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All Pumped Out


TWILIGHT IN THE DESERT

The Coming Saudi Oil Shock

and the World Economy

By Matthew R. Simmons

Wiley; 422pp; $24.95

(Readers'

Reviews below)

Editor's Review

The Good An in-depth study of the Saudi's future oil-producing capability.

The Bad Although Saudi fields are old, Simmons' doomsday thesis is overdone.

The Bottom Line Basic points are right on target.

These are nail-biting times for the oil markets. With demand testing the limits of supply, each bit of threatening news -- whether a hurricane in the Gulf of Mexico or labor strife in Nigeria -- stokes prices that already are at record levels. Now along comes a book, Twilight in the Desert, that aims to smash one of the energy watchers' bedrock assumptions: that in the Middle East, and in Saudi Arabia in particular, oil is "easy to find, cheap to produce, and almost inexhaustible in its supply."

Far from being a reliable source of more and more oil in decades to come, Saudi Arabia's magnificent fields are nearing senescence, argues Matthew R. Simmons, a Houston investment banker and longtime energy Cassandra. "The risk is high," he says, "that twilight may soon descend on oil production in Saudi Arabia."

If Simmons is right, then the global economy has a shock coming. It would be hard to overstate the importance of Saudi Arabia to the world energy picture. Today the kingdom produces around 9.5 million barrels per day, or 11% of world supply. More important, it is widely assumed that the Saudis can, if necessary, dramatically ramp up production over the next couple of decades to satisfy increasing demand. After all, the Saudis estimate their own proved reserves at 262 billion barrels, or 22% of the world's total. But what if they can't increase production, because of a lack of reserves or the means or the will to increase capacity? Or worse, what if production declines? At a minimum the current supply/demand squeeze will continue. A crash in production could be catastrophic.

Simmons bases his arguments on his reading of more than 200 technical papers presented by engineers from Saudi Aramco, the national oil company, and its predecessor, Aramco. These are kept on file at a subscription site of the Society of Petroleum Engineers (www.spe.org). Using this data, Simmons draws a picture of an industry that faces daunting challenges. He reports exhaustively on instances of increased water encroachment into the oil -- a sign of aging fields -- declining reservoir pressure, and depletion of the oil in the kingdom's most prolific rock strata.

Simmons may well be making too dire an interpretation of the engineers' discussions. While there are undoubtedly problems in Saudi fields, there is no sign that overall output in Saudi Arabia is declining. Simmons tends to try to fit every fact into his doomsday thesis. For instance, he says disparagingly that the Hawtah field discovered in 1989 "produces only 200,000 barrels of oil a day."

But that would be a major find anywhere else, and the oil is of excellent quality. Simmons also interprets the Saudis' use of expensive technology as evidence that they are struggling with the ever more difficult problems he has suggested. He underestimates their resolve to lavish on their fields the most sophisticated technology and software money can buy, such as multibranched, horizontal wells with live links to the surface.

All that said, there are many valuable insights in Simmons' book. His basic points are right on target. Saudi Arabia's giant fields are old. Two of its three biggest, Abqaiq and Ghawar, by far the world's largest, were discovered in the 1940s. The third, Safaniya, was discovered in the '50s. These fields, which may account for two-thirds of total Saudi production, have pumped out a tremendous amount of oil by now. Ghawar alone, Simmons says, has over the last half-century produced an astounding 55 billion barrels -- 55% to 65% of total Saudi production. Eventually they will run dry.

Big new finds to supplement these fields are unlikely. "There is no Ghawar lying in wait to be discovered," Sadad Husseini, Saudi Aramco's former head of exploration and production told this reviewer in a telephone interview. Instead, he said, new production will have to come from smaller discoveries and less prolific oil fields that are not being exploited.

Stung by recent criticism that it is no longer a reliable supplier, the kingdom is spending whatever it takes to build up capacity to 12.5 million barrels per day by 2009, an increase that seems possible. But Simmons is probably correct when he says that "it is virtually impossible for Saudi Arabia ever to produce the 20 to 25 million barrels per day envisioned by the forecasters."

And production will likely be increasingly expensive, even in Saudi Arabia. It may not be twilight in the desert, but it is time to rethink our assumptions about where we are going to get our energy.

By Stanley Reed


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