Matthew Simmons, head of the Houston-based investment firm Simmons and Company, has made a fortune by investing billions of dollars in the oil and gas industry. Increasingly, though, Simmons has been telling the industry what it doesn’t want to hear—that our planet’s oil is in short supply. Now considered one of the world’s leading experts on the theory of peak oil—which says we are near or have already reached the peak capacity for oil production worldwide—George W. Bush’s former energy advisor foresees a steep decline in oil output and profits. His predictions, outlined in his book Twilight in the Desert: The Coming Saudi Oil Shock and the World Economy, took the industry by storm, naming names and contending that Saudi Arabia doesn’t have as much oil as it claims. With barrel prices passing the hundred-dollar mark at the beginning of this year, Simmons’s predictions seem to have more gravity than ever. But, unlike many like-minded thinkers, Simmons believes that current alternative energy strategies are pipe dreams, environmentalists are deeply misguided, and global warming is nowhere close to our largest problem. GOOD sat down with him on the porch of his stately Maine home to get his take on the future of the energy business.

GOOD: You’re making money servicing oil rigs while you’re foreseeing the industry drying up. Is that bad for business?

MATTHEW SIMMONS: Whether my company’s opinion is good or bad for the industry is neither here nor there. Even though theoretically we’re set up to do business with the major oil companies, they think we’re a wacky firm, and we think they’re wacky. They’ve never figured out where the industry is. In the 40 years I’ve been studying this they’ve been wrong every single time. They don’t seem to ever read books.

How did you get into the energy business?

While at Harvard Business School I met a man whose company was providing the diving services for offshore platforms and rigs. He was about to sell the company and I said, “What if you raised some venture capital?” He said “Can you do that for me?” By the end of five years my company had pretty well established itself as the experts in the oil-services industry, because nobody else understood it.

Have you been politically involved? You did some consulting for President Bush before he was elected.

I made the mistake of pulling aside President Bush’s first cousin in early March of 2000. I told him about a conversation I had with Secretary [of Energy] Bill Richardson’s assistant, who had just visited the OPEC countries to see exactly how much spare [oil-production] capacity they had left. I said, “When you have someone who is the head of U.S. oil policy call you and [say ‘shit!’] about five times in 20 seconds, this is so much worse than what they’ve warned us about.” I said, “Between now and the election, if this all breaks out and Bush is misinformed, he can mispronounce every head of state in the world, but this, this will sink you.” And that dragged me into helping create the comprehensive energy plan put forth by Bush when he was running.

You grew up in a Republican family. Who are you backing in the 2008 election?

One of my political heroes was George Romney, whom I got to know well. That’s why I’m a big supporter of his son, Mitt Romney. But I’d say that over the years in the energy business I got as disgusted with some of the mistakes the Republican Party was making as well as the Democratic Party.

When you consulted for the Bush campaign, were you making dire predictions?

They were dire enough to scare some people. I didn’t even understand at the time what the term “peak oil” meant. What I did understand was how our spare capacity was evaporating. We needed to start diversifying our supplies. The mindset at the time was that technology had driven down extraction costs and that we would have a long era of overcapacity, and my views just could not have been any sharper that these guys didn’t have a clue what they were talking about.

Was there a point where you realized you had to get into alternative energy?

No. Every once in a while I have run into somebody who peddles the beauty of wind or solar or fuel cells or the deregulation of electricity, and so often these people are almost gleeful that their invention would finally rid the world of that awful oil and gas. And I kept thinking, “What a stupid thing to say.” Because it won’t ever happen.

So, what would you like to correct about alternative energy?

I think that what people need to appreciate is that the miracle of modern energy created virtually everything that’s good about how we live. And if you go back to 100 years ago, we were a filthy society. … But the odds are exceedingly high that we’re nearing or maybe even past the largest sustainable oil output, and the world is assuming we can grow at least another 50 percent. Probably my single biggest epiphany, going from being a concerned observer to saying this is really a serious problem, was the two and a half years I spent analyzing the oil fields of Saudi Arabia, and it ended up in this book, Twilight in the Desert. ... Until I came out with this book, literally almost no one had ever even raised the question What if they don’t have the oil?

So, is oil behind our policies in the Middle East, like the Iraq War?

No. Well, let me go back and rephrase that. If Saddam Hussein hadn’t had access to oil revenues, we would have paid as much attention to him as we do to Darfur. I know there are people who passionately believe [that the war was a design to grab Iraqi oil], but it doesn’t have a lick of truth to it. But we do need desperately to find some different ways to live that don’t take us back to the Stone Age or create World War III. Just pray that out there someplace is a sustainable new form of energy that will allow us to continue to have people move around and move goods. Because if we can’t do that, we’re going to have a very different and messy, painful society.

Have you seen any solutions that look promising?

I’m spending a great deal of time right now organizing a facility in Rockland, Maine, called the Ocean Energy Institute. When it comes to alternative energy, wind is perfectly commercial today. But when you try to scale it, it just doesn’t work. I suspect the cost of solar will finally come down, but you’ll never have solar be anything more than an intermittent source of electricity.

So you’re interested in the ocean?

What’s interesting about the ocean is how much we know about it and how little we know about it. And the amount of work that’s being done … is about where offshore drilling was 60 or 70 years ago. Tidal energy has barely ever been tapped before, but we know where the tides are, and they just don’t happen to be in massive amounts in many places around the world. [But] there are some parts of the ocean where almost all the time there are waves coming in. It’s just amazing that here we are in 2007 tinkering around with this stuff like Thomas Edison used to do with electricity. Then there are currents. The Gulf Stream is essentially the largest river in the world ... and there are devices being developed that are anchored in a current and end up having a rotor that turns because of the current. It might be perfectly viable to create a floating dry dock. Or you combine the water in a boiler with ammonia, and once you have boiling you have steam, and steam powers a turbine and creates electricity. This doesn’t sound nearly as complicated as creating fuels cells, for instance, which is still a real bugaboo.

Will the Ocean Energy Institute be an advocacy organization?

No, it wont be an advocacy organization. It will hopefully be a central gathering point of people who want to know about ocean energy. You only need about $50 million—which is nothing in the energy business—to get you through at least five years of seeing how real this area is.

Is it a nonprofit venture?

Part will be nonprofit and part will be a venture-capital fund trying very hard to make as much money as possible—because that’s the only way forward.

It sounds like a green technology. Is that part of your motivation at all?

No, no. I’m purely driven by the sense that if we don’t create a solution to the enormous potential gap between our inherent demand for energy and the availability of energy, we will have the nastiest and last war we’ll ever fight. I mean a literal war.

Like the Middle East versus the United States?

Or the U.S. versus Canada. The U.S. and China. Or Europe and Russia. If energy weren’t very important then it wouldn’t matter that you have a need for 100 and a supply of 70. But since energy is the one thing that makes our entire global economy work ... when you start having that sort of mismatch, the bullies get to the front of the line and take it first. The urgency of this blows away this sort of vague worry about global warming: I don’t know anybody who thinks that’s an issue that will affect our lives in the next 15 or 20 years. If we don’t solve this in 10 years, it’s too late.