Published on 20 Feb 2005 by Aljazeera. Archived on 21 Feb 2005.
Expert says Saudi oil may have peaked
by Adam Porter
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".
Saudi oil peaking?
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.
Field damage
"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."
Overproduction
"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.
Precious resource
"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." |
