Peak Oil News: The Saudis' approaching twilight

Monday, January 09, 2006

The Saudis' approaching twilight

By K�llia Ramares – Online Journal Associate Editor

Twilight in the Desert: The Coming Saudi Oil Shock and the World Economy
By Matthew R. Simmons ISBN: 047173876X Hardcover, 422 pp, Wiley, 2005

" . . . I think I have a relatively high amount of credibility with some senior people within the Bush administration, but I can't believe that they don't read and listen to 90 other people that call themselves experts and I'm sure a lot of those people say, "God, that Simmons guy is really a . . . he's just a 'Cry Wolfer' beyond the wildest imagination." –Matthew R. Simmons, in phone interview with K�llia Ramares, September 28, 2004.

Matthew R. Simmons is the founder and CEO of Simmons & Co., International, a Houston-based investment bank for the energy industry. Although Simmons is not himself a petroleum geologist or petroleum engineer, he has learned much about how and where oil and natural gas are produced in his more than 35 years of involvement with the industry as a financial advisor.

Simmons has built up a great store of knowledge about Saudi Arabia, the "swing producer" that oil-consuming nations, such as the United States, have depended on for decades to make sure there is enough supply on world markets. Despite tight supplies and high prices, and recent attention to Peak Oil, about which Simmons has been warning for years, the Saudis insist that they can maintain and even expand their current level of oil production for decades to come. In fact, on the morning of September 28, 2004, just hours before I interviewed Simmons, the Saudis announced that they would increase oil production capacity. In debates, in articles, and now in his book, Twilight in the Desert, Simmons is challenging the Saudi assertion that the kingdom can keep ratcheting up production to meet the needs of ever oil-thirstier world markets.

The major message of Twilight in the Desert is that Saudi Arabia's oil comes from only a few oil fields, including Ghawar, the world's largest oil field, most of which have been producing for as long as half a century. These fields have developed the usual problems of aging oil fields, especially the problem of water encroachment, about which Simmons goes into great detail. Saudi oil fields are geologically complex, and they, and even subsections of the same fields, do not produce uniformly well. There have been few new oil discoveries in Saudi Arabia and what has been discovered is nowhere near the amount needed to offset depletion of the older fields in the face of increasing demand. The paucity of new discoveries and the need for expensive high technology to continue recovering oil from the older fields will keep prices high going forward.

Saudi oil production has lacked transparency since 1982, a fact that Simmons much laments in Twilight. So he bases his conclusions on evidence presented in over 200 technical papers on Saudi oil fields, published by the Society of Petroleum Engineers, which he has read. Thank goodness someone had the intellectual, temporal and financial wherewithal to read and make sense of these papers and then to put it in a more digestible form for the rest of us. But before you take a bite out of Twilight in the Desert, be aware that it's a big meal of unsweetened hard-core vegetables, the stuff you need for your health that you may not be getting enough of elsewhere.

But where is the line between "enough" and "too much"? This hefty tome (now available in paperback), was written in a manner that I found accessible, even thought I have no education in petroleum geology or engineering. But does a general readership, which needs to know that the days of cheap oil and natural gas are over, really need the nitty-gritty details provided by sections such as "Reservoir Pressure Anomalies in Southern Ghawar," "Geologic Analysis of Berri's Reservoirs," and "Sand Control Problems"? Sections such as these made me wonder just who it is Simmons is speaking to through this book and why they need such detail. I got the impression that he's trying to prove more than his point about the health of Saudi oil fields and the future of Saudi oil production; I got the impression that he's trying to prove to someone(s) -- Peak Oil skeptics, the White House, Wall Street? I don't know -- that he knows what he's talking about, and should be taken seriously, even though he's a businessman, not a scientist.

Knowing that Simmons was drawing on solid technical material -- the SPE papers, the included graphs, charts and tables from his company and others, his personal visits to Saudi Arabia, and congressional testimony, I would have preferred a shorter book. Then again, I've interviewed Simmons and a number of the Peak Oil scientists with whom he associates, such as Drs. Colin Campbell and Ali Samsam Bakhtiari, so I already take him seriously. Most readers who are more interested in oil economics, and especially how it relates to them personally, might do well to skim or even skip Part Two: The Ebbing of the Saudi Oil Bounty, and Part Three: Giants at the Tipping Point: An Assessment of 12 Saudi Oilfields. Their salient points are summed up in Part Four: Twilight in the Desert. However, Peak Oil skeptics, who want to claim that current high prices are only the result of a Big Oil plot to make as much profit as they can, would do themselves and their audiences a big favor by checking out the technical material Simmons presents in Parts Two and Three. Tight supplies do mean higher prices, and as we have already seen, higher prices do fatten the bottom lines of the Big Oil companies. But the point of Twilight in the Desert is the geological reality that people who want to blame high prices on the greed of Big Oil refuse to face that oil is a finite resource created eons ago, and even the most productive fields in the world, such as Saudi Arabia's Ghawar, cannot produce high volumes ad infinitum, even with high technology. And as Simmons puts it on page 263 (emphases his):

Did Aramco and the Petroleum Ministry choose to maintain high rates of production at the risk of reducing ultimate oil recovery? Will the last effect of these aggressive production methods be steeper declines that might otherwise have been expected, when the boost they have provided finally turns to bust? The shape of the oil production decline curve in Saudi Arabia is one of those things than cannot be predicted with much accuracy. What can be predicted, however, with absolute certainty, it that the decline is coming, and our oil-consuming world is grossly unprepared for it. Somebody needs to be busy writing the script for Act II.


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