a “new era of transparency” -- timely, field-by-field verified data -- so the world can really see what the Saudis have. They need to abandon their old practices of secrecy and lead OPEC on this. Without better assurances, he says, the lack of a valid “Plan B” could be catastrophic to world economic progress.

Of course, Simmons has a pony in this race. The more the world needs to build new fields, the more his investment bank can finance. But his views demand attention nonetheless, especially in light of the Saudis’ recent lack of forcefulness in adding capacity to push down oil prices today.