Credit: Emrah Elmasli/COSMOS
The chief proponent today of the peak oil scenario is probably oil analyst Matthew Simmons. A sometime confidant of U.S. President George W. Bush on oil matters, he is chairman and chief executive of the investment bank Simmons & Company in Houston, a member of the U.S. National Petroleum Council (an advisory committee to the U.S. government) and of the prestigious foreign policy think tank, the Council on Foreign Relations.
He writes in his book, Twilight in the Desert, that "Saudi Arabian oil production is at or very near its peak sustainable volume (if it did not, in fact peak almost 25 years ago), and is likely to go into decline in the very foreseeable future."
Simmons says that a few 'super giant' oil fields in Saudi Arabia (including the massive Ghawar field, the world's largest, discovered in 1953) account for 92 per cent of the country's crude oil output, and that these fields are ageing and suffering from rising 'water cut': this is when water is injected into mature oil fields to keep the oil flowing; it's a sign they're declining.
"There are basically just five old, mature fields that account for 90 per cent of all Saudi production, and a remarkably small number of wellheads that produce the oil from these fields." Simmons says. "It leaves the Saudis with no diversification if any one of the fields suffer a production collapse."
Since Saudi Arabia has the planet's largest proven reserves and is the world's largest oil exporter, the implications of this are huge. In addition, the EIA estimates that Middle East producers will have to invest as much as US$500 billion in developing their oil industries in order to meet rising demand over the next 25 years.
But the U.S. Department of Energy is not concerned: its International Energy Outlook 2005 report forecasts that Saudi Arabia could be producing twice its current production by 2025. Officially, the Saudis concur - Saudi oil minister Ali al-Naimi said his country could easily produce more than the current 9.5 million barrels daily, but limited refining capacity restrained the system's ability to absorb more oil. "Give us the customers and we will pump more oil," he said.
In a report for the Ross Smith Energy Group, petroleum engineer Jim Jarrell takes on Twilight in the Desert and other sceptical Saudi onlookers. He cites a 2000 report from the U.S. Geological Survey that ranked Saudi Arabia number one worldwide in terms of undiscovered oil resource potential. Jarrell praises the Saudis for using conservative methods for assigning oil reserves, and for managing resources carefully to allow only an "extremely flat" decline.
"Our report says we could find no evidence to support a concern that current Saudi production levels are near imminent and irreconcilable decline," Jarrell said. "In fact, the evidence tells us that the Saudis are well informed and are operating their wells prudently."
But can the Saudis ramp up to 20 million barrels of oil a day, as confidently proclaimed by many? "I have no idea," says Jarrell.
Neither Simmons nor Jarrell is on the ground in Saudi Arabia, and Jarrell admits that determining actual reserve levels "would require a detailed reservoir-by-reservoir evaluation". As Muhammed-Ali Zainy of London's Centre for Global Energy Studies points out, we'll just have to take Saudi Arabia's word for its reserves and pumping capacity, since the nature of its closed society makes confirmation impossible.
Some of the most trenchant scepticism over future Saudi Arabian oil capacity comes from inside the kingdom itself, from those on the ground. Sadad al Husseini, the newly retired head of oil exploration and production for Saudi Arabia, told Britain's Channel 4 in October 2005 that "it's unrealistic for the world to be expecting such high numbers from all of the producers, including Saudi Arabia". The hope that his country would be producing more than 20 million barrels of oil per day in the next two decades was "unrealistic" and "a dangerous basis for policy" he said. Al Husseini also said that he believed that world oil would peak at 95 million barrels per day in 2015.
"We don't see us as the ones making sure the oil is there for the rest of the world," an unnamed senior Saudi Aramco official told The New York Times in 2004. He further cautioned that even the attempt to get up to 12 million barrels a day would "wreak havoc within a decade," by damaging the oil fields.
Simmons, who believes that major producers Iran, Iraq, Kuwait, Venezuela and Indonesia are "highly likely" to have passed peak, claims that it's more likely that he'll be living on the Moon in 2025 than for Saudi Arabia to be producing 22 million barrels of oil per day.
The reason we're not discovering any new oil, according to conservative intellectual Peter Huber, is that "the cost of oil remains so low". The world keeps buying oil from the Middle East because it's cheaper than developing new sources, such as the 3.5 trillion barrels sunk in Venezuelan clay in the Orinoco basin and the Athabasca tar sands of Canada, he argued in a Wall Street Journal opinion piece in January 2006.
Oil analyst Daniel Yergin, chairman of the Boston-based Cambridge Energy Research Associates and author of The Prize, says that unconventional oil sources - tar sands, ultra-deep-water developments and natural gas liquids - will account for 30 per cent of total capacity by 2010, up from 10 per cent today.
But there are technological and environmental hurdles to overcome before even a fraction of unconventional resources can be tapped. Still, some analysts remain bullish. Paul Kuklinski, an energy analyst with Boston Energy Research, says unconventional sources will increasingly come into production after 2020, when emerging technologies such as horizontal wells "will allow us to recover oil from wells that were considered unrecoverable, with much less impact on the environment."
