|
|
|
|
The Saudi oil
bombshell
By Michael T Klare
For
those oil enthusiasts who believe that petroleum
will remain abundant for decades to come - among
them President George W Bush and Vice President
Dick Cheney, and their many friends in the oil
industry - any talk of an imminent "peak" in
global oil production and an ensuing decline can
be easily countered with a 
simple mantra:
"Saudi Arabia, Saudi Arabia, Saudi Arabia."
Not only will the Saudis pump extra oil
now to alleviate global shortages, it is claimed,
but they will keep pumping more in the years ahead
to quench our insatiable thirst for energy. And
when the kingdom's existing fields run dry, lo,
they will begin pumping from other fields that are
just waiting to be exploited. We ordinary folk
need have no worries about oil scarcity, because
Saudi Arabia can satisfy our current and future
needs. This is, in fact, the basis for the Bush
administration's contention that we can continue
to increase our yearly consumption of oil, rather
than conserve what's left and begin the transition
to a post-petroleum economy. Hallelujah for Saudi
Arabia!
But
now, from an unexpected source, comes a
devastating challenge to this powerful dogma: in a
newly released book, investment banker Matthew R
Simmons convincingly demonstrates that, far from
being capable of increasing its
output,
Saudi Arabia is about to face the
exhaustion of its giant fields and, in the
relatively near future, will probably experience a
sharp decline in output. "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," Simmons writes in
Twilight in the Desert: The Coming Saudi Oil
Shock and the World Economy. "Saudi Arabian
production," he adds, italicizing his claims to
drive home his point, "is at or very near its
peak sustainable volume ... and it is
likely to go into decline in the very
foreseeable future."
If only ...
By Tom
Engelhardt
The price of a barrel of
crude oil has broken the $60 mark; a Chinese
state-controlled oil company has made an $18.5
billion bid for American oil firm Unocal - the
company that fought to put a projected $1.9
billion natural gas pipeline through Taliban
Afghanistan and hired as its consultant Zalmay
Khalilzad, the outgoing Afghan ambassador and
soon to be envoy to Iraq; world energy
consumption, according to last week's British
Financial Times, surged 4.3% last year (the
biggest rise since 1984), oil use by 3.4% (the
biggest rise since 1978).
In the
meantime, Exxon - which just had the impudence
to hire Philip Cooney after he was accused of
doctoring government reports on climate change
and resigned as chief of staff of the White
House Council on Environmental Quality ("The
cynical way to look at this," commented Kert
Davies, US research director for Greenpeace, "is
that ExxonMobil has removed its sleeper cell
from the White House and extracted him back to
the mother ship.") - has quietly issued a
report, The Outlook for Energy: A 2030 View,
predicting that the moment of "peak oil" is only
a five-year hop-skip-and-a-pump away; "Oil
Shockwave," a "war game" recently conducted by
top ex-government officials in Washington,
including two former directors of the Central
Intelligence Agency, found the US "all but
powerless to protect the American economy in the
face of a catastrophic disruption of oil
markets", which was all too easy for them to
imagine ("The participants concluded almost
unanimously they must press the president to
invest quickly in promising technologies to
reduce dependence on overseas oil ..."); and oil
tycoon Boone Pickens, chairman of the
billion-dollar hedge fund BP Capital Management,
is having the time of his
life.
Over the past five years, he
claims, his bet that oil prices would rise has
"made him more money ... than he earned in the
preceding half century hunting for riches in
petroleum deposits and companies", and he is
predicting that prices will only go higher with
much more "pain at the pump". Ah, the good life.
And if you don't quite recognize the new look of
this fast-shifting energy landscape, then how
are you going to feel if the Age of Petroleum
turns out to be drawing - more rapidly than most
people imagine - to a close?
Imagine
where we might be today, energy-wise, if
Americans - and American legislators - had taken
then-president Jimmy Carter's famed 1979 "moral
equivalent of war" speech on energy conservation
seriously, but rejected his Carter Doctrine and
the Rapid Deployment Joint Task Force that went
with it - both of which set us on our present
path to war(s) in the Middle East. Here's part
of what Carter said to the American people on
television that long-ago night:
"Beginning this moment, this nation will
never use more foreign oil than we did in 1977 -
never. From now on, every new addition to our
demand for energy will be met from our own
production and our own conservation.
"The
generation-long growth in our dependence on
foreign oil will be stopped dead in its tracks
right now and then reversed as we move through
the 1980s, for I am tonight setting the further
goal of cutting our dependence on foreign oil by
one-half by the end of the next decade - a
saving of over 4-1/2 million barrels of imported
oil per day ... To give us energy security, I am
asking for the most massive peacetime commitment
of funds and resources in our nation's history
to develop America's own alternative sources of
fuel - from coal, from oil shale, from plant
products for gasohol, from unconventional gas,
from the sun ... I'm proposing a bold
conservation program to involve every state,
county, and city and every average American in
our energy battle.
"This effort will
permit you to build conservation into your homes
and your lives at a cost you can afford ..."
Well, it never happened.
Tom Engelhardt is editor of
Tomdispatch
and the author of The End of Victory
Culture.
(Copyright 2005 Tomdispatch.
Used by permission.)
| In addition, there is
little chance that Saudi Arabia will ever discover
new fields that can take up the slack from those
now in decline. "Saudi Arabia's exploration
efforts over the last three decades were more
intense than most observers have assumed," Simmons
asserts. "The results of these efforts were modest
at best."
If Simmons is right about Saudi
Arabian oil production - and the official dogma is
wrong - we can kiss the era of abundant petroleum
goodbye forever. This is so for a simple reason:
Saudi Arabia is the world's leading oil producer,
and there is no other major supplier (or
combination of suppliers) capable of making up for
the loss in Saudi production if its output
falters. This means that if the Saudi Arabia
mantra proves deceptive, we will find ourselves in
an entirely new world - the "twilight age" of
petroleum, as Simmons puts it. It will not be a
happy place.
Before taking up the
implications of a possible decline in Saudi
Arabian oil output, it is important to look more
closely at the two sides in this critical debate:
the official view, as propagated by the US
Department of Energy (DoE), and the contrary view,
as represented by Simmons' book.
The
prevailing view goes like this: according to the
DoE, Saudi Arabia possesses approximately
one-fourth of the world's proven oil reserves, an
estimated 264 billion barrels. In addition, the
Saudis are believed to harbor additional, possible
reserves containing another few hundred billion
barrels. On this basis, the DoE asserts, "Saudi
Arabia is likely to remain the world's largest oil
producer for the foreseeable future."
To
fully grasp Saudi Arabia's vital importance to the
global energy equation, it is necessary to
consider the DoE's projections of future world oil
demand and supply. Because of the rapidly growing
international thirst for petroleum - much of it
coming from the United States and Europe, but an
increasing share from China, India and other
developing nations - the world's expected
requirement for petroleum is projected to jump
from 77 million barrels per day in 2001 to 121
million barrels by 2025, a net increase of 44
million barrels. Fortunately, says the DoE, global
oil output will also rise by this amount in the
years ahead, and so there will be no significant
oil shortage to worry about. But over one-fourth
of this additional oil - some 12.3 million barrels
per day - will have to come from Saudi Arabia, the
only country capable of increasing its output by
this amount. Take away Saudi Arabia's added 12.3
million barrels, and there is no possibility of
satisfying anticipated world demand in 2025.
One could, of course, suggest that some
other oil producers will step in to provide the
additional supplies needed, notably Iraq, Nigeria
and Russia. But these countries together would
have to increase their own output by more than
100% simply to play their already assigned part in
the DoE's anticipated global supply gain over the
next two decades. This in itself may exceed their
production capacities. To suggest that they could
also make up for the shortfall in Saudi production
stretches credulity to the breaking point.
It is not surprising, then, that the DoE
and the Saudi government have been very nervous
about the recent expressions of doubt about the
Saudi capacity to boost its future oil output.
These doubts were first aired in a front-page
story by Jeff Gerth in the New York Times on
February 25, 2004. Relying, to some degree, on
information provided by Simmons, Gerth reported
that Saudi Arabia's oilfields "are in decline,
prompting industry and government officials to
raise serious questions about whether the kingdom
will be able to satisfy the world's thirst for oil
in coming years".
Gerth's report provoked
a barrage of counter-claims by the Saudi
government. Their country, Saudi officials
insisted, could increase its production and
satisfy future world demand. "[Saudi Arabia] has
immense proven reserves of oil with substantial
upside potential," Abdallah S Jum'ah, the
president of Saudi Aramco, declared in April 2004.
"We are capable of expanding capacity to high
levels rapidly, and of maintaining those levels
for long periods of time."
This exchange
prompted the DoE to insert a sidebar on this topic
in its International Energy Outlook for 2004. "In
an emphatic rebuttal to the New York Times article
[of February 24]," the DoE noted, "Saudi Arabia
maintained that its oil producers are confident in
their ability to sustain significantly higher
levels of production capacity well into the middle
of this century." This being the case, we ordinary
folks need not worry about future shortages. Given
Saudi abundance, the DoE wrote, we "would expect
conventional oil to peak closer to the middle than
to the beginning of the 21st century."
In
these, and other such assertions, US oil experts
always come back to the same point: Saudi oil
managers "are confident in their ability" to
achieve significantly higher levels of output well
into the future. In no instance, however, have
they provided independent verification of this
capacity; they simply rely on the word of those
oil officials who have every incentive to assure
us of their future reliability as suppliers. In
the end, therefore, it comes down to this:
America's entire energy strategy, with its
commitment to an increased reliance on petroleum
as the major source of our energy, rests on the
unproven claims of Saudi oil producers that they
can, in fact, continuously increase Saudi output
in accordance with the DoE's predictions.
And this is where Simmons enters the
picture, with his meticulously documented book
showing that Saudi producers cannot be trusted to
tell the truth about future Saudi oil output.
First, a few words about the author of
Twilight in the Desert. Matthew ("Matt")
Simmons is not a militant environmentalist or
anti-oil partisan; he is chairman and chief
executive officer of one of the nation's leading
oil-industry investment banks, Simmons &
Company International. For decades, Simmons has
been pouring billions of dollars into the energy
business, financing the exploration and
development of new oil reservoirs. In the process,
he has become a friend and associate of many of
the top figures in the oil industry, including
Bush and Cheney. He has also accumulated a vast
storehouse of information about the world's major
oilfields, the prospects for new discoveries, and
the techniques for extracting and marketing
petroleum. There is virtually no figure better
equipped than Simmons to assess the state of the
world's oil supply. And this is why his assessment
of Saudi Arabia's oil production capacity is so
devastating.
Essentially, Simmons'
argument boils down to four major points:
Most of Saudi Arabia's oil output is generated
by a few giant fields, of which Ghawar - the
world's largest - is the most prolific.
These giant fields were first developed 40 to
50 years ago, and have since given up much of
their easily extracted petroleum.
To maintain high levels of production in these
fields, the Saudis have come to rely increasingly
on the use of water injection and other secondary
recovery methods to compensate for the drop in
natural field pressure.
As time goes on, the ratio of water to oil in
these underground fields rises to the point where
further oil extraction becomes difficult, if not
impossible. To top it all off, there is very
little reason to assume that future Saudi
exploration will result in the discovery of new
fields to replace those now in decline.
Twilight in the Desert
is not
an easy book to read. Most of it consists of a
detailed account of Saudi Arabia's vast oil
infrastructure, relying on technical papers
written by Saudi geologists and oil engineers on
various aspects of production in particular
fields. Much of this has to do with the aging of
Saudi fields and the use of water injection to
maintain high levels of pressure in their giant
underground reservoirs.
As Simmons
explains, when an underground reservoir is first
developed, oil gushes out of the ground under its
own pressure; as the field is drained of easily
extracted petroleum, however, Saudi oil engineers
often force water into the ground on the
circumference of the reservoir in order to drive
the remaining oil into the operating well. By
drawing on these technical studies - cited here
for the first time in a systematic, public manner
- Simmons is able to show that Ghawar and other
large fields are rapidly approaching the end of
their productive lives.
Simmons'
conclusion from all this is unmistakably
pessimistic: "The 'twilight' of Saudi Arabian oil
envisioned in this book 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 ... High-volume
production at these key fields ... has been
maintained for decades by injecting massive
amounts of water that serves to keep pressures
high in the huge underground reservoirs ... When
these water projection programs end in each field,
steep production declines are almost inevitable."
This being the case, it would be the
height of folly to assume that the Saudis are
capable of doubling their petroleum output in the
years ahead, as projected by the DoE. Indeed, it
will be a minor miracle if they raise their output
by a million or two barrels per day and sustain
that level for more than a year or so. Eventually,
in the not-too-distant future, Saudi production
will begin a sharp decline from which there is no
escape. And when that happens, the world will face
an energy crisis of unprecedented scale.
The moment that Saudi production goes into
permanent decline, the Petroleum Age as we know it
will draw to a close. Oil will still be available
on international markets, but not in the abundance
to which we have become accustomed and not at a
price that many of us will be able to afford.
Transportation, and everything it effects - which
is to say, virtually the entire world economy -
will be much, much more costly. The cost of food
will also rise, as modern agriculture relies to an
extraordinary extent on petroleum products for
tilling, harvesting, pest protection, processing
and delivery. Many other products made with
petroleum - paints, plastics, lubricants,
pharmaceuticals, cosmetics and so forth will also
prove far more costly. Under these circumstances,
a global economic contraction - with all the
individual pain and hardship that would surely
produce - appears nearly inevitable.
If
Simmons is right, it is only a matter of time
before this scenario comes to pass. If we act now
to limit our consumption of oil and develop
non-petroleum energy alternatives, we can face the
"twilight" of the Petroleum Age with some degree
of hope; if we fail to do so, we are in for a very
grim time indeed. And the longer we cling to the
belief that Saudi Arabia will save us, the more
painful will be our inevitable fall.
Given
the high stakes involved, there is no doubt that
intense efforts will be made to refute Simmons'
findings. With the publication of his book,
however, it will no longer be possible for oil
aficionados simply to chant "Saudi Arabia, Saudi
Arabia, Saudi Arabia" and convince us that
everything is all right in the oil world. Through
his scrupulous research, Simmons has convincingly
demonstrated that - because all is not well with
Saudi Arabia's giant oilfields - the global energy
situation can only go downhill from here. From now
on, those who believe that oil will remain
abundant indefinitely are the ones who must
produce irrefutable evidence that Saudi Arabia's
fields are, in fact, capable of achieving higher
levels of output.
Michael T
Klare is a professor of peace and world
security studies at Hampshire College and the
author of Blood and Oil: The Dangers and
Consequences of America's Growing Petroleum
Dependency (Metropolitan Books).
(Copyright 2005 Michael T Klare)
(Published with permission of TomDisptach.com)
|
|
|
|
|
|
|
|
 |
|
|
|
|
|
All material on this
website is copyright and may not be republished in any form without written
permission.
© Copyright 1999 - 2005 Asia Times
Online Ltd.
|
|
Head
Office: Rm 202, Hau Fook Mansion, No. 8 Hau Fook St., Kowloon, Hong
Kong
Thailand Bureau:
11/13 Petchkasem Road, Hua Hin, Prachuab Kirikhan, Thailand 77110
|
|
|
|
