[Marxism] Saudi Oil, How Much is Left?

[Jon Flanders <jonathan.flanders@xxxxxxxxxxx>]

A Tale of Two Planets

A Report on the Conference“Future of Global Oil Supply: Saudi Arabia"

Held at CSIS, Washington DC, February 24th 2004

by Julian Darley

julian@xxxxxxxxxxxxxx

(special to From The Wilderness )

© Copyright 2004, From The Wilderness Publications, www.copvcia.com. All
Rights Reserved. May be reprinted, distributed or posted on an Internet
web site for non-profit purposes only.

March 17, 2004 1800 PST ( FTW ) -- The new millennium has not exactly
been one of ‘irrational exuberance' for many industries, and
particularly not for the oil industry, despite high oil prices. Major
oil discoveries have declined every year so that 2003 saw no new field
over 500 million barrels, and in 2001 and 2002 the top ten non-state oil
companies spent more on exploration than they discovered in value, a new
and alarming record. It is well over twenty years since more oil was
found than consumed in a year. From the outset of 2004, large reserve
write-downs, starting with Shell, and including El Paso and BP, have
shaken the confidence of the financial community, set in motion an
official SEC enquiry, and may yet be just the tip of the iceberg.

Comforting then to know that the Middle East, producer of last resort
and future saviour of the world oil system, still has nearly 700 billion
barrels of reserves, and is publicly confident that it can deliver the
required doubling of output to 40 million barrels a day by 2025. Even
more reassuring, Saudi Arabia says it can happily deliver 10 million
barrels a day for at least the next fifty years, possibly even rising to
15 million barrels a day – and still for fifty years. This output can be
guaranteed because Saudi ‘oil in place' will rise to 900 billion barrels
by 2025, while new technology will help existing recovery and lead to
many new discoveries. This was the message from Saudi Aramco, delivered
on February 24 th, at CSIS (Center for Strategic and International
Studies), a well-known think-tank in Washington DC, to an audience of
diplomats, CIA, EIA (Energy Administration Agency, part of the US
Department of Energy), media of record, and many energy companies and
analysts of every stripe.

The trouble is that the Saudi Aramco presentations of Mahmoud
Abdul-Baqi, Vice President of Exploration, and Nansen Saleri, Manager of
Reservoir Management, seemed to be describing not just another country,
but another planet when compared with what Matt Simmons, President of
Simmons and Co (the world's largest private energy investment banker)
had to say. Industry observers noted that Aramco had never before said
so much about their reserves and how they hold production steady in
their ageing oil fields, but much of the Aramco presentation
concentrated on the benefits of new technology, especially in their
medium-sized fields, and the possibilities of future discoveries,
without noting that well productivity had fallen by more than half since
the early 1970s. More than half of Saudi Arabia's oil comes from one
giant field, Ghawar, the largest ever discovered, and the health of this
field is now in serious doubt, after decades of water injection to
maintain pressure.

Simmons' case rests on the painstaking analysis of two hundred SPE
(Society of Petroleum Engineers) reports written over four decades by
Saudi petroleum reservoir engineers, as well as a fact-finding mission
in 2003, and ten years of other detailed studies of oil and gas
depletion. He has been publicly hinting for more than a year that
assumptions about Saudi Arabia's seemingly limitless capacity may be
misplaced, but now, ahead of the publication of his forthcoming book on
Saudi oil, the hints have been replaced by copious data and a dire
warning.

Simmons noted that “in an era of poor energy data, OPEC is a total
vacuum,” but his latest work on Saudi Arabia does come at a time, when
despite more than two decades of official secrecy, questions are being
asked about Middle East capacity and reserves, especially since the
surprise OPEC cut in production in February 2004.

A SPO has recently analysed the extraordinary OPEC reserve revisions of
the 1980s, which saw volumes leap from 353.6 billion barrels in 1982 to
643.5 billion in 1990 despite no new large discoveries. Two different
ASPO studies conclude that reserves are somewhere between 100 and 300
billion barrels smaller than officially claimed. Evidence from
widespread and dramatic falls in well productivity suggests that
reserves may now be about what they were stated to be in 1982. This
would fit with the original numbers being understated by about thirty
percent, and seeing about this much produced in the intervening twenty
years. (See ASPO Newsletter March 2004, http://asponews.org.)

Simmons' new work on Saudi Arabia, the greatest of all oil provinces
appears to have lit the fire under a fast growing mass of evidence that
the Middle East is no longer capable of increasing production at will
either to stabilise price or make up for sudden falls in other
producers.

However, a major point of Simmons' work is that knowing when Saudi
Arabia is in permanent decline will be very difficult to discern for
some time. Despite Saudi Arabia's central role in world oil, there is no
official agreement on how much it is actually producing (and this also
applies to OPEC in general). Aramco's own report of 6.79 million b/d in
2002 was notably lower than either the IEA or press reports. This has
led some to try to estimate production from tanker traffic. The OECD
reported that Saudi exports were flat from 2000 to 2002, but Simmons
questions how we can be sure of this.

During the question and answer period which followed all the
presentations, Simmons was noticeably reticent about when Saudi Arabia
would peak, but did note that Saudi Aramco had briefly produced over ten
million barrels a day in 1981. Afterwards, however he was more
forthcoming. “We could be on the verge of seeing a collapse of thirty or
forty percent of their production in the imminent future, and imminent
means sometime in the next three to five years – but it could even be
tomorrow.”

Simmons asks why the Saudis are expending so much effort on the old
reservoirs if they have so many new ones in the wings, many of which
have not even been tested. Could the reason be that many of the other
300 recognized reservoirs “seem to lack permeability, porosity, or
aquifer – or all three”?

The ‘Big Five' (Ghawar, Safaniyah, Hanifa, Khafji and Shuaiba) giant oil
fields, all found by the mid 1960s, produced 90% of all Saudi oil in the
last half century, but now, Simmons said, they were only being kept
going by massive water injection, so that the “sweep of easy
conventional oil flow is ending.”

full:

http://www.fromthewilderness.com/cgi-bin/
MasterPFP.cgi?doc=http://www.fromthewilderness.com/free/
ww3/031704_two_planets.html


Some new Oil Peak sites:
Citizen's Committee on Oil Peak and Decline
http://www.copad.org/

Peak Oil Action
http://peakoilaction.org/

Oil Awareness Meetup
http://oilawareness.meetup.com/



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