Re: Questions on Saudi oil

Preston, thanks for posting this article from the WSJ.

I am in the middle of reading Simmons book, Twilight in the Desert, and have finished Part 3 of the four Parts of the book. I really have enjoyed the book, but I suspect that many people are not as interested as I am in this subject and that they would only enjoy the first several chapters covering the history of oil in Saudi Arabia. For the past three years I have been reading most of the publications related to world energy supplies and alternative energies that I can get my hands on and this book has been one of the most enlightening to me, a nongeologist. I have come to realize more than ever that each oil reservoir is a unique beast, and each has its own challenges. There are all sorts of interesting factors one must take into account to try to maximize output and manage the reservoir responsibly. A reservoir engineer sounds like an interesting and challenging job. I hear they need such people now more than ever.

As far as I can tell, those of us who think that we should be seriously concerned about depletion of petroleum products are a small but growing minority. The majority of somewhat knowledgeable people usually respond to depletion concerns with some version of the phrase; " The Stone Age did not end because we ran out of stones!" I probably have heard or read some version of that more than 100 times in the last 3 years. It can be taken to have at least two meanings: 1. We have so much oil now that we need not worry yet. or 2. We will eventually find some new and better substitute for petroleum, as we always have for other resources.

1. There are several energy analysts like Peter Odell and Michael Lynch who assert that we have as much oil as we want as far into the future as we can see. These people have considerable influence in the political world and, of course, they are promoting a viewpoint that everyone would like to be true. I suppose that they include oil shale, heavy oil, and methane hydrates in their inventories of available energy resources--supplies that many experts think will never be economically viable in significant quantities. With this perspective we have used less than 10% of known oil supplies in the past 150 years of oil use, so why worry at all. I reckon that these individuals are a minority among the unconcerned but they are dearly loved and supported by many for this popular view.

2. A large majority of people think that we will find a substitute for petroleum when the need arises. Some of these people are somewhat concerned that this process could require a lengthy period and we could be in some trouble during the transition; others have great faith in our technological prowess so they have little concern that this will be any more than a bump in the road to a greater standard of living for all. If you have such a viewpoint, then you can understand why Saudi Arabia, other OPEC countries, and the oil companies do not want too much research funding to go to finding oil substitutes. Thus we get the energy bill we have in the US, with the majority of funds going towards increasing petroleum supplies and less towards the support of alternative energy. Basically you don't want oil to become like the typewriter, replaced by something better before you can get rid of your inventory. Thus Saudi Arabia likely considers it in their best interest to make sur!
e that oil stays relatively cheap so that they pump enough oil to keep prices low enough so no one works too hard to find a good substitute such that Saudi Arabia is stuck with their vast oil resources and no place to sell them. Saudi Arabia does not want the situation where no one wants more than a few million barrels a year instead of a few million barrels a day that happens now. In addition, I think Saudi Arabia realizes that if they get too greedy and try to extract too much for a barrel of oil, the military powers will just come in and take the oil away from them (like Iraq, if things went as planned). If this is your viewpoint, I don't see any reason that Saudi Arabia would tell the world that they were close to their peak production rate until it became obvious.

Today we use something like 84 million barrels a day, with some seasonal variations. Projections for the future indicate that we will use 120 million barrels a day in 15-20 years and Saudi Arabia is expected to provide much of this additional oil. Simmons makes the case in his book that Saudi Arabia will have trouble maintaining their current rate of 8-10 million barrels a day production for the next 15-20 years, much less the 20-25 million barrels a day the optimists are planning on. It is hard to see where he is way off.

Ghawar could produce 4-5 million barrels per day for decades. Simmons thinks this will not continue all that much longer. No other field in the world comes close to such production (or has ever come close). Fields we find today are considered huge if they produce 500,000 barrels a day for a few years. Where we will ever get the oil the optimists are planning on for the next 20 years at the rate we are accustomed to is not clear to me unless we find another couple of Ghawars (not considered likely by hardly anyone). We surely have lots of oil available and we will never run out, but whether we can ever continually produce 100 million barrels a day for any length of time is questionable in my mind.

Al Koop

>>> Preston Garrison <garrisonp@uthscsa.edu> 06/28/05 2:21 AM >>>
The Wall Street Journal has a column on the question of the
credibility of Saudi oil claims. It is available on the web:

http://www.opinionjournal.com/la/?id=110006880

Preston G.
Received on Tue Jun 28 12:13:11 2005