The increasing global demand for oil and the declining production of mature oilfields elsewhere make Saudi Arabia's oil production capacity pivotal to the world's economy in the years to come. The country currently claims 261 billion barrels in proven reserves, which is about 25% of the world's total. The United States in particular is expecting Saudi production to significantly increase in coming decades. Specifically, the U.S. EIA long-range oil supply forecast foresees Saudi production in the year 2025 to be about 22.5 Mb/d, which is more than double its current production of about 9.5 Mb/d. The Saudis have actively reassured the U.S. and the international financial community that their resources are sufficient to meet growing world demand. In order to address concerns, they have outlined a plan to increase production capacity to 12.5 million barrels a day by 2009. However, not even the Saudis are embracing the long term projections of the EIA, which many experts consider to be wildly unrealistic. In fact, Saudi officials who were interviewed on a not for attribution basis by the New York Times cautioned that production beyond 12 Mb/d would damage the oil fields. One has to wonder which interests the EIA is really serving with its projections, which seem to substitute wishful thinking for responsible analysis.
Saudi Arabia has long been OPEC's "swing producer," meaning that it since the 1970s it has had millions of barrels per day of unused production capacity that could be used to make up for production shortfalls and emergencies elsewhere (such as during the First Gulf War of the early 1990s when Kuwait's production was temporarily sequestered) or to discipline its fellow OPEC members. By 2004, this spare capacity had vanished. Despite Saudi protestations, the IEA estimated that the country had no more that a million barrels per day in spare production capacity in mid-2004. In response to the tight oil market that year, the Saudis came under heavy international pressure to produce their spare capacity and promised to do so. Despite the promises, Saudi production at the end of 2004 was not much more than it was before the present crisis, and the small amount of additional oil that has been produced has been heavy or sour oil that is difficult to refine.
According to the EIA, around two-thirds of Saudi reserves are considered "light" or "extra light" oil, with the balance classified as either "medium" or "heavy." The Saudis have been busy lately reassuring the world that their future ability to produce is practically boundless. Oil Minister Naimi stated at the end of 2004 that the country's proven reserves could reach as high as 461 billion barrels in the near future. Somewhat shockingly, at a conference in Washington, DC on April 28, 2004 he went on to claim that the Kingdom's previous estimate of 261 billion barrels has now more than tripled to 1.2 trillion barrels. Moreover, he called this new estimate "very conservative." The Oil Minister's speech did not refer to any discoveries of new oil fields. Later in 2004, Naimi changed his story again, claiming that reserves "could" reach as high as 461 billion barrels in the "near future." The EIA represents that Saudi Arabia might ultimately contain up to a trillion barrels of ultimately recoverable oil, an amount that is greater than the proven reserves of the rest of the world combined. The EIA identified no basis for making such projections other than its apparent need to do so in order to justify its projections of future Saudi oil production.
The contrast that exists between experts on the size of Saudi Arabia's reserves and its ability to produce oil in the future is perhaps greater than on any other current energy-related issue, and the stakes in terms of the future economic health of the industrialized world is enormous. Despite the obvious importance of the issue, the amount of credible information on the Saudi oilfields and reserves that is available for analysis by experts in the west is quite limited. Access to Saudi facilities is limited to those associated with the state-controlled oil monopoly Aramco, and unlike the large multinational oil corporations Aramco is not obliged to and has little incentive to publish specific information on its operations. The Saudi position can be summarized as "We can produce all you will need, but you'll just have to trust us on that." This makes a number of oil experts, economists and politicians nervous, and there have been recent calls for the Saudis to provide more disclosure and transparency with regard to their resources and operations.
Matthew Simmons, an adviser to the Bush administration on energy issues, is the most visible sceptic of the Saudi and EIA claims. Simmons has recently argued that Saudi Arabia's oil fields are already in decline, and that its production capacity will not climb much higher than its current sustainable capacity of about 10 Mb/d. Simmons has authored a soon to be released book Twilight In The Desert
As background, more than half of Saudi Arabia's oil reserves are contained in only eight fields, with more than 90% of all Saudi production over the past several decades coming from four to five key oilfields. All of these "supergiant" oilfields were discovered prior to 1965; there have been no new discoveries of any major oilfields in Saudi Arabia since then. Saudi Arabia is a large country, but 80% of its production comes from a relatively small area near the Persian Gulf coastline that can roughly be described as a rectangle extending about 400 miles from north to south and about 150 miles from east to west. It is unlikely that significant undiscovered petroleum deposits exist outside of that relatively limited area of Saudi Arabia.
Any analysis of Saudi oil production capabilities must concentrate heavily on the supergiant Ghawar oilfield, which was discovered in 1948 and has been in continuous largescale production for about five decades. Ghawar is sliver-shaped, paralleling the Persian Gulf coastline of far eastern Saudi Arabia and extending 174 miles in length from north to south and 16 miles from east to west. It lies beneath 1.3 million acres, is by far the world's largest oil field, and it accounts for 50%-60% of all Saudi oil produced. Ghawar currently produces about 5 Mb/d, which is 5.9% of the world's oil current production.
It is well established that production unfailingly begins to decline in an oilfield after about half of its reserves have been produced, a phenomenon that is known as "peaking." Ghawar was originally estimated to contain about 115 billion barrels of recoverable reserves. Thus far, the field has produced about 55 billion barrels, which places it close to its peak midpoint. According to the current EIA country report on Saudi Arabia, Aramco itself has stated that Ghawar has already produced about 48% of its proven reserves. However, the Saudis, perhaps anticipating the political and economic fallout of a looming decline in production from Ghawar, have recently backtracked on those statements and are now projecting that the field still has 125 billion barrels of oil left to produce. According to Simmons, "If that were true, it means that four companies with the single best people working on this missed Ghawar's reserves by a factor of three."
Aramco has been injecting seawater into Ghawar since 1965 to boost wellhead pressure and accelerate production. With this process, a certain amount of the water is recovered at the wellhead along with the oil; the percentage of water recovery is known as the "cut." Recent reports estimate the amount of water injection at Ghawar at about seven million barrels of seawater per day, which if the principles of conservation of mass are applied translates into a cut of about 40%. Aramco in recent years has also adopted advanced technology known as "bottle brush" or horizontal drilling techniques, which have reportedly temporarily reduced the water cut to about 30%. Experts warn, however, the reduction in water cut will be temporary, and that the advanced recovery techniques being deployed will eventually cause a more accelerated production decline once production has peaked. Simmons in particular has noted that the higher the water pressurization is, the faster high reservoir pressurization will end. When pressure falls to what he terms the "bubble point," gas bubbles to the top of the oil reservoir, accelerating the pressure loss. Eventually, the "dewpoint" is reached, and the rest of the oil in the reservoir is rendered unrecoverable. This is the natural death that is experienced by oilfields in which recovery is enhanced by water injection. Due to Ghawar's size and proportion of total oil production, any loss of reservoir production will likely also represent the peak of Saudi oil production.
Simmon's soon to be released book Twilight In The Desert
According to Simmons, Ghawar's northern regions are already failing. Two other major Saudi fields, Abqaiq and Berri, also seem to have peaked in the 1970s. The Safaniya oilfield located in the Persian Gulf is the world's largest offshore oilfield, but it is less than half the size of Ghawar with reserves of about 35 billion barrels. The question arises: If Saudi Arabia really possesses 260 billion barrels of proved reserves, where are the additional reserves located?
The disturbing answer to this question likely lies in the reserve inflation that took place among OPEC members during the oil glut of the past two decades. Because oil production quotas for OPEC members were based on each country's proven reserves, and because each member wished to be permitted to produces as much as possible, OPEC member countries all substantially inflated their proved reserve figures, even though there were no major discoveries during this period of time. When U.S. oil companies were still involved in Saudi Arabia in the late 1970s, real proven reserves were estimated at 110 billion barrels, with another 77 billion barrels deemed likely. Since then, over 63 billion barrels have been produced, leaving 124 billion barrels in place according to the original estimates. If Saudi reserves were in fact inflated without basis during the OPEC quota wars, it is possible that only 137 billion barrels of recoverable oil remains in place. The disconnect between this possibility and Oil Minister Naimi's recent contradictory statements that the country's proven reserves could be as high as 1.2 trillion barrels is even greater that the contrasting expert views on Ghawar.
It is no exaggeration to say that the near future course of human history hangs on the state of Saudi oil reserves and its production capacity. If world production is about to permanently decline, the world needs to know as soon as possible so that preparations can be made. A realization of this fact is spreading among the world's leaders, and I think that we can expect to hear more about this issue in the months to come. Simmon's book is scheduled to be released later this month, and I expect that it will receive a fair amount of publicity and generate international pressure on the Saudis to provide full disclosure of the truth. How will we handle the truth? With a great deal of difficulty, I expect.
Discuss this topic at Strategytalk.org
in all the world the reserves are near to empty, for that reason in my oponion the countries that a keep a reserve must create a league, and put this reserve under a single reserve, as I said is my personal opinion.
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" a realization of this fact is spreading among the world's leaders".
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we should have begun to worry even if we had a thousand years of "confirmed" proven reserves. we are talking about the whole planet and its future. in historical terms a 1000 yrs is just half the distance between now and the birth of jesus christ. instead, here we are , in 2006, talking about an oil crisis. that too because suddenly we are faced with 70$/bl oil. if, by chance, oil came down to 20$/bl tomorrow we would start again as if there never was a problem, even if we were left with just 5 yrs of proven reserves. no one knows just whose responsibility it is to inform and plan for the future.
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