August 17, 2009
An informed view
been analysing global oil supply trends since the 1980s, and have had
work published by the OPEC cartel, so I'd like to provide a balanced
assessment of Matthew Simmons' views, and some of the debates behind the
Essentially, Simmons believes that the giant Al Ghawar
field is in terminal decline, and that this event will evolve Peak Oil
from theory to fact. Al Ghawar is undoubtedly critical - it is a huge
field, but an old one, discovered in the late 1940s and on stream since
the early 1950s. Until recently, it has contributed about half - around 5
mmb/d - of all Saudi production. If it does indeed decline, is this a
major event? And is it declining?
The Saudi oil industry is
shrouded in state-enforced secrecy, but the answer to the second
question seems to be a pretty unequivocal "yes". Saudi Aramco has
conceded that it now injects more than 7 mmb/d of treated seawater into
Al Ghawar. This is, by any standards, a huge water-injection programme.
Water injection is a secondary recovery technique designed to bolster
flow-rates by buttressing reservoir pressure. It's a generalisation, but
an acceptable one, that this process is used on fields whose production
would otherwise be in a rapid decline.
Is the decline of Al
Ghawar a major event? Again, yes. Global discovery rates have been
falling since the 1960s. The history of published reserves numbers from
many countries displays some suspicious upwards revisions, and often
seem to fail to deduct produced volumes. One of the great hopes for new
reserves - the Caspian - has fallen far short of initial expectations.
But one needs to bear two things in mind here:
"Proved reserves" are not a statement of pure geology - rather, they
are a matrix of economics (prices, costs, rates of return) applied to
2. How do we define "oil"? "Conventional"
oil - light sweet crude, produced easily - has been in decline for a
long time, but is being displaced by unconventionals, such as
gas-liquids, heavy crudes and oil produced from difficult fields
("difficult" either geographically or geologically).
sources are, potentially, huge - in North America alone, Canada has
perhaps 200 bn bbls of oil sands, whilst the US has vast reserves of
shale oil. The snag is that delivery rates - rates of production as a
percentage of reserves - are far lower than for conventional oils.
there's the price mechanism - scarcity drives prices up, which both (a)
deters consumption, and (b) incentives exploration and development.
course, you can't find or develop oil which isn't there. I believe that
reserves remain huge, but that rates of production may provide
insurmountable problems. "Peak Oil", in the sense that production goes
into gradual decline, may occur within the next decade.
influential Hersch Report contended that such a peak is likely, that we
will get very little advance warning, and that it is very unwise not to
undertake contingency planning and action. To ignore this call would
surely be folly.
The truth about Peak Oil is that no-one really knows, but that its implications could be so huge that we need to prepare for it.
is in his raising of the public profile of this issue that respected
analyst Matthew Simmons has, in this seminal work, performed a great
service. Every concerned person should read this book.