[FoRK] [Fwd: [BATN] Saudi oil production reaching physical limits]

Joseph S. Barrera III joe at barrera.org
Wed Feb 25 17:36:24 PST 2004


"Outsiders have not had access to detailed production data from Saudi
Aramco, the state-owned oil company, for more than 20 years.  But
interviews in recent months with experts on Saudi oil fields provided
a rare look inside the business and suggested looming problems."

 
-------- Original Message --------
Subject:     [BATN] Saudi oil production reaching physical limits
Date:     Tue, 24 Feb 2004 09:46:56 -0800
From:     2/24 New York Times <batn at yahoogroups.com>
Reply-To:     BATN-owner at yahoogroups.com
To:     batn at yahoogroups.com


Published Tuesday, February 24, 2004, in the New York Times

Forecast of Rising Oil Demand Challenges Tired Saudi Fields

By Jeff Gerth

When visitors tour the headquarters of Saudi Arabia's oil empire -- a
sleek glass building rising from the desert in Dhahran near the
Persian Gulf -- they are reminded of its mission in a film projected
on a giant screen.  "We supply what the world demands every day," it
declares.
       
For decades, that has largely been true.  Ever since its rich reserves
were discovered more than a half-century ago, Saudi Arabia has pumped
the oil needed to keep pace with rising needs, becoming the mainstay
of the global energy markets.

But the country's oil fields now are in decline, prompting industry
and government officials to raise serious questions about whether the
kingdom will be able to satisfy the world's thirst for oil in coming
years.

Energy forecasts call for Saudi Arabia to almost double its output in
the next decade and after.  Oil executives and government officials in
the United States and Saudi Arabia, however, say capacity will
probably stall near current levels, potentially creating a significant
gap in the global energy supply.

Outsiders have not had access to detailed production data from Saudi
Aramco, the state-owned oil company, for more than 20 years.  But
interviews in recent months with experts on Saudi oil fields provided
a rare look inside the business and suggested looming problems.

An internal Saudi Aramco plan, the experts said, estimates total
production capacity in 2011 at 10.15 million barrels a day, about the
current capacity.  But to meet expected world demand, the United
States Department of Energy's research arm says Saudi Arabia will need
to produce 13.6 million barrels a day by 2010 and 19.5 million barrels
a day by 2020.

"In the past, the world has counted on Saudi Arabia," one senior Saudi
oil executive said.  "Now I don't see how long it can be maintained."

Saudi Arabia, the leading exporter for three decades, is not running
out of oil.  Industry officials are finding, however, that it is
becoming more difficult or expensive to extract it.  Today, the
country produces about eight million barrels a day, roughly one-tenth
of the world's needs.  It is the top foreign supplier to the United
States, the world's leading energy consumer.

Fears of a future energy gap could, of course, turn out to be
unfounded.  Predictions of oil market behavior have often proved
wrong.

But if Saudi production falls short, industry experts say the
consequences could be significant.  Other large producers, like Russia
and Iraq, do not have Saudi Aramco's huge reserves or excess oil
capacity to export, and promising new fields elsewhere are not
expected to deliver enough oil to make up the difference.

As a result, supplies could tighten and oil prices could increase.
The global economy could feel the ripples; previous spikes in oil
prices have helped cause recessions, though high oil prices in the
last year or so have not slowed strong growth.

Saudi Aramco says its dominance in world oil markets will grow
because, "if required," it can expand its capacity to 12 million
barrels a day or more by "making necessary investments," according to
written responses to questions submitted by The New York Times.

But some experts are skeptical.  Edward O. Price Jr., a former top
Saudi Aramco and Chevron executive and a leading United States
government adviser, says he believes that Saudi Arabia can pump up to
12 million barrels a day "for a few years." But "the world should not
expect more from the Saudis," he said.  He expects global oil markets
to be in short supply by 2015.

Fatih Birol, the chief economist for the International Energy Agency,
said the Saudis would not be able to increase production enough for
future needs without large-scale foreign investment.

The I.E.A., an independent agency founded by energy-consuming nations,
and Washington see investment in energy exploration and field
maintenance as vital, but such proposals face strong opposition inside
Saudi Arabia.  Tensions with the West, particularly the United States,
make such investment politically difficult for Saudi society.  For
example, an effort by Crown Prince Abdullah, the kingdom's de facto
ruler, to encourage Western companies to invest $25 billion in his
country's natural gas industry essentially collapsed last year.

"Access to Persian Gulf oil reserves, especially Saudi Arabia's, is
the key question for the whole world," Dr. Birol said.

President Bush has said he wants to make the United States less
reliant on oil-producing countries that "don't like America" by
diversifying suppliers and financing research into hydrogen fuel
cells, but achieving that remains far off.

His administration backs foreign investment initiatives in the gulf
region, including Saudi Arabia, and his energy policies rely on Energy
Department projections showing the world even more dependent on
Arabian oil in 20 years.  That may be enough time for governments to
find alternatives, but oil field development requires years of
planning and work.

Publicly, Saudi oil executives express optimism about the future of
their industry.  Some economists are equally optimistic that if oil
prices rise high enough, advanced recovery techniques will be applied,
averting supply problems.

But privately, some Saudi oil officials are less sanguine.

"We don't see us as the ones making sure the oil is there for the rest
of the world," one senior executive said in an interview.  A Saudi
Aramco official cautioned that even the attempt to get up to 12
million barrels a day would "wreak havoc within a decade," by causing
damage to the oil fields.

In an unusual public statement, Sadad al-Husseini, Saudi Aramco's
second-ranking executive and its leading geologist, warned at an oil
conference in Jakarta in 2002 that global "natural declines in
existing capacity are real and must be replaced."

Dr. al-Husseini, one Western oil expert said, has been "the brains of
Saudi Aramco's exploration and production." But he has told associates
that he plans to resign soon, and his departure, government oil
experts in the United States and Saudi Arabia say, could hinder Saudi
efforts to bolster production or entice foreign investment.

Saudi Arabia's reported proven reserves, more than 250 billion
barrels, are one-fourth of the world's total.  The most significant is
Ghawar.  Discovered in 1948, the 300-mile-long sliver near the Persian
Gulf is the world's largest oil field and accounts for more than half
of the kingdom's production.

The company told The New York Times that its field production
practices, including those at Ghawar, were "at optimum levels" and the
risk of steep declines was negligible.  But Mr. Price, the former vice
president for exploration and production at Saudi Aramco, says that
North Ghawar, the most valuable section of the field, was pushed too
hard in the past.

"Instead of spreading the production to other fields or areas,"
Mr. Price said, the Saudis concentrated on North Ghawar.  That
"accelerated the depletion rate and the time to uncontrolled decline,"
or the point where the field's production drops dramatically, he said.

In Saudi Arabia, seawater is injected into the giant fields to help
move the oil toward the top of the reservoir.  But over time, the
volume of water that is lifted along with the oil increases, and the
volume of oil declines proportionally.  Eventually, it becomes
uneconomical to extract the oil.  There is also a risk that the field
can become unstable and collapse.

Ghawar is still far too productive to abandon.  But because of
increasing problems with managing the water, one Saudi oil executive
said, "Ghawar is becoming very costly to maintain."

The average decline rate in Saudi Aramco's mature fields -- Ghawar and
a few others -- "is in the range of 8 percent per year," without
additional remediation, according to the company's statement.  This
means several hundred thousand barrels of daily oil production would
have to be added every year just to make up for the diminished output.

Every oil field is unique, and experts cannot predict how long each
might last.  For its part, Saudi Aramco is counting on Ghawar for
years to come.

The company projects that Ghawar will continue to produce more than
half its oil.  One internal company estimate from 2002 puts Ghawar's
production at 5.25 million barrels a day in 2011, more than half the
total expected crude oil capacity of 10.15 million, according to
United States government officials and oil executives.

"The big risk in Saudi Arabia is that Ghawar's rate of decline
increases to an alarming point," said Ali Morteza Samsam Bakhtiari, a
senior official with the National Iranian Oil Company.  "That will set
bells ringing all over the oil world because Ghawar underpins Saudi
output and Saudi undergirds worldwide production."

The I.E.A. warned in November that huge investments would be needed to
offset the decline rates in mature Middle Eastern oil fields -- it put
the average at 5 percent -- and the increasing costs of oil and gas
production.  The agency, based in Paris, forecasts that Saudi
production will need to reach 20 million barrels a day by 2020.
(I.E.A. and other research estimates say that more than 90 percent of
that would be crude oil; the rest would be liquid products like
natural gas liquids that result from the processing of crude oil.)

In his speech in Jakarta, Dr. al-Husseini noted the need for
exploration, pointing out that colleagues at Exxon Mobil predict that
more than 50 percent of oil and gas consumption in 2010 must come from
new fields and reservoirs.

Harry A. Longwell, the executive vice president of Exxon Mobil, says
finding new sources of oil is crucial.  Mr. Longwell, in an interview,
said that increasing demand and declining production were not new
problems, but they were "much larger now because of the world's demand
for energy and the magnitude of the numbers now are much larger."

To offset its declines, Saudi Aramco is bringing back into production
one idle field, Qatif, and is enhancing production at a nearby
offshore field, Abu Safah.  The company says that with expert
management, these fields will produce about 800,000 barrels a day.

But current and former Saudi Aramco executives question those
expectations, contending that the goal of 500,000 barrels a day for
Qatif is unrealistic and that development costs are higher than
anticipated.

Qatif poses real difficulties.  It is near housing for Saudi Arabia's
minority Shiite population and contains high concentrations of
hydrogen sulfide, a highly toxic gas.  Its development is
"particularly challenging," according to a technical paper by Saudi
Aramco engineers presented last year in Bahrain, which said that 45
percent of potential drilling sites "were rejected due to safety
concerns."

At Abu Safah, Saudi Aramco has experienced increasing water problems
as it has turned to submersible pumps to extract oil.  Experts,
including American and Saudi government officials, say the technique
is ill advised.  Saudi Aramco, in its written response to questions,
defended the use of the pumps at Abu Safah and its ability to manage
the water after 37 years of production.

One United Sates government energy expert noted that "submersible
pumps is what the Soviets went to on an indiscriminate basis in West
Siberia and it went south." Samotlor, a huge field in Siberia, once
produced more than three million barrels a day, but it declined
sharply in the 1980's after the Soviets pushed it too hard.  Today it
produces only a few hundred thousand barrels a day.




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