WSJ -- Saudi Arabia Tests Its Potential For Unlocking Heavy-Oil Reserves ...............
July 10, 2006
Saudi Arabia Tests Its Potential For Unlocking Heavy-Oil Reserves
By BHUSHAN BAHREE in New York and RUSSELL GOLD in Bakersfield, Calif.
With global energy demand soaring, Saudi Arabia, whose abundant reserves of light oil have supplied the world for decades, is looking to unlock its huge, hard-to-tap and largely unexploited reservoirs of heavy crude.
If it succeeds in overcoming the technical hurdles, the effort could significantly increase Saudi Arabia's oil reserves over the next several years, potentially adding some slack to tight energy markets. It would also be a blow to so-called peak-oil theorists who have forecast that world oil production is on the brink of peaking.
Crude-oil prices have more than tripled since 2002 as increases in global demand have outstripped production capacity. On Wednesday, crude-oil futures on the New York Mercantile Exchange reached a new high, settling at $75.19 a barrel before slipping back to finish the week at $74.09.
While there is still plenty of oil left in the ground, most of the supplies that are easy to reach already have been developed, forcing the global petroleum industry to turn to oil deposits that are trickier to recover. Heavy oils, which can be the consistency of molasses, or even denser, are costlier to bring to the surface than light oils. They also typically contain more contaminants like metals and sulfur.
Because refineries need special equipment to remove these impurities, heavy oil is priced lower than light oil. But a growing number of refineries around the world can handle heavy oil, turning it into such products as gasoline, diesel, jet fuel and heating oil, and Saudi Arabia recently announced plans to build more of them.
Earlier this year, in a critical trial of Saudi Arabia's heavy-oil potential, U.S. oil giant Chevron Corp. began a field trial of a technique designed to pump out heavy oil that was previously considered unrecoverable. In the pilot project, which it plans to expand to additional wells, Chevron is injecting steam to loosen up sludge-like heavy-oil reserves in Wafra, a field in the so-called neutral zone between Saudi Arabia and Kuwait. Oil from the neutral zone is shared equally by the two countries.
Chevron and the Saudis say initial results are promising and that the technique could greatly enhance recovery at some huge fields.
Saudi Oil Minister Ali Naimi said many heavy-oil fields in his country aren't currently included in its official tally of 260 billion barrels of recoverable reserves, the world's largest. If steam injection works in these fields, it would add "tens of billion of barrels" to Saudi reserves, Mr. Naimi said in an interview.
Chevron has used steam injections successfully for decades to greatly boost production in heavy-oil fields in California and Indonesia. Now, the Saudis and Chevron want to see if the technique will work in the more porous rock formations common in Middle East.
In addition to the Wafra test with Chevron, the Saudis are also considering developing the gigantic Manifa field, which is believed to have a large component of heavy oil. As its lighter components are pumped out, Manifa could also be a candidate for steam injection.
Without steam, heavy oil can be very difficult to pry out of the earth because it is so thick it barely flows. Heavy-oil fields sometimes yield as little as 5% of their oil with conventional pumping, compared with 35% or more in a light-oil deposit.
In some ultra-heavy-oil fields -- like the massive Canadian tar-sands deposits, where production is rapidly gearing up -- the oil is far heavier than in Saudi Arabia. Oil companies there are using a similar steam-injection technique, with even more heat, to make the oil extractable.
Rising world demand has taken up all of Saudi Arabia's light-oil output at a time when the kingdom's need for oil is rising sharply at home as it industrializes. Mr. Naimi, the Saudi minister, wants to tap the country's heavy-oil deposits to meet the country's own energy needs and to feed thirsty foreign markets by refining the oil into such products as gasoline.
The Wafra pilot is also a big test for Chevron, which wants to build on its long track record of developing heavy-oil fields in hard sandstone and shale rock formations. In century-old oil fields outside Bakersfield, Calif., Chevron has used steam injection for years to drastically increase the amount of oil that can be pulled out of the earth, radically extending the productive life of the fields.
"It's all about draining the tank to the bottom," says Jeff Hatlen, a Chevron engineer. Using steam, Chevron has managed to extract 80% of the oil from some reservoirs in the California oil fields, compared with 15% in the pre-steam days.
The Saudis hope for a similar boost in recovery. Using conventional pumping, Wafra is expected to yield only 3% of the billion barrels in its reservoir. But after steaming, as much as 40% could be pumped out.
Operating costs in Chevron's California heavy-oil fields were $14 a barrel last year, well above costs in the Middle East. That suggests that the Saudis could pay a premium to extract their heavy-oil deposits and still make a huge profit.
Unlike California's deposits, however, most of the Middle East's heavy oil is locked inside carbonite formations, where steam injection has never been tested on a large scale. If the steam leaks out through fissures in this softer rock, it would be difficult to build up the high temperatures needed to melt the heavy oil. It would also make the process more costly, since it takes lot of natural gas to make the steam.
The Chevron technique is to inject steam into a field through one well, soaking the oil-rich rock. As the steam heats the thick oil, its consistency thins to that of watery syrup. Then, the oil is pumped to the surface through another well.
Chevron's test in Saudi Arabia involves one steam-injection well, four producing wells and one observation well that collects data about the interaction of the oil and steam. Though it declined to give a timetable, Chevron is committed to expanding to a larger second phase that will include 16 injection wells and 25 producing wells as well as the installation of water-treatment facilities and steam-generation facilities. Total estimated cost: $300 million.
Chevron isn't alone in trying to use steam flooding in the Mideast. In Oman, Occidental Petroleum Corp. is preparing to spend $2 billion on a large-scale steam-injection project in the Mukhaizna field, which holds about a billion barrels of oil. After four years of negotiations, Occidental persuaded the Omanis to let it run the field, in part by promising them a ten-fold increase in production to 150,000 barrels a day.
Although it hasn't specified it will use steam flooding, Kuwait is planning a pilot project to exploit its northern heavy-oil fields. These fields are needed to help Kuwait meet its goal of raising output to some four million barrels a day by 2020 from the current 2.6 million barrels a day.
Three years ago, the U.S. Geological Survey estimated the world has more than one trillion barrels of heavy oil, mostly in Canada, Venezuela and elsewhere in the Western Hemisphere. Taken together, these reserves are comparable to the world's conventional light-oil reserves, the majority of which are in the Eastern Hemisphere.
But some experts believe the amount of heavy oil in the Middle East has been underestimated because of the focus on the giant deposits of light oil in the region. "They have quite a bit, and there is probably more heavy oil in the Middle East than the official figures show," says Emil D. Attanasi, an economist at the Geological Survey.
Write to Bhushan Bahree at bhushan.bahree@wsj.com and Russell Gold at russell.gold@wsj.com
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