Saudi
Oil May Have Peaked
By Adam Porter
21 February, 2005
Aljazeera
As
oil stubbornly refuses to fall below $45 a barrel, a major market mover
has cast a worrying future prediction.Energy investment banker Matthew
Simmons, of Simmons & Co International, has been outspoken in his
warnings about peak oil before. His new statement is his strongest yet,
"we may have already passed peak oil".The subject of peak
oil, the point at which the world's finite supply of oil begins to decline,
is a hot topic in the industry.
Arguments are commonplace
over whether it will happen at all, when it will happen or whether it
has already happened. Simmons, a Republican adviser to the Bush-Cheney
energy plan, believes it "is the world's number one problem, far
more serious than global warming".
Speaking exclusively
to Aljazeera, Simmons came out with a statement that, if proven true
over time, could herald by far the biggest energy crisis mankind has
known.
"If Saudi Arabia
have damaged their fields, accidentally or not, by overproducing them,
then we may have already passed peak oil. Iran has certainly peaked,
there is no way on Earth they can ever get back to their production
of six million barrels per day (mbpd)."
The technical term for damaging an oilfield by overproduction is rate
sensitivity. In other words, if the oil is pulled out of the ground
too fast, it damages the fragile geological structure of the field.
This can make as much as 80% of the oil within the field unextractable.
Of course, at the moment, virtually every producer is at full tilt.
The most important among them is Saudi Arabia; their Gharwar field is
the world's biggest.
One of the first hints that Simmons got over possible Saudi Arabian
overproduction was from researching an obscure US Senate committee meeting
in 1974.
"A whistleblower
in Saudi Aramco, Saudi Arabia's oil company, was first reported in The
Washington Post. He had claimed that Aramco had been overproducing the
giant Gharwar field and that if they did not slow down, they would damage
the reservoirs.
"The committee,
which swore witnesses in under oath, produced over 1400 pages of documentation
on the subject, it included some specialist advice which advised cutting
Saudi production to 4mbpd to maintain production levels."
Currently, at near
maximum production, Saudi Arabia is producing about 9mbpd, though recently
they claimed they could potentially produce 12mbpd or even as much as
20mbpd. A claim Simmons called "pie in the sky".
"The faster
you pull a reservoir, the faster you pull out all of the easy-to-produce
oil," explains Simmons. "What happens is that you lose massive
amounts of what the oil industry calls oil-left-behind still inside
the field. These issues, as you can see, have been known about for years."
"If you look
at what Iran is doing, they are actually going to inject natural gas
to the tune of 2bcf (billion cubic feet), through a 72in pipe into their
Aghajari oilfield. It is a $2bn project. This is in order just to boost
production from 200,000bpd to 300,000bpd. In the 1970s Aghajari was
producing 1mbpd. It has been overproduced."
Simmons also says
the same thing happened with the oil company El Paso last year.
"At the same
time as the Shell write-off, El Paso realised they had been producing
their fields too hard. As a result they had to write off 41% of their
reserves." In 2004 Shell first announced it had lost about 20%
of its oil reserves.
Another clue came
as Simmons discovered a ferocious debate that had been going on inside
Saudi Aramco about overproduction.
"The company
claimed in the early 1970s that it would be able to produce 20 to 25
mbpd, then by 1978 it was 12mbpd. Now it looks like 9.8mbpd is the maximum,"
he says.
"Luckily for
them, demand quietened down in the 1980s. People thought when they cut
production that they were simply trying to drive up oil prices, but
in fact they were resting their fields to limit the damage.
"But then came
the first Gulf war and they were forced to crank production up again
and they have been fighting the problem ever since.
"In 1981 in
their own book, Aramco and its World, something they give out to new
employees and such, they openly talked about how maximising production
would permanently harm their fields and that maximum production could
not continue. They thought demand would fall and the fields would be
sustained. Unfortunately that has not been the case."
The reasons for
maximising production are not always obvious, they can be technical,
but also geo-political.
"There is always
a balance for producers. Do you want to conserve your fields and produce
slowly? Or do you want to be a statesman? Would you rather be a market
leader with all that brings, or a smaller, less powerful producer?"
The idea that Saudi
Arabia could force its production up to 12mbpd or higher is met with
scorn by Simmons.
"This is dangerous
stuff," warns Simmons. "If we say they have not peaked and
then they choose to further increase production, they will only hasten
their field decline, and waste huge amounts of valuable oil into the
bargain. And oil, as we are only now coming to realise, is the world's
most precious resource."