FSB Author Article
Excerpt
The following is an excerpt from the book Twilight in the Desert
by Matthew R. Simmons
Published by John Wiley & Sons; June
2005;$24.95US/$31.99CAN;
0-471-73876-X
Copyright © 2005 Matthew R. Simmons
Preface
For years, every important energy supply model has assumed that Saudi Arabian oil is so plentiful and can be produced so inexpensively that its supply is expandable to any realistic demand level the world might need, at least through the year 2030. Many widely respected supply models (such as those used by United States government energy planners and the International Energy Agency) assume that Saudi Arabia will be producing as much as 20 to 25 million barrels of oil a day within the next two to three decades. In reality, the kingdom's demonstrated production capacity in 2004 was on the order of 10 million barrels a day -- in other words, one-half of the estimate.
Saudi Arabian officials have enthusiastically encouraged their oil-consuming customers to believe this plentiful supply scenario, while at the same time they have resisted third-party verification of their ability to deliver. At the end of 2004, Saudi Arabia's petroleum minister announced that the kingdom could increase its oil reserves in a few years by almost 77 percent, to top 461 billion barrels, through a combination of new discoveries and increased recovery from known deposits. This announcement came as a new oil-producing facility was inaugurated. Saudi Aramco, the kingdom's national oil company, claims that this new facility will boost Saudi Arabia's production capacity to 11 million barrels a day, restoring a production cushion of two million barrels a day. If all this is true, then Saudi Arabia could theoretically produce at a rate of nine minion barrels a day for another 140 years before its recoverable oil is gone.
To its great credit, Saudi Arabia has always made good on its commitments to provide the oil needed to prevent supply shortages in the marketplace. The kingdom has done its part (and at times more than its part) to manage the supply and price of crude oil for the general benefit of both producing and consuming nations. It has been a responsible participant and leader in the world oil markets. Based on past behavior, there would seem to be good reason to believe Saudi assurances about the future availability of its oil. There are, however, crucial differences between past and present realities that require more careful examination of the claims that Saudi oil officials have been making. Oil demand has grown to unprecedented levels, and the main Saudi Arabian oilfields grow older every year.
That Saudi Arabia's oil is important to the world is beyond any dispute. But this is one of the few facts, claims, and assumptions about the Saudi oil industry that requires no further scrutiny. Despite the importance of Saudi Arabia's oil to the well-being of the global economy, amazingly little is known about the details of the kingdom's exploration and production industry, details urgently needed to support its seemingly extravagant resource claims. Field-by-field production reports disappeared behind a wall of secrecy over two decades ago. Information about the contribution that each field makes to the reported 261 billion barrels of proven Saudi Arabian oil reserves is treated as a state secret. It is not even clear how much oil Saudi Arabia actually produces, since announced surges and cutbacks in production in recent years have rarely shown up in reports of oil imports from the kingdom made by the member nations of the Organization for Economic Cooperation and Development (OECD), the recipients of by far the greatest bulk of the oil produced by Saudi Arabia and the other petroleum exporters.
There is a story about Saudi Arabia's oil that differs sharply from the official Saudi version. Instead of the oil abundance of the official version, it argues that Saudi Arabian production is at or very near its peak sustainable volume (if it did not, in fact, peak almost 25 years ago), and is likely to go into decline in the very foreseeable future. There is only a small probability that Saudi Arabia will ever deliver the quantities of petroleum that are assigned to it in all the major forecasts of world oil production and consumption. Crucial to the story is a body of technical information about Saudi Arabia's aging giant oilfields that explains the real nature of the threat to the kingdom's oil production capability. This in turn exposes the risk that the world might soon witness the fading of Saudi Arabia's oil supply, an event that would also mark the ultimate peaking of global oil supplies, just as demand is beginning to increase substantially in many countries.
The "twilight" of Saudi Arabian oil envisioned here is not a remote fantasy. Ninety percent of all the oil that Saudi Arabia has ever produced has come from seven giant fields. All have now matured and grown old, but they still continue to provide around 90 percent of current Saudi oil output. The kingdom's three most important fields have been producing at very high rates for over 50 years. High-volume production at these key fields, including the world's largest, has been maintained for decades by injecting massive amounts of water that serves to keep pressures high in the huge underground reservoirs and also to sweep the mobile, more easily recoverable oil toward the producing wells. When these water injection programs end in each field, steep production declines are almost inevitable.
For a number of years two groups have paid close attention to the message that oil supplies might peak and start declining. The first group comprises various oil company executives. They tend to welcome this message, even if they do not firmly believe it will ever happen, as it gives them hope that oil prices will then rise -- always "music to the ears" of any oil producer. The second group tends to be made up of environmentalists, some of whom seem to relish the thought that oil might peak. There are those who look forward gleefully to the day when fossil fuels of all types finally vanish to be replaced by the renewable slate of energy sources: wind, solar, biomass, and, ultimately, hydrogen. These two small audiences, for totally opposite reasons, were the only groups that expressed much interest in the argument that oil supplies will someday peak. Over the last year or two, however, the peak oil topic has suddenly mushroomed, spurred by the dramatic unpredicted rise in oil prices.
Those who express the most vocal public skepticism about a medium-term peak in oil supply tend to be economists. Among this community, the most biting scorn comes from those economists specializing in energy. There is still widespread agreement among many of the world's most respected energy economists that all energy supplies, and particularly oil, will remain plentiful for at least another 20 to 30 years. A few even argue we will have more oil in 2100 than we do today. As a group, these energy economists tend to spend far more time worrying that demand for oil might soon start to wane, than spending any serious analytical time on the supply side of the oil equation.
***
The suspicion that Saudi Arabia's oil resources might fall short of the claimed proven reserves and production capacity began to take shape for me during a visit to the kingdom in 2003 as a guest of Saudi Aramco. My doubts drove me into a research project involving the intense study of over 200 technical papers about Saudi Arabia's petroleum resources and production operations. These papers were written by engineers and scientists closely familiar with the key Saudi oilfields and were published by the Society of Petroleum Engineers (SPE). The problems documented in these technical papers confirmed my initial suspicions and led to the conclusions presented in this book. These problems are detailed in the book so that readers may judge for themselves whether or not my conclusions are warranted. A jury examining this evidence would, I believe, find it difficult not to share my concern about the future sustainability of Saudi Arabia's high-volume oil output.
Saudi Arabian oil officials occasionally admit that their older fields are declining, but they quickly note that reduced output from older fields can be made up with oil from an inventory of discovered but yet-to-be-produced fields and anticipated new discoveries in the many unexplored areas in the kingdom. Such sources, they claim, could sustain production rates of as much as 15 million barrels a day for at least 50 additional years. Unfortunately, these officials have never provided any information to substantiate these claims. Most of the fields Saudi Aramco lists in its inventory of discoveries have never produced substantial quantities of oil for a sustained period of time. Further, very few areas of the country have not been explored rather intensively.
Saudi Arabia and the other major oil-producing nations have refused for over two decades to provide data to verify and substantiate either their reserve claims or their production levels. Given the rapid growth in oil demand that is now underway and the shortage of spare production capacity outside of Saudi Arabia, the lack of verifiable data must soon be addressed by some international forum. It is imperative that we create a credible and reliable worldwide system for collecting and reporting energy data.
It is impossible to predict with any certainty just when the problems afflicting Saudi Arabia's oilfields will finally become insurmountable and send the kingdom's daily oil output into an irreversible decline. Access to more detailed information about Saudi resources and production would make more accurate estimates possible. But this event is not a far-fetched fantasy, and it is not so distant in the future that it deserves no concern today. Moreover, the many consequences of such an event, some clearly predictable and others quite unforeseen, are of such monumental importance to the world economies that to ignore the eventuality of this occurrence is naïve.
Sooner or later, the worldwide use of oil must peak, because oil -- like the other two fossil fuels, coal and natural gas -- is non-renewable. The main reason that many oil experts have scoffed at claims that peak oil might occur sooner rather than later is their belief in the super-abundance of Saudi Arabia's oil resources. Twilight in the Desert challenges this belief through a lengthy review of the all-too-real oilfield problems occupying the time and talents of some of the best technical oil experts in the world. In passing, the book should also demonstrate to both technical and non-technical readers that oil is by no means simply "another commodity." The enterprise that supplies the oil the world consumes so lavishly is everywhere a highly complex business, even in the Middle East and Saudi Arabia, where conventional wisdom has always assumed that oil was easy to find, cheap to produce, and almost inexhaustible in its supply. The risk is high that twilight may soon descend on oil production in Saudi Arabia
Copyright © 2005 Matthew R. Simmons