Slow here today and this group is one of the better ones for an
intelligent discussion. I'm wondering what people here think about
this? Those that were around when the arabs cut off the oil in the
1970's experienced first hand what happens when the oil supply is
threatened. We have had cheap available energy for years, our economy
is based on it. Is there cause for concern or is this just fear of the
The first oil shortage was not. The Middle East was not the only
source of crude for us at that time or any since. The REAL shortage
was in refining capacity here ... making The Shortage one of finished
product. Unleaded fuel was on the horizon back then. All it takes is
a refinery shutdown or two for routine maintenance in your state to
jack prices up considerably. Look at what's happening right now!
Prices have been going up NOT due to lessening oil supplies, rather
due to mandated sulfur reductions in fuel AND the migration from MTBE
to alcohol as an oxygenate.
From todays NYT, and interesting read,
Forecast of Rising Oil Demand Challenges Tired Saudi Fields
By JEFF GERTH
Published: February 24, 2004
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
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
"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
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
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
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
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
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
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
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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