The Saudi Facade

The world is rapidly running out of oil during a period of unrestrained groth in demand. I'm going to get a copy of the book mentioned in this article, although it will proably serve only to confirm my worst fears.

Even with a major oil field showing strain, the promises are flowing
by James Ridgeway

July 5th, 2005 12:05 PM

WASHINGTON, D.C. Three months ago, when gas prices hit $2 and oil was at more than $50 a barrel, the administration said relief would come because Saudi Arabia had agreed to increase short-term production, and would spend $50 billion to increase output over the next decade. Last week gas prices were climbing higher and oil hit $60 a barrel. Some predict it can go over $100, maybe as high as $200.

As for Saudi production, Matthew R. Simmons—one of the world's experts on the oil business and chair of Simmons & Co., a Houston investment bank specializing in petroleum—is the author of a new book, Twilight in the Desert: The Coming Saudi Oil Shock and the World Economy, which suggests in the politest of terms that the Saudis are a bunch of liars: They either don't know their own reserves or, more likely, have phonied the books to make it appear as if they have more oil than they do. His assessment adds weight to the alarms set off by oil experts who warn that the world is running out of oil.

The response of Congress to these warnings lies in an energy bill that rewards the oil and gas companies, already enjoying windfall profits, with additional revenues in the form of billions of dollars in subsidies—$8 billion in the Senate version, $16 billion in the House—and forces liquefied natural gas terminals down the throats of coastal cities, which fear conflagrations if an LNG ship blows up on its own or becomes a terrorist target. Congress and federal agencies, meanwhile, push ahead with alternative energy in the form of nuclear power. There is the usual pittance for such things as solar, wind, and conservation, as there has been since the mid 1970s.

The symbol of international oil and the base of the Saudi oil industry is the Ghawar oil field, which runs for 174 miles under Saudi Arabia. Ghawar is the biggest oil field in the world, providing between 6 and 8 percent of total global production. Since it was first tapped, Ghawar has yielded an astounding 55 billion barrels of oil, at the current rate of 5 million barrels per day. Its output represents about two-thirds of total Saudi production.

Up to now politicians and oil publicists have regarded Ghawar as some kind of eternal bubbling spring. In fact, as Simmons points out, details of its workings are pretty much a state secret. In February 2004, Saudi Aramco officials for the first time publicly discussed data on the field at a workshop on oil at the Center for Strategic and International Studies in Washington. It was at this workshop that Simmons aired his own suspicions about the field. But Saudi officials reassured the group that Ghawar could keep on producing 5 million barrels a day, and if need be, yield 10 or 12 or even 15 million barrels a day. This increased production is probably what the Bush administration is referring to when it talks about Saudi Arabia increasing production to ease the worldwide oil shortage and bring prices down.

But as technical reports show, Ghawar is in trouble. The field is rent with fractures and faults, letting in unexpected amounts of water, which complicates production. Masses of tar were discovered, and that makes extraction more difficult. The authorities claim that problems will straighten out as they drill wells north to south along the long reservoir. But Saudi experts admit that as production moves south, the permeability and porosity of the rocks decrease. Taken together, these technical reports portray the oil field in real trouble, with production inevitably decreasing, in the end making the 5 million barrel a day figure unrealistically high. It is unlikely that Saudi Arabia's other oil fields could take up the slack; their output has declined over the years.

Possible new production in areas such as the depths of the Red Sea and land along the Iraqi border is considered dubious. "Unless some great series of exploration miracles occurs soon," writes Simmons, "the only certainty about Saudi Arabia's oil future is that once its five or six great oil fields go into steep decline, there is nothing remotely resembling them to take their place."