The Vanishing Mirage of Saudi Oil

For those oil enthusiasts who believe that petroleum will remain abundant for decades to come -- among them, the president, vice president and their many friends in the oil industry -- any talk of an imminent “peak” in global oil production and an ensuing decline can be easily countered with a simple mantra: “Saudi Arabia, Saudi Arabia, Saudi Arabia.”

Not only will the Saudis pump extra oil now to alleviate global shortages, as is claimed, but they will keep pumping more in the years ahead to quench our insatiable thirst for energy. And when the kingdom’s existing fields run dry, lo, it will begin pumping from other fields that are just waiting to be exploited. This is the basis for the administration’s contention that we can continue to increase our yearly consumption of oil, rather than conserve what’s left and begin the transition to a post-petroleum economy.

But that may not be the case. In a newly released book, investment banker Matthew R. Simmons convincingly demonstrates that, far from being capable of increasing its output, Saudi Arabia is about to face exhaustion of its giant fields and will probably experience a sharp decline in output relatively soon. He also argues that there is little chance that Saudi Arabia will ever discover new fields that can take up the slack from those now in decline.

If Simmons is right about Saudi Arabian oil production -- and the official dogma is wrong -- we can kiss the era of abundant petroleum goodbye forever. This is so for a simple reason: Saudi Arabia is the world’s leading oil producer, and there is no other major supplier (or combination of suppliers) capable of making up for the loss in Saudi production if its output falters.

According to the U.S. Department of Energy, Saudi Arabia possesses about one-fourth of the world’s proven oil reserves, an estimated 264 billion barrels. Also, the Saudis are believed to harbor additional reserves containing another few hundred-billion barrels. On this basis, the department asserts that “Saudi Arabia is likely to remain the world’s largest oil producer for the foreseeable future.”

Consider the DOE’s projections. Because of the rapidly growing international thirst for petroleum -- much of it coming from the United States and Europe, but an increasing share from China, India and other developing nations -- the world’s expected requirement for petroleum is projected to jump from 77 million barrels per day in 2001 to 121 million barrels by 2025. Fortunately, says the DOE, global oil output will also rise by this amount in the years ahead. But over one-fourth of this additional oil -- about 12.3 million barrels per day -- will have to come from Saudi Arabia.

The problem is, if you take away Saudi Arabia’s 12.3 million barrels, there is no possibility of satisfying anticipated world demand in 2025.

The Saudis vehemently deny their fields are in decline. The DOE, with no independent verification, backs them up. In the end, it comes down to this: America’s entire energy strategy, with its commitment to an increased reliance on petroleum as the major source of our energy, rests on the unproven claims of Saudi oil producers that they can continuously increase Saudi output in accordance with the DOE predictions.

And this is where Simmons enters the picture, with his meticulously documented book, “Twilight in the Desert.” Simmons is not a militant environmentalist or anti-oil partisan; he is chairman and CEO of one of the nation’s leading oil-industry investment banks, Simmons & Co. International. For decades, he has been financing the exploration and development of new oil reservoirs. In the process, he has become a friend and associate of many of the top figures in the oil industry, including George W. Bush and Dick Cheney.

Essentially, Simmons’ argument boils down to four major points:

(1) Most of Saudi Arabia’s oil output is generated by a few giant fields, of which Ghawar -- the world’s largest -- is the most prolific.

(2) These giant fields were first developed 40 to 50 years ago, and have since given up much of their easily extracted petroleum.

(3) To maintain high levels of production in these major fields, the Saudis have come to rely increasingly on the use of water injection and other secondary recovery methods to compensate for the drop in natural field pressure.

(4) As time passes, the ratio of water to oil in these underground fields rises to the point where further oil extraction becomes difficult, if not impossible. To top it all off, there is very little reason to assume that future Saudi exploration will result in the discovery of new fields to replace those now in decline.

This being the case, Simmons concludes, it would be the height of folly to assume that the Saudis are capable of doubling their petroleum output in the years ahead, as projected by the DOE.

The moment that Saudi production goes into permanent decline in the not-too-distant future, the Petroleum Age as we know it will draw to a close. Oil will still be available on international markets, but not in the abundance to which we have become accustomed and not at a price that many of us will be able to afford. Transportation, and everything it affects -- virtually the entire world economy -- will be much more costly. The cost of food will also rise, as modern agriculture relies to an extraordinary extent on petroleum products for tilling, harvesting, protecting, processing and delivery. Many other products made with petroleum -- paints, plastics, lubricants, pharmaceuticals, cosmetics and so forth -- will also prove far more costly. Under these circumstances, a global economic contraction appears nearly inevitable.

Only if we act now to limit our consumption of oil and develop non-petroleum energy alternatives, can we face the “twilight” of the Petroleum Age with some degree of hope; if we fail to do so, we are in for a very grim time.

Given the high stakes involved, there is no doubt that intense efforts will be made to refute Simmons’ findings. With his book, however, it will no longer be possible for oil aficionados simply to chant “Saudi Arabia, Saudi Arabia, Saudi Arabia” and convince us that everything is all right in the oil world.