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World Needs to Face Saudi Oil Output Limits
by John M. Biers
Wed, Oct 19, 2005 15:54 GMT
HOUSTON - Energy forecasts that rely on Saudi Arabia to produce more than 15 million barrels of oil a day are unrealistic and delay debate on long-term oil supply challenges facing the U.S. and other consuming nations, a former senior technical executive with the Saudi national oil company says.
The state-owned Saudi Arabian Oil Co. (SOI.YY) - now able to pump about 11 million barrels a day, or some 13% of the world's current demand - aims to boost capacity to 12.5 million barrels a day in 2009 under a multibillion dollar expansion. Bryan Bartlett, former chief engineer for Aramco, thinks that with a major capital program, the kingdom could expand output capacity to 15 million barrels a day and sustain that level for 50 years or more.
But Bartlett dismisses supply and demand forecasts that assume the Saudis will produce more than 22 million by 2025 in order to help cover a doubling of oil demand over the next two decades. Those projections, he says, are merely putting off consideration of how to deal with an impending energy crunch that he believes will have major implications for the U.S. and other consuming nations.
In an indication Bartlett may be on to something, the U.S. Energy Information Administration recently slashed its forecast for what the kingdom will pump in 2025 in response to Saudi concerns about unrealistic expectations.
"This country has got a serious problem brewing on the horizon," Bartlett said. "We have a situation, and the energy bill is not addressing it."
Not In 'Oil Peak' Camp
As energy prices have risen in recent months, the long-term sustainability of Saudi output has come under increased scrutiny as part of the so-called "peak oil" debate about when global energy supply will irreversably decline.
During this debate, government officials from the International Energy Agency, the energy watchdog for the developed world, and its U.S. counterpart, the EIA, have offered reassurances that the world has enough oil to meet demand for the foreseeable future. The IEA's refrain has been to call on Saudi Arabia and other producing nations to ramp up investment.
While Bartlett's views are consistent in some ways with the peak oil school, he rejects Saudi critics like Houston investment banker and analyst Matt Simmons, who has questioned the longevity of Saudi reserves. Saudi output can increase significantly, but it does have limits, Bartlett said.
"I believe the Saudis would make 15 million barrels per day for 50 years if they have to," he said. But Saudi Arabia has "never promised 20 million... Where is this 20 million coming from?" he asked.
Even though the kingdom's huge reserves would seem to theoretically allow for higher production, operators risk reducing the volume of ultimately recoverable oil if they try to produce fields too quickly, Bartlett said. Even if it were possible to produce at higher rates, Bartlett said such a strategy would risk robbing the fields of the natural pressure that makes the Saudi fields uniquely copious.
"The problem is the field itself has certain dynamics," said Bartlett, adding that a decision by Saudi Arabia to produce at 22 million "is a very dangerous thing for them to do." Sustained production at that level would be amazingly expensive and is "almost impossible," Bartlett said in a recent interview in Houston, which he visits during periodic consulting assignments for Aramco.
The IEA's 2004 World Energy Outlook, published last fall, projects global oil production rising to 121 million barrels a day in 2030 from 77 million barrels a day in 2002, with OPEC's Middle Eastern countries increasing their output to 51.8 million barrels a day in 2030 from 19 million barrels a day in 2002. The IEA forecast doesn't break out individual countries, but few serious forecasters expect the other five Middle Eastern OPEC members to reach double-digit production levels.
EIA Cuts Outlook
In an interview, Fatih Birol, head of the IEA's economic analysis division, dismissed the idea that Saudi Arabia's absolute peak is 15 million barrels. The kingdom may be unwilling to ramp up beyond that level, or they may be unable to harness the needed staffing, but there is no doubt as their geologic capacity to go higher, he said.
"If they want to do so, they can go beyond 15," Birol said. "Whether or not they will do it is another question."
The EIA is no longer so sure. Until this spring, the Energy Department statistics and analysis arm had forecast that Saudi production would grow to 22.5 million in 2025 from 10.2 million in 2001. But the agency recently reduced the Saudi contribution to 16.3 million in 2025, after Saudi officials backed off higher estimates, an EIA analyst said.
Although some Saudis still assert that 20 million is possible, leading figures in the kingdom have described 15 million as the maximum, EIA analyst Dan Butler said. "We have softened our stance somewhat," Butler said. "Of the Saudis themselves, more have said that geologic factors prevent much in the way of production above 15 million barrels per day."
Bartlett also expressed doubt about the forecasts for output growth by some other leading producers. Kuwait's oil production is projected to grow to 5.2 million barrels a day in 2025 from 2.1 million a day in 2002. The United Arab Emirates is expected to rise to 5.4 million barrels a day from 2.9 million barrels a day during that stretch, according to the EIA.
Butler defended the EIA's position on long-term production and said the agency's forecasts are "reasonable and feasible."
"Price will take care of the oil market," Butler said. "The supply will be there to meet the demand, but it will be there at a healthy price."
© 2005 Dow Jones Newswires.
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