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| Do the Saudis Really Have Huge Oil Reserves? |
| 2005-06-28 |
| Via RealClearPolitics. I don't have enough knowledge to comment on this intelligently, but it's interesting. In 1956, Shell Oil geologist M. King Hubbert discovered a grand illusion in the American oil industry. For tax purposes, he noted, American oil companies regularly delayed the declaration of new oil reserves by years and even decades. The result was a false impression that new oil was being found all the time. In fact, discoveries had peaked in 1936. Based on this observation, Mr. Hubbert predicted that American oil production would peak in 1969. He was wrong by one year. We briefly produced 10 million barrels a day in 1970 but have never hit that level since. Even with the addition of Prudhoe Bay, Alaska, American production has slipped to eight million barrels a day--which is why we import 60% of our oil. Across the oil industry, the uneasy feeling is growing that world production may be approaching its own "Hubbert's Peak." The last major field yielding more than a million barrels a day was found in Mexico in 1976. New discoveries peaked in 1960, and production outside the Middle East reached its high point in 1997. Meanwhile world demand continues to accelerate by 3% a year. Indonesia, once a major exporter, now imports its oil. Before an uneasy feeling grows into full-blown pessimism, however, one must consider the supposedly vast oil resources lying beneath Saudi Arabia. The Saudis possess 25% of the world's proven reserves. They routinely proclaim that, for at least the next 50 years, they could easily double their current output of 10 million barrels a day. But is this true? Matthew R. Simmons, a Texas investment banker with a Harvard Business School degree and 20 years' experience in oil, has his doubts. In "Twilight in the Desert," Mr. Simmons argues that the Saudis may be deceiving the world and themselves. If only half of his claims prove to be true, we could be in for some nasty surprises. First, Mr. Simmons notes, all Saudi claims exist behind a veil of secrecy. In 1982, the Saudi government took complete control of Aramco (the Arabian American Oil Co.) after four decades of co-ownership with a consortium of major oil companies. Since then Aramco has never released field-by-field figures for its oil production. In fact, no OPEC member is very forthcoming. The cartel sets production quotas according to a country's reserves, so each member has reason to exaggerate. Meanwhile, OPEC nations are constantly cheating one another by overproducing, so none wants to publish official statistics. As a result, the world's most reliable source for OPEC production is a little company called Petrologistics, located over a grocery store in Geneva. Conrad Gerber, the principal, claims to have spies in every OPEC port. For all we know, Mr. Gerber is making up his numbers, but everyone--including the Paris-based International Energy Agency--takes him seriously, since OPEC produces nothing better. The Saudis, for their part, obviously enjoy their role as producer of last resort and feel content to let everyone think that they have things under control. Yet as Mr. Simmons observes: "History has frequently shown that once secrecy envelops the culture of either a company or a country, those most surprised when the truth comes out are often the insiders who created the secrets in the first place." Mr. Simmons became suspicious of Saudi claims after taking a guided tour of Aramco facilities in 2003. To penetrate the veil, he turned to the electronic library of the Society of Petroleum Engineers, which regularly publishes technical papers by field geologists. After downloading and studying more than 200 reports by Aramco personnel, Mr. Simmons came up with his own portrait of Saudi Arabia's oil resources. It is not a pretty picture. Almost 90% of Saudi production comes from six giant fields, all of them discovered before 1967. The "king" of this grouping--the 2000-square-mile Ghawar field near the Persian Gulf--is the largest oil field in the world. But if Saudi geology follows the pattern found elsewhere, it is unlikely that any new fields lie nearby. Indeed, Aramco has prospected extensively outside the Ghawar region but found nothing of significance. In particular, the Arab D stratum--the source rock of the Ghawar field--has long since eroded in other parts of the Arabian Peninsula. The six major fields, having all produced at or near capacity for almost 40 years, are showing signs of age. All require extensive water injection to maintain their current flow. Based on these observations, Mr. Simmons doubts that Aramco can increase its output to anywhere near the level it claims. In fact, he believes that Saudi production may have already peaked. Is he right? Mr. Simmons's critics say that, by relying on technical papers, he has biased his survey, since geologists like to concentrate on problem wells the way that doctors focus on sick patients. Still, the experience in America and the rest of the world shows that oil fields don't last forever. Prudhoe Bay, which was producing 1.2 million barrels a day five years after being brought on line in 1976, is now down to less than 400,000. The mystery of Saudi oil capacity bears an eerie resemblance to Saddam Hussein's apparent belief that his scientists had developed weapons of mass destruction. Who are the deceivers and who is the deceived? No one yet knows the answers. But at least Matthew Simmons is asking the questions. |
| Posted by:Barbara Skolaut |
| #17 Oh boy... OK. Let me see... the peak oil "proponents" basically try to prove that we're running out of oil by plotting the known reserves of oil in a region on a graph and taking that data at face value, _as if the people producing in that region are on the level and have a main goal of maximizing long-term production_. Well, they don't. Take Venezuela, for example. Over the last six years or so, PDVSA has both cut back on investment in further exploration and has mismanaged the reservoir management of the wells they've already drilled. This caused a massive strike, which caused a political crisis for Chavez, who at one point not only fired everyone who was on strike, but _banned them from working in the Venezuelan oilfield ever again_. SO: You have a whole lot of factors converging to reduce production there now: a lack of investment in new drilling, the reservoir mismanagement (which both reduces the production rate and sustainable levels of production from a formation), the fact that a lot of the people who know how to run things properly are no longer employable, the Venezuelan tax ministry's (and other government agencies') threats creating a "hostile work environment" for those foreign oil companies that were investing in Venezuela (but AFAIK they didn't try to pressure the Chinese, who they'd sold some oil to), and finally, the fact that someone in the government's embezzled about a billion dollars to either their private slush funds, black wetworks projects, or some combination of the two... And Venezuelan oil production is going to go way down regardless of whether they're actually "running out of oil!" But these guys are going to plot their data points, and throw some darts for good measure, and say "See! Venezuela has passed maximum oil production, therefore they're in decline and RUNNING OUT OF OIL!" |
| Posted by: Lord Waldemart 2005-06-29 00:09 |
| #16 Phil, in a word: Yes. (Please.) |
| Posted by: Jennie Taliaferro 2005-06-28 23:32 |
| #15 I thought I posted a comment on this, but it seems to have vanished. Do I need to post my standard spiel whenever someone starts talking about "Peak Oil?" |
| Posted by: Phil Fraering 2005-06-28 22:04 |
| #14 There are only two things you need to know about the whole thing. 1. Energy is THE fundamental input to economic activity. 2. Energy inputs are almost without exception fungible, that is you can replace one with another (given cost and time constraints). So we are dependant on oil only becuase we have not developed other sources of energy (and this problem has been exacerbated by ludicrous 'alternative energy' schemes and of course Kyoto). There will be an economic trainwreck caused by oil supply (lack thereof) and it was completely avoidable. |
| Posted by: phil_b 2005-06-28 21:06 |
| #13 Ship, I say stratify and use other currency, save big dollars that way. |
| Posted by: Red Dog 2005-06-28 20:23 |
| #12 Forget tar sands and oil shales for now, maybe forever. The question is not when does it become lucrative to start exploitation but can you do it without using more energy in the process than you win. Hoping you're wrong TGA. I figure it's just a matter of price. Once oil hits say.... 90 bucks (American :>) There's all sorts of things that can happen, most of which are unforseen. It's like Phil_B sez, we're not running out of oil, but there is a potential shortfall in a couple of years. Unless of course demand falls due to the flu. :) |
| Posted by: Shipman 2005-06-28 19:59 |
| #11 SPoD One thing is clear. It's crazy that we use a ressource as precious for... burning. |
| Posted by: True German Ally 2005-06-28 19:34 |
| #10 Living in right in between 2 major California Oil Fields I can say that we are finding new oil in unexpected places everyday. The facts are we have no idea how much oil we have. US producers have cut back on production of known reserves seeing the oil as money in the bank. They continue to make new finds everyday. I know of one location that is producing 1/3 the amount of oil it did 3 years ago only because the owners of the lease are saving the oil for recovery in the future. That said we need to find a new way to produce energy, chemicals and plastics and save our oil reserves for lubrication. Dumping the internal combustion engine would be a good idea. I hear lots of people who are "experts" talking lots of shit on "known reserves" We really don't know crap. Admitting that would be a good start. We could have way less than we think but we likely have way more. |
| Posted by: Sock Puppet 0’ Doom 2005-06-28 19:26 |
| #9 Yes but the question is not how much oil there is but how much we can make available for the next decades until we managed the transition to something better. The questions are: How fast can we get it? How expensive is it to get it? How energy consuming is it to get it? If peak oil comes in ten or 20 years we should resolve the problem. If it's upon us already we probably can't |
| Posted by: True German Ally 2005-06-28 19:24 |
| #8 Hard to say for sure what is going on in Mexico. They've had nationalized oil since 1939? There's probably plenty left we could get to if they'd explore porperly. Same for Venezuela. But whether the peak is this yera or 5 years, it seems to be coming. I remember Alaska being discovered when I was in Jr, Higi and there hasn't been anything like that since. But there's still plenty of earth unexplored, especially the part under the ocean. |
| Posted by: Mrs. Davis 2005-06-28 19:18 |
| #7 phil_b most countries outside the Middle East are at peak or beyon already... Venezuela, Mexico, Norway, UK... Why should the Saudis have infinite, easy to tap supplies? How much oil have they discovered in the last years? We may not be heading downstairs yet but we can't take risks to be late. If the Saudis could significantly increase output they would do it NOW. They know that the oil embargo was a major mistake. It lead to worldwide recession from which many Third World countries never recovered, it made the West look for alternative sources. If you were a Saudi you would want to squeeze your clients gently, not kill him. |
| Posted by: True German Ally 2005-06-28 18:45 |
| #6 The problem is, because we don't have visibility on the real state of OPEC reserves and supply capacity, the market can't operate (correctly). If you read the industry commentaries on future oil supply there are regular references to $10/b oil less than 10 years ago. And therein lies the problem, companies wo'nt take the risk of spending billions when there is the risk OPEC will ramp up production, send the price of oil down and cause them to lose huge amounts of money. BTW, there is a widespread belief that SA/OPEC deliberately engineered $10 oil to send a message - develop alternative sources and we will bankrupt you. |
| Posted by: phil_b 2005-06-28 18:31 |
| #5 Shipman, believe me, you DON'T want the Saudis to peak already. Because if they do we're past Peak Oil already and you DON'T want to be there. Forget tar sands and oil shales for now, maybe forever. The question is not when does it become lucrative to start exploitation but can you do it without using more energy in the process than you win. Right now, the only thing that can help is to curb demand. And we really need to do it now. I know you won't like it but TAX gasoline higher. Yes it will hurt but if you don't it will hurt more. Curb gas demand with taxes. One dollar more on a gallon. Sounds crazy? No. If you think you can't pay $3,50 a gallon, wait one or two years and you will be paying $5. But to OPEC. I believe Mr Simmons is up to something. |
| Posted by: True German Ally 2005-06-28 18:25 |
| #4 :) Good news bad news. SA oil has peaked, SA is no longer a player in the swing market. OPEC is YES! DOOOOOOOMED! I feel so very bad. /I hear ya Phil_B |
| Posted by: Shipman 2005-06-28 17:57 |
| #3 I grew up in Soddiland as an ARAMCOn, left in 1970, but still have contacts among expats and retirees. A problem I have consistently heard is the Saudi-fication of ARAMCO has been a disaster. Non-Americans just don't have the expertise to maximize output and minimize damage to the productive capacity of the oil field. Also, the Saudi fields were pressurized and would flow up to 10K bbd. Compare that to the sucker pumps we see in the US which might product 1-20 bbd, but require electricity to pump, tank trucks to pick up the oil, etc. Those expenses mean many 'merican wells won't begin to pump until it is economically feasible (i.e. you get more sales revenue that it costs to extract it). In any case, there is more than enough oil out there (see the Alberta tar fields) IF the price is high enough to justity the expense of extracting the resource. |
| Posted by: Brett 2005-06-28 17:02 |
| #2 I have a couple friends in the oil industry and support a company that specializes in oil exploration. Both say there is a huge amount of oil and natural gas deposits not being used or tapped at the moment. It just isn't cost effective until oil reaches 60-70 dollars a barrel. As for Saudi, I do not know what is going on there. But Columbia, Venezuela and Central America have huge untapped reserves that could keep the US in the black for many decades into the future. Just keep China out of there... |
| Posted by: mmurray821 2005-06-28 16:21 |
| #1 No, of course not. And what they have is getting "heavier" every year. |
| Posted by: Chuck Simmins 2005-06-28 16:19 |