Friday, February 27, 2004

Forecast of Rising Oil Demand Challenges Tired Saudi Fields

Those who paint an optimistic future for oil production pin much of their hopes on Saudi Arabia's supposed potential for substantial growth. But a growing number of experts are expressing doubts that the Saudis can increase their production as more and more of their fields go into decline.

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 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 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 by 2020.

"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 energy consumer.

Saudi dominance has been based primarily on one huge oil field--Ghawar--the biggest oil field ever found in the world. Ghawar alone produces more than 5% of all the oil pumped in the world. But Ghawar has been in production since the 1950s. In order to keep production up, huge amounts of seawater must be pumped into the field to move the oil to the top. Edward O. Price Jr., a former top Saudi Aramco and Chevron executive, estimates that Ghawar's production capacity is now declining at around 8% a year.

"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."

Some people have compared Saudi production techniques to those used in the Soviet Union in the 1980s with disastrous results:

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 1980s after the Soviets pushed it too hard. Today it produces only a few hundred thousand barrels a day.

The problems of maintaining the aging Saudi oil fields which the world depends upon for so much of its oil only underscore the urgency of moving to renewable energy sources and a sustainable economic system


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