When the wells run dry.

Jeff Gerth NYT
Wednesday, February 25, 2004





When visitors tour the headquarters of Saudi Arabia's oil empire - a sleek glass building rising from the desert in Dhahran - 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 demand, 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. But oil executives and government officials in the United States and Saudi Arabia 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 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, according to the U.S. Department of Energy, 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," a senior Saudi oil executive said. "Now I don't see how long it can be maintained.".
The leading exporter for three decades, Saudi Arabia is not running out of oil. Industry officials are finding, however, that it is becoming more difficult or expensive to extract oil. 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..
Brent crude oil in London was trading Tuesday at $30.74 a barrel; a year ago the price was about $23.50..
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 Price Jr., a former top executive at Saudi Aramco and Chevron and a leading U.S. 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..
Washington and the International Energy Agency, an independent agency founded by energy-consuming countries, 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 Gulf oil reserves, especially those of Saudi Arabia, "is the key question for the whole world," Birol said..
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 executive 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..
Saudi Arabia's reported proven reserves, more than 250 billion barrels, are one-fourth of the world's total..
The International Energy Agency warned in November that huge investments would be needed to offset declining output from mature Middle Eastern oil fields 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..
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..
At Abu Safah, Saudi Aramco has experienced increasing water problems as it has turned to submersible pumps to extract oil. Experts, including U.S. and Saudi government officials, say the technique is ill advised..
Saudi Aramco, in its response to questions, defended the use of the pumps at Abu Safah and its ability to manage the water after 37 years of production..
The New York Times

What will we do when the wells run dry? What should the governments of the oil gulping world be doing now to guard against that eventuality?