"Glenn Morton" <glennmorton@entouch.net> wrote:
[snip]
I think I mentioned earlier that we only have according to some
accounts, 600,000 bbl/d spare capacity in the world on a production rate
of 82.5 million bbl/d. That is, only .6 excess capacity on 82.5.
Demand for oil is expected to rise 1.8 million bbl/d next year. The
crisis I have been predicting for 5 years is almost here. Just another
couple of years and demand will far outstrip supply. God help our
children and grandchildren.
AK: What I found interesting recently was the continual buying of oil
by the US to fill the Strategic Petroleum Reserves (SPR) even when the
prices were above $30 a barrel. This caused great consternation among
many of the economists and politicians, who thought we should stop
buying oil for the SPR or even
open up the SPR to drain the oil, rather than import it. But the
administration emphatically shot them down. It says to me that the
Administration thinks that oil prices will not drop below the $30 per
barrel.
I have also read that China is now buying up any extra oil as a start
for their own SPR. You would think that somebody like Japan might also
see the handwriting on the wall and that they might start using all the
US dollars they have to buy some extra oil for themselves as well. The
point will reached in the near future when enough nations will recognize
that oil is becoming "scarce" and anything that the oil exporting
nations want to sell will be immediately scarfed up.
I think that the article in the Oil and Gas Journal that you referred to
in your post was written by a Merrill Lynch analyst. The following
article just appeared on the MSN Money site as well, summarizing Matthew
Simmons' views. I agrees closely with what you have written previously
about Saudi Arabia.
http://beta.moneycentral.msn.com/content/P87339.asp
Is Saudi Arabia running out of oil?
The Saudis claim to have plenty of reserves, but a top energy expert
disputes
that. Without any independent data, the world is dangerously in the
dark, he
says.
By Jon D. Markman
When oil prices have doubled to $80 and a second great depression
threatens
global political stability, the president of the United States will
impanel a
Sept. 11-style commission to explain the intelligence and policy
failures that
led to the crisis. The verdict will be familiar: The stunning blow to
the world
economy brought about by the sudden, unexpected depletion of fossil
fuel
should've been anticipated and prevented.
When that day comes -- in five years or perhaps 20, who knows -- many
of the key
exhibits will have been penned by Matthew Simmons, a Houston energy
analyst and
banker at Simmons & Co. International.
Simmons is now shouting from the rooftops -- writing think-tank white
papers,
giving speeches and finishing a book set for publication next year --
that the
world is fast running out of affordable oil and gas, and that no amount
of
Middle Eastern pumping can bail us out.
While much of the so-called "peak oil" story is well known, what's news
is
Simmons' startling claim, based on personal analysis, that Saudi
Arabia's
pumping capacity is in decline.
Aramco, the company in charge of Saudi oil operations, disputes
Simmons'
assertion and has debated him in public policy forums. But Simmons
isn't easily
dismissed, as he's no anti-establishment crank. In addition to his role
as chief
executive of a major energy-focused investment bank, which counts
Halliburton
(HAL, news, msgs) and the World Bank among its clients, he's a member
of the
Council on Foreign Relations and was an advisor to President Bush's
election
campaign and Vice President Dick Cheney's infamous energy task force.
A pervasive, regressive tax
Simmons' point of view is especially relevant today because the price
of oil
appears persistently stuck at $35-plus despite Saudi officials' vows to
help
push it down by increasing supply. Higher energy prices act like a
pervasive,
regressive tax, robbing consumers of money that would otherwise go to
buy
discretionary goods such as cars, clothes and computers. The role of
higher
energy prices so far seems lost as a culprit in the failure of the
stock market
to advance this year, and yet it could be considered a root cause.
In a nutshell, peak-oil advocates note that U.S. oil production -- once
the
highest in the world -- topped out in 1970, while natural gas
production topped
in 1973. Both are now in decline. With world consumption of oil at
about 1
billion barrels every 12 days, oil companies have pressed hard to find
oil and
gas in other parts of the globe. Indonesia's fields are old and
declining, as
are Russia's and Canada's. Simmons and others say that most of the
world's
easily obtained large oil reserves have already been located in remote
areas
such as Arctic Alaska, the deep-water Gulf of Mexico, deep-water West
Africa and
the North Sea, and that new reserves being brought on line offer only
marginal
amounts.
As an example, ExxonMobil (XOM, news, msgs), ChevronTexaco (CVX, news,
msgs) and
Petronas of Malaysia have teamed with the World Bank to develop the
Doba oil
fields in the landlocked northern African country of Chad at a cost of
$1.5
billion, and to build a shipping facility on the coast of neighboring
Cameroon
at a cost of $2.2 billion. Yet Chad has only an estimated 900 million
barrels of
reserves, and the field will pump just 50,000 barrels a day, an amount
that
would boost the local economy tremendously but barely make a dent in
world
production.
Technology will help make many old fields more productive, but the
amounts again
are relatively tiny. New field production worldwide is moreover limited
by
safety concerns. U.S. environmentalists have blocked the exploitation
of the
Arctic National Wildlife Refuge, a 19-million-acre section of northeast
Alaska
sometimes described as America's Serengeti, and shut down exploration
off the
Pacific, Atlantic and Florida Gulf coasts. Supporters, including
Simmons, argue
that modern drilling techniques will minimize the environmental impact
on the
Arctic's coastal plain, but even if it's exploited, he notes that it
would
generate only 300,000 to 1.5 million barrels of oil a day and natural
gas for 10
to 20 years before depleting.
The big assumption
It's always been assumed, by the United Nations as well as European and
U.S.
policy makers, that Saudi Arabia would be able to pump more of its oil
to
fulfill increasing world demand. The Saudis are pumping, at most, 9
million
barrels a day now and have boasted that they could pump as much as 15
million
barrels a day for the next 50 years. Indeed, Saudi leaders promised
that they
would start pumping more a few weeks ago.
But since world oil production hasn't increased any since those
promises were
made, economists and energy users have wondered whether Saudi Arabia
has
elected, for political reasons, not to fulfill its vow.
Simmons says it's worse than that: Much like the biggest problem in the
Enron
fiasco was that analysts always trusted Enron managers' declarations
about the
strength of its financial assets, he says that the world has always
taken Saudi
Arabia at its word for its oil assets. He now believes that it cannot
be
trusted.
He notes that the six major oil fields in Saudi Arabia, all discovered
between
1940 and 1967, produce about 95% of Saudi oil. The Saudis produce 10%
of the
world's oil from them at the world's lowest prices, and the Saudis are
the only
serious provider of "spare" capacity on the planet. A single field,
Ghawar,
which is the world's largest, was discovered in 1948 and produces up to
60% of
the kingdom's total.
He believes that production at these mature fields has peaked. While
that
doesn't mean they'll run out tomorrow, they're becoming much harder and
more
expensive to exploit efficiently. It's much like a person getting older
and
suffering from arterial sclerosis: They slow down and become
increasingly less
capable. The Saudis are now using intense water-injection techniques to
improve
production, he says, a technique that can ultimately lead to
catastrophic
pressure failure.
Aramco disputes his claim, but Simmons notes correctly that its
principal answer
comes down to an Enron-like, "Trust me." There's no solid independent
data
source of Saudi oil production. "A lack of verified data leaves the
world in the
dark," he told the Hudson Institute.
The rebuttal
Aramco's response: Current oil output can reach 10.5 million barrels a
day,
proven reserves are 260 billion barrels; there are 200 billion more
barrels of
"undiscovered" oil underground in such unexploited zones as the
deepwater Red
Sea, the Iraq border and the bottom section of the Empty Quarter;
finding and
development coasts are "incidental" (50 cents per barrel), and the
kingdom can
safely produce 10 million to 15 million barrels a day for the next 50
years.
Aramco's argument essentially boils down to a claim that new
horizontal,
"super-straw" drilling and pressurization techniques will save their
day;
Simmons in turn argues that new techniques are simply accelerating the
production of the last "easily produced" oil. He also contends that new
projects
in areas known as Qatif, Abu Sa'fah and Hawtah are only offsetting
declines in
other fields. And finally, he asserts that the old-timers of Exxon and
Chevron
who ran Aramco through the 1970s used valid techniques to estimate
Ghawar's
reserves at 61 billion barrels and all Saudi fields at 108 billion
barrels. If
those estimates prove accurate, he says, "the end is in sight."
Simmons is calling for a "new era of transparency" -- timely,
field-by-field
verified data -- so the world can really see what the Saudis have. They
need to
abandon their old practices of secrecy and lead OPEC on this. Without
better
assurances, he says, the lack of a valid "Plan B" could be catastrophic
to world
economic progress.
Of course, Simmons has a pony in this race. The more the world needs to
build
new fields, the more his investment bank can finance. But his views
demand
attention nonetheless, especially in light of the Saudis' recent lack
of
forcefulness in adding capacity to push down oil prices today.
Fine print
To learn more about Simmons' views, visit his corporate Web site. Read
his white
papers and presentations here. . . . Read about the Cheney energy task
force via
links at the Council on Foreign Relations Web site. . . . Learn about
the
Chad-Cameroon oil field and pipeline project at the World Bank Web
site. . . .
Learn about the energy companies' point of view on the Arctic National
Wildlife
Refuge at this site. It includes photos of the ANWR here. . . . The
Democrats
have some ideas on increasing energy production without the ANWR. . . .
Arab
News is a good English-language source for news on Middle East politics
and the
oil business. . . . There are tens of small and large Web sites devoted
to
peak-oil concerns, including Life After the Oil Crash, Die Off, From
the
Wilderness, Hubbert Peak, the blog Mobjectivist, the blog Peak Oil
Center and
the British site Wolf at the Door.
Jon D. Markman is publisher of StockTactics Advisor, an independent
weekly
investment newsletter, as well as senior strategist and portfolio
manager at
Pinnacle Investment Advisors. While he cannot provide personalized
investment
advice or recommendations, he welcomes column critiques and comments at
jon.markman@g...; put COMMENT in the subject line. At the time of
publication, Markman had positions in the following stocks mentioned:
ExxonMobil.
Received on Thu Jul 29 13:01:09 2004
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