Of Rising Oil Demand Challenges Tired Saudi Fields
By Jeff Gerth
25 February, 2004
When visitors tour the headquarters of
Saudi Arabia's oil empire a sleek glass building rising from
the desert in Dhahran near the Persian Gulf they are reminded
of its mission in a film projected on a giant screen. "We supply
what the world demands every day," it declares.
For decades, that
has largely been true. Ever since its rich reserves were discovered
more than a half-century ago, Saudi Arabia has pumped the oil needed
to keep pace with rising needs, becoming the mainstay of the global
But the country's
oil fields now 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.
call for Saudi Arabia to almost double its output in the next decade
and after. Oil executives and government officials in the United States
and Saudi Arabia, however, say capacity will probably stall near current
levels, potentially creating a significant gap in the global energy
Outsiders have not
had access to detailed production data from Saudi Aramco, the state-owned
oil company, for more than 20 years. But interviews in recent months
with experts on Saudi oil fields provided a rare look inside the business
and suggested looming problems.
An internal Saudi
Aramco plan, the experts said, estimates total production capacity in
2011 at 10.15 million barrels a day, about the current capacity. But
to meet expected world demand, the United States Department of Energy's
research arm says Saudi Arabia will need to produce 13.6 million barrels
a day by 2010 and 19.5 million barrels a day by 2020.
"In the past,
the world has counted on Saudi Arabia," one senior Saudi oil executive
said. "Now I don't see how long it can be maintained."
Saudi Arabia, the
leading exporter for three decades, is not running out of oil. Industry
officials are finding, however, that it is becoming more difficult or
expensive to extract it. Today, the country produces about eight million
barrels a day, roughly one-tenth of the world's needs. It is the top
foreign supplier to the United States, the world's leading energy consumer.
Fears of a future
energy gap could, of course, turn out to be unfounded. Predictions of
oil market behavior have often proved wrong.
But if Saudi production
falls short, industry experts say the consequences could be significant.
Other large producers, like Russia and Iraq, do not have Saudi Aramco's
huge reserves or excess oil capacity to export, and promising new fields
elsewhere are not expected to deliver enough oil to make up the difference.
As a result, supplies
could tighten and oil prices could increase. The global economy could
feel the ripples; previous spikes in oil prices have helped cause recessions,
though high oil prices in the last year or so have not slowed strong
Saudi Aramco says
its dominance in world oil markets will grow because, "if required,"
it can expand its capacity to 12 million barrels a day or more by "making
necessary investments," according to written responses to questions
submitted by The New York Times.
But some experts
are skeptical. Edward O. Price Jr., a former top Saudi Aramco and Chevron
executive and a leading United States government adviser, says he believes
that Saudi Arabia can pump up to 12 million barrels a day "for
a few years." But "the world should not expect more from the
Saudis," he said. He expects global oil markets to be in short
supply by 2015.
Fatih Birol, the
chief economist for the International Energy Agency, said the Saudis
would not be able to increase production enough for future needs without
large-scale foreign investment.
The I.E.A., an independent
agency founded by energy-consuming nations, and Washington see investment
in energy exploration and field maintenance as vital, but such proposals
face strong opposition inside Saudi Arabia. Tensions with the West,
particularly the United States, make such investment politically difficult
for Saudi society. For example, an effort by Crown Prince Abdullah,
the kingdom's de facto ruler, to encourage Western companies to invest
$25 billion in his country's natural gas industry essentially collapsed
Persian Gulf oil reserves, especially Saudi Arabia's, is the key question
for the whole world," Dr. Birol said.
President Bush has
said he wants to make the United States less reliant on oil-producing
countries that "don't like America" by diversifying suppliers
and financing research into hydrogen fuel cells, but achieving that
remains far off.
backs foreign investment initiatives in the gulf region, including Saudi
Arabia, and his energy policies rely on Energy Department projections
showing the world even more dependent on Arabian oil in 20 years. That
may be enough time for governments to find alternatives, but oil field
development requires years of planning and work.
oil executives express optimism about the future of their industry.
Some economists are equally optimistic that if oil prices rise high
enough, advanced recovery techniques will be applied, averting supply
But privately, some
Saudi oil officials are less sanguine.
"We don't see
us as the ones making sure the oil is there for the rest of the world,"
one senior executive said in an interview. A Saudi Aramco official cautioned
that even the attempt to get up to 12 million barrels a day would "wreak
havoc within a decade," by causing damage to the oil fields.
In an unusual public
statement, Sadad al-Husseini, Saudi Aramco's second-ranking executive
and its leading geologist, warned at an oil conference in Jakarta in
2002 that global "natural declines in existing capacity are real
and must be replaced."
one Western oil expert said, has been "the brains of Saudi Aramco's
exploration and production." But he has told associates that he
plans to resign soon, and his departure, government oil experts in the
United States and Saudi Arabia say, could hinder Saudi efforts to bolster
production or entice foreign investment.
Saudi Arabia's reported
proven reserves, more than 250 billion barrels, are one-fourth of the
world's total. The most significant is Ghawar. Discovered in 1948, the
300-mile-long sliver near the Persian Gulf is the world's largest oil
field and accounts for more than half of the kingdom's production.
The company told
The New York Times that its field production practices, including those
at Ghawar, were "at optimum levels" and the risk of steep
declines was negligible. But Mr. Price, the former vice president for
exploration and production at Saudi Aramco, says that North Ghawar,
the most valuable section of the field, was pushed too hard in the past.
spreading the production to other fields or areas," Mr. Price said,
the Saudis concentrated on North Ghawar. That "accelerated the
depletion rate and the time to uncontrolled decline," or the point
where the field's production drops dramatically, he said.
In Saudi Arabia,
seawater is injected into the giant fields to help move the oil toward
the top of the reservoir. But over time, the volume of water that is
lifted along with the oil increases, and the volume of oil declines
proportionally. Eventually, it becomes uneconomical to extract the oil.
There is also a risk that the field can become unstable and collapse.
Ghawar is still
far too productive to abandon. But because of increasing problems with
managing the water, one Saudi oil executive said, "Ghawar is becoming
very costly to maintain."
The average decline
rate in Saudi Aramco's mature fields Ghawar and a few others
"is in the range of 8 percent per year," without additional
remediation, according to the company's statement. This means several
hundred thousand barrels of daily oil production would have to be added
every year just to make up for the diminished output.
Every oil field
is unique, and experts cannot predict how long each might last. For
its part, Saudi Aramco is counting on Ghawar for years to come.
The company projects
that Ghawar will continue to produce more than half its oil. One internal
company estimate from 2002 puts Ghawar's production at 5.25 million
barrels a day in 2011, more than half the total expected crude oil capacity
of 10.15 million, according to United States government officials and
"The big risk
in Saudi Arabia is that Ghawar's rate of decline increases to an alarming
point," said Ali Morteza Samsam Bakhtiari, a senior official with
the National Iranian Oil Company. "That will set bells ringing
all over the oil world because Ghawar underpins Saudi output and Saudi
undergirds worldwide production."
The I.E.A. warned
in November that huge investments would be needed to offset the decline
rates in mature Middle Eastern oil fields it put the average
at 5 percent and the increasing costs of oil and gas production.
The agency, based in Paris, forecasts that Saudi production will need
to reach 20 million barrels a day by 2020. (I.E.A. and other research
estimates say that more than 90 percent of that would be crude oil;
the rest would be liquid products like natural gas liquids that result
from the processing of crude oil.)
In his speech in
Jakarta, Dr. al-Husseini noted the need for exploration, pointing out
that colleagues at Exxon Mobil predict that more than 50 percent of
oil and gas consumption in 2010 must come from new fields and reservoirs.
Harry A. Longwell,
the executive vice president of Exxon Mobil, says finding new sources
of oil is crucial. Mr. Longwell, in an interview, said that increasing
demand and declining production were not new problems, but they were
"much larger now because of the world's demand for energy and the
magnitude of the numbers now are much larger."
To offset its declines,
Saudi Aramco is bringing back into production one idle field, Qatif,
and is enhancing production at a nearby offshore field, Abu Safah. The
company says that with expert management, these fields will produce
about 800,000 barrels a day.
But current and
former Saudi Aramco executives question those expectations, contending
that the goal of 500,000 barrels a day for Qatif is unrealistic and
that development costs are higher than anticipated.
Qatif poses real
difficulties. It is near housing for Saudi Arabia's minority Shiite
population and contains high concentrations of hydrogen sulfide, a highly
toxic gas. Its development is "particularly challenging,"
according to a technical paper by Saudi Aramco engineers presented last
year in Bahrain, which said that 45 percent of potential drilling sites
"were rejected due to safety concerns."
At Abu Safah, Saudi
Aramco has experienced increasing water problems as it has turned to
submersible pumps to extract oil. Experts, including American and Saudi
government officials, say the technique is ill advised. Saudi Aramco,
in its written response to questions, defended the use of the pumps
at Abu Safah and its ability to manage the water after 37 years of production.
One United Sates
government energy expert noted that "submersible pumps is what
the Soviets went to on an indiscriminate basis in West Siberia and it
went south." Samotlor, a huge field in Siberia, once produced more
than three million barrels a day, but it declined sharply in the 1980's
after the Soviets pushed it too hard. Today it produces only a few hundred
thousand barrels a day.