Saudi geologists' papers spell lower output
By Timothy Gardner
NEW YORK (Reuters) - Research by Saudi Arabian geologists indicate oil production in the kingdom is at or near its peak and likely near-term declines could lead prices to $100 a barrel in the next three years, a U.S. author claims.
Matthew Simmons, an investment banker specializing in energy for 30 years, tapped more than 230 technical papers published by international research group the Society of Petroleum Engineers, many of them written by current Saudi Arabian nationals, for his book, "Twilight in the Desert," to be published in June.
He concludes that production by state-owned Saudi Aramco, which as a company produces more than any other country, is at or near a peak. When the problem is joined by falling production in North America and the North Sea, oil could spike to $100 a barrel in the next three years, he said.
Simmons said in an interview that the last 50 years of U.S. energy policy has focused on the wrong thing.
"We essentially thought we could always rely on oil in Middle East as long as there was peace in the Middle East. In consequence, oil policy was about geopolitics instead of examining what the oilfields are really like."
A few years ago, Simmons first suspected that Saudi Arabia's oil was being overproduced when a friend in Washington, D.C. told him about an April 1979 U.S. Senate staff report.
The report detailed that water seepage into Saudi oilfields forced Aramco's original owners Exxon, now Exxon Mobil , and the now-merged Texaco and Chevron, to downgrade Saudi's production potential from 20 million barrels per day to 12 million bpd.
Simmons visited a major oil center in Saudi Arabia in early 2003 where the amount of water being processed out of crude shocked him.
With Western geologists who formerly worked for Aramco, he then combed through SPE papers from the late 1990s and early 2000.
Wayne Spence, senior manager at SPE in Dallas, said the group has no opinion of Simmons' work. "It just depends on what side of the argument you're on. There are just as many people at SPE that aren't on the peak oil side of things."
But Saudi Arabia has already made its geological data public, and to reveal any more of it risks "giving terrorists a road map" into the inner working of its most precious resource, said Nail al-Jubeir, director of the Saudi Information Office in Washington.
Simmons said Saudi Arabia has revealed only "skimpy data," in line with a tradition of secrecy at Aramco. Such an atmosphere was initiated by the original multinational owners so they could maximize output before handing the company fully over to the kingdom in 1980.
He said Aramco does not officially discuss its falling production as a whole, but that if read carefully, the kingdom's own geologists, in SPE paper after SPE paper, spell out the decline of its five key fields.
"There's no way that Aramco would give the wrong information (on oilfield production levels) to the Saudi leadership," said Nawaf Obaid, a Riyadh-based security consultant to the Saudi government, who spoke with Reuters in Washington on Friday.
"That would be inconceivable ... It would be like the (U.S. Energy Department) giving the wrong information on nuclear labs to the White House."
Saudi Arabia is spending $50 billion in an effort to increase its production capacity to 15 million barrels, a level Jubeir said the kingdom can maintain for 75 to 100 years.
But even Jubeir said the quality of Saudi oil is getting heavier and harder for refiners to process. He said the kingdom is hoping to form a producer/consumer group based in Riyadh.
"We need to know how to work together to solve some of these issues," he said.
Simmons said only field-by-field well bore studies approved by third-party auditors can prove how much oil producers have.
He drew a picture of Ghawar, Saudi's largest oilfield, on the sports section of the New York Times for a visitor and furiously dotted the northern end.
He said when he visited Saudi Arabia, Aramco showed him a map of Ghawar which revealed scores of wells had already been bored in the northern section, which holds by far the most oil. Aramco told him, he said, declining rates have forced it to move south in the field, which holds less oil.
"He makes an excellent case for better transparency, and he is starting a movement that will hopefully reshape the industry," said Obaid.
"But he's using the wrong case study. Matt, with his book, has basically shot himself in the foot."