Twilight in the Desert E-Book

Matthew R. Simmons

• Herausgeber: John Wiley & Sons
• Kategorie: Fachliteratur
• Sprache: Englisch

Seitenzahl: 706

Veröffentlichungsjahr: 2011

Beschreibung

Twilight in the Desert reveals a Saudi oil and production industry that could soon approach a serious, irreversible decline. In this exhaustively researched book, veteran oil industry analyst Matthew Simmons draws on his three-plus decades of insider experience and more than 200 independently produced reports about Saudi petroleum resources and production operations. He uncovers a story about Saudi Arabia's troubled oil industry, not to mention its political and societal instability, which differs sharply from the globally accepted Saudi version. It's a story that is provocative and disturbing, based on undeniable facts, but until now never told in its entirety. Twilight in the Desert answers all readers' questions about Saudi oil and production industries with keen examination instead of unsubstantiated posturing, and takes its place as one of the most important books of this still-young century.

Leseprobe

Table of Contents

Title Page

Copyright Page

Dedication

Table of Figures

List of Tables

Preface

How This Book Is Organized

Acknowledgments

PART ONE - FROM BEDOUIN TO BOURGEOISIE

Chapter 1 - The Birth of a Nation

The Reign of the Warrior King: 1902-1953

Soaring Oil Production and Revenues

Facts About Saudi Arabian Oil

Conclusion

Chapter 2 - The History of Major Saudi Arabian Oil Discoveries

The Early Years of Saudi Arabian Oil Activity

Discoveries of Super-Giant Oilfields Bring Investments by Texaco, Exxon, and Mobil

New Techniques to Improve Oil Production

An Oil Juggernaut Poised to Roll

Chapter 3 - Saudi Arabia’s Road to Oil Market Dominance

History of U.S. Oil Development: Surplus to Decline

Saudi Arabia Replaces the United States as King of Oil

The Dramatic Downside of Increased Saudi Oil Production

1973: Saudi Arabia Draws Its Oil Sword

Demand for Oil Overwhelms Supply

Saudi Arabia After the 1973 Oil Shock

Saudi Oil Production Peaks during the 1978-1981 Iran Crisis

Damaging Effects of Overproducing Oilfields

The 1990 U.S. Embargo of Iraq Again Increases Saudi Oil Production

Chapter 4 - The Veil of Secrecy over Saudi Oil Reserves and Production

1978 Report Warns of U.S. Dependence on Saudi Oil Supplies

Where the 1978 Report on Saudi Oil Reserves Went Wrong

April 1979 Senate Staff Report Reveals More Saudi Oil Secrets

OPEC Stops Reporting Oil Production Data in 1982

The Lack of Oil Information Drives Down Prices

New Century Brings Surprises Regarding Oil Supply and Demand

Oil from Non-OPEC Sources: Russia

World Oil Markets Look Again to Saudi Production

Saudi Arabia’s Energy Future: Lifting the Veil of Secrecy About Oil Capacity

Conclusion: Information Available from the Society of Petroleum Engineers

PART TWO - THE EBBING OF THE SAUDI OIL BOUNTY

Chapter 5 - Saudi Aramco

Basic Petroleum Operations

The Technology Brain Trust: Saudi Aramco’s Exploration and Petroleum ...

Taking the Reservoir-Modeling Technology to the Oilfields

The Saudi Oil and Gas Resource Base: Concentrated, Mature, Unverified

The Sustaining Four Super-Giant Oil Fields

Zones of Exceptional Oil Flow Capacity

Oil Production Capacities of the Sandstone Offshore Fields

Limited Success in Finding New High-Producing Oil and Gas Fields

Gas Finally Gains Prominence

Conclusion: No Reason for Optimism about Discovering a New Giant Saudi Oilfield

Chapter 6 - Oil Is Not Just Another Commodity

A Brief Overview: The Extreme Complexity of Oil Exploration

Technical Challenges of Aging Giant Oil Fields

Water: Oil’s Ally and Enemy

Keeping Up the Pressure: How Water Is Injected in Saudi Fields

Mistaken Geological Assumption Allowed Degradation by Water Injection

Saudi Aramco’s Early Awareness of Water Issues and Problems

Conclusion

PART THREE - GIANTS AT THE TIPPING POINT

Chapter 7 - Ghawar, the King of Oilfields

Size of Ghawar

Volume of Oil Produced by Ghawar

Performance and Productivity of Ghawar

Assessing the Fields that Make Up Ghawar

The Geology of the Arab D Reservoir

From Water-Free Oil Production to a Growing Water Problem

Exploring the Fractures and Faults in Ghawar

Understanding Ghawar’s Complexity

Reservoir Pressure Anomalies in Southern Ghawar

You Can’t Manage What You Can’t Measure

Unexpected Revelations About the Poor Oil Productivity of Eastern Ghawar

Conclusion: Accepting the Lack of Uniform Oil Production within the Subregions ...

Chapter 8 - The Second-Tier Oilfields

The Abqaiq Oilfield: The “Dowager Queen”

The Safaniya Oilfield: “Queen of Sand”

The Berri Oilfield: “A Watery Prince”

Chapter 9 - The Best of the Rest

The Lesser Offshore Fields

The Shaybah Oilfield: The Difficult Last Giant

Turning Sows’ Ears into Silk Purses: Seven Previously Produced Oilfields

Khursaniyah, Abu Hadriyah, and Fadhili: The Next Major Development Project

The Neutral Zone Fields: Oil Shared by Saudi Arabia and Kuwait

Chapter 10 - Coming Up Empty in New Exploration

Background on How Oil and Gas Are Discovered

Aramco’s Early Exploration Efforts: The 1930s to the 1960s

Expanding the Search Met Narrow Success

Conclusion: Is There Any Area Left to Explore?

Chapter 11 - Turning to Natural Gas

Background on Gas Use in Saudi Arabia

Exploring for Natural Gas to Meet Increased Demand

The Need for Gas Drives Drilling Deeper

New Gas Processing Plants

Saudi Arabia Asks for Help

Growing Urgency for New Natural Gas Sources

PART FOUR - TWILIGHT IN THE DESERT

Chapter 12 - Saudi Oil Reserves Claims in Doubt

Estimating Oil Reserves: A Voodoo Science

The Mystery of Saudi Oil Reserves: Sharp Decreases and Wild Increases

Estimating Oil Reserves Becomes a Global Problem

Another Problem: Oil Prediction Simulation Models Fail

Drilling Wells Is Still the Best Predictor

Conclusion: Future Oil Production Estimates Are Unreliable

Chapter 13 - Facing the Inevitable

The Status of Saudi Oil Today

Optimism Not Supported by Facts

Comparing Saudi Fields to Other Giant Oilfields

The Uncertainty of Carbonate Reservoirs Adds to Oil Production Difficulty

News from the North Sea: Oil in Norway and the United Kingdom

Other Giant Fields in the Middle East: Oil in Iran and Oman

Parallels from the Soviet Oil Crisis

Chapter 14 - Reading Between the Lines of the Latest News from Aramco

Update of 2003: Sustaining Oil Production Is an Intense Technical Struggle

A New Image of Reality

Saudi Aramco’s Publicity Contradicts Its Analytic Publications

Chapter 15 - Aramco Invokes “Fuzzy Logic” to Manage the Future of Saudi Oil

Gleaning the Great Fields for “Oil Left Behind”

Using Fuzzy Logic to Manage Aging Oil Resources

Chapter 16 - In Search of Crisper Truths among the Confident Saudi Claims

Better Data Needed to Reduce Uncertainty

Maintaining Current Oil Production Is Not Certain

The Future of Saudi Arabia’s Oil Is Far Different than the Forecasts

Chapter 17 - Aftermath

The Long-Term Price of Oil

Challenges in a World of Oil Scarcity

Will Saudi Arabia Lose Its Global Relevance Once Its Oil Peaks?

Plan B Means Doing Everything That Works. Plan C Is a New Energy Miracle

APPENDIX A - Methodology

APPENDIX B - Supporting Technical Data

APPENDIX C - The 1974 and 1979 Senate Hearings

Notes

Bibliography

Index

Table of Figures

Figure 1.1 King Abdul Aziz ibn Saud

Figure 1.2 King Abdul Meets with FDR on USS Quincy

Figure 2.1 Dammam Dome Area

Figure 2.2 Saudi Arabia’s Eastern Province Oilfields: The World’s Most Prolific Petroleum Resource

Figure 3.1 U.S. Crude Oil Production, 1945-2000

Figure 3.2 Growth in Global Oil Demand from 1945-2002

Figure 3.3 Saudi Oil Production Growth, 1950-1982

Figure 3.4 King Faisal and Sheikh Zaki Yamani

Figure 3.5 Middle East Light Oil Prices

Figure 4.1 Ahmed Zaki Yamani. Sheikh Yamani was the Saudi Arabian oil minister and public face of OPEC during the period of rising production and prices in the 1970s and 1980s.

Figure 4.2 Ali Bin Ibrahim Al-Naimi, Saudi Arabian minister of petroleum and mineral resources at the beginning of the twenty-first century

Figure 5.1 Basic Oil Reservoir Dynamics

Figure 5.2 How Produced Oil Flows Through Aramco’s Oil Processing System, from Wellhead to Export

Figure 5.3 Contribution of Six Royal Fields to Saudi Arabia Oil Output

Figure 5.4 The core Saudi production region covers only 17,140 Square miles and fits into a corner of Utah.

Figure 6.1 The Oilfield Development and Production Cycle

Figure 6.2 Typical Changes in Produced Fluids Volumes

Figure 6.3 Producing an Oil Reservoir with an Active Water Drive

Figure 6.4 How Water Alters Oil Extraction Techniques

Figure 7.1 Ghawar Field and Its Six Operating Areas

Figure 7.2 Various Zones Within Arab D Formation

Figure 8.1 Abqaiq Oilfield

Figure 8.2 Reviving Dead Wells with a Multiphase Pump

Figure 8.3 The Offshore Safaniya Field

Figure 8.4 Berri Field

Figure 9.1 The Offshore Zuluf and Marjan Fields

Figure 9.2 The Remote Shaybah Oilfield

Figure 9.3 Maximum Reservoir Contact (MRC) Well Design

Figure 9.4 Khurais Field

Figure 9.5 Qatif and Abu Sa’fah Fields

Figure 9.6 The Khursaniyah, Abu Hadriyah, and Fadhili Fields

Figure 9.7 The Hawtah Trend Fields

Figure 9.8 The Neutral Zone Fields

Figure 10.1 Recent Saudi Arabian Exploration Activity

Figure 11.1 Saudi Arabian Gas Production Growth

Figure 12.1 Proven Oil Reserves Growth, 1973-2003

Figure 13.1 Production Profiles for Eight Giant or Super-Giant Oilfields

Figure B.1 The Oil Pyramid—the Importance of the Giant Oilfields

List of Tables

Table 1.1 Middle East Proven Petroleum Reserves

Table 1.2 Middle East Oil Production

Table 4.1 Big Four Saudi Fields Oil Production and Reserves, 1976

Table 4.2 Saudi Arabian Oil Production by Field, 1994

Table 5.1 Reported Peak Output and Year for the Main Saudi Fields, Annual Average Barrels per Day

Table 10.1 Announced Saudi Arabian Oil and Gas Discoveries, 2002-2004

Table 11.1 Original Core Venture Projects for the Saudi Gas Initiative

Table B.1 Discovered Saudi Arabian Oilfields as of 2000

Table B.2 Simplified Overview of Saudi Arabia’s Geological Formations

Table B.3 Contributions of Sustaining Oilfields to Saudi Production Build, 1951-1981 (thousand barrels per day)

Table B.4 Parameters Affecting Arab D Productivity in Areas of Ghawar

Table B.5 Parameters Affecting Productivity in the Oil Reservoirs of the Abqaiq, Safaniya, and Zuluf Fields

Table B.6 Key Steps in Establishing Proven Reserves

Table B.7 Reported Reserves Fluctuations and Production for Key Saudi Fields, 1973-1977

Table B.8 Production from World’s Largest Giant Fields, 1971 and 2000 (thousand barrels per day)

Table B.9 Age and Supply Contribution of Giant Oilfields in 2000

Copyright © 2005 by Matthew R. Simmons. All rights reserved.

Published by John Wiley & Sons, Inc., Hoboken, New Jersey. Published simultaneously in Canada.

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Library of Congress Cataloging-in-Publication Data

Simmons, Matthew R.

Twilight in the desert : the coming Saudi oil shock and the world economy / Matthew R. Simmons.

p. cm.

Includes bibliographical references and index.

ISBN-13: 978-0-471-73876-3 (cloth)

1. Petroleum industry and trade—Saudi Arabia. 2. Petroleum industry and trade—Saudi Arabia—Forecasting. 3. Petroleum reserves—Saudi Arabia.

I. Title.

HD9576.S32S55 2005

338.2’728’09538—dc22

2005006852

To my mentor and friend, Professor C. Wickham Skinner, who taught me that great teaching comes from preparing thoroughly, challenging the students, listening carefully and respectfully, constantly learning as you teach, and including in every class a clear, insightful, new concept.

Preface

This is a book about Saudi Arabia’s oil. It analyzes the present condition of the Saudi Arabian oil exploration and production industry, and it details the real story about the small number of rapidly aging giant and super-giant fields that account for almost all the oil produced within the kingdom. It asks, as a matter of greatest urgency, whether Saudi Arabia will be able to deliver over the next several decades the oil supplies that the world’s consuming nations have come to depend on.

For years, every important energy supply model has assumed that Saudi Arabian oil is so plentiful and can be produced so inexpensively that its supply is expandable to any realistic demand level the world might need, at least through the year 2030. Many widely respected supply models (such as those used by United States government energy planners and the International Energy Agency) assume that Saudi Arabia will be producing as much as 20 to 25 million barrels of oil a day within the next two to three decades. In reality, the kingdom’s demonstrated production capacity in 2004 was on the order of 10 million barrels a day—in other words, one-half of the estimate.

Saudi Arabian officials have enthusiastically encouraged their oil-consuming customers to believe this plentiful supply scenario, while at the same time they have resisted third-party verification of their ability to deliver. At the end of 2004, Saudi Arabia’s petroleum minister announced that the kingdom could increase its oil reserves in a few years by almost 77 percent, to top 461 billion barrels, through a combination of new discoveries and increased recovery from known deposits. This announcement came as a new oil-producing facility was inaugurated. Saudi Aramco, the kingdom’s national oil company, claims that this new facility will boost Saudi Arabia’s production capacity to 11 million barrels a day, restoring a production cushion of two million barrels a day. If all this is true, then Saudi Arabia could theoretically produce at a rate of nine million barrels a day for another 140 years before its recoverable oil is gone.

To its great credit, Saudi Arabia has always made good on its commitments to provide the oil needed to prevent supply shortages in the marketplace. The kingdom has done its part (and at times more than its part) to manage the supply and price of crude oil for the general benefit of both producing and consuming nations. It has been a responsible participant and leader in the world oil markets. Based on past behavior, there would seem to be good reason to believe Saudi assurances about the future availability of its oil. There are, however, crucial differences between past and present realities that require more careful examination of the claims that Saudi oil officials have been making. Oil demand has grown to unprecedented levels, and the main Saudi Arabian oilfields grow older every year.

That Saudi Arabia’s oil is important to the world is beyond any dispute. But this is one of the few facts, claims, and assumptions about the Saudi oil industry that requires no further scrutiny. Despite the importance of Saudi Arabia’s oil to the well-being of the global economy, amazingly little is known about the details of the kingdom’s exploration and production industry, details urgently needed to support its seemingly extravagant resource claims. Field-by-field production reports disappeared behind a wall of secrecy over two decades ago. Information about the contribution that each field makes to the reported 261 billion barrels of proven Saudi Arabian oil reserves is treated as a state secret. It is not even clear how much oil Saudi Arabia actually produces, since announced surges and cutbacks in production in recent years have rarely shown up in reports of oil imports from the kingdom made by the member nations of the Organization for Economic Cooperation and Development (OECD), the recipients of by far the greatest bulk of the oil produced by Saudi Arabia and the other petroleum exporters.

This book tells a story about Saudi Arabia’s oil that differs sharply from the official Saudi version. Instead of the oil abundance of the official version, it argues that Saudi Arabian 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. There is only a small probability that Saudi Arabia will ever deliver the quantities of petroleum that are assigned to it in all the major forecasts of world oil production and consumption. Crucial to the story this book tells is a body of technical information about Saudi Arabia’s aging giant oilfields that explains the real nature of the threat to the kingdom’s oil production capability. This in turn exposes the risk that the world might soon witness the fading of Saudi Arabia’s oil supply, an event that would also mark the ultimate peaking of global oil supplies, just as demand is beginning to increase substantially in many countries.

The “twilight” of Saudi Arabian oil envisioned in this book is not a remote fantasy. Ninety percent of all the oil that Saudi Arabia has ever produced has come from seven giant fields. All have now matured and grown old, but they still continue to provide around 90 percent of current Saudi oil output. The kingdom’s three most important fields have been producing at very high rates for over 50 years. High-volume production at these key fields, including the world’s largest, has been maintained for decades by injecting massive amounts of water that serves to keep pressures high in the huge underground reservoirs and also to sweep the mobile, more easily recoverable oil toward the producing wells. When these water injection programs end in each field, steep production declines are almost inevitable.

For a number of years two groups have paid close attention to the message that oil supplies might peak and start declining. The first group comprises various oil company executives. They tend to welcome this message, even if they do not firmly believe it will ever happen, as it gives them hope that oil prices will then rise—always “music to the ears” of any oil producer. The second group tends to be made up of environmentalists, some of whom seem to relish the thought that oil might peak. There are those who look forward gleefully to the day when fossil fuels of all types finally vanish to be replaced by the renewable slate of energy sources: wind, solar, biomass, and, ultimately, hydrogen. These two small audiences, for totally opposite reasons, were the only groups that expressed much interest in the argument that oil supplies will someday peak. Over the last year or two, however, the peak oil topic has suddenly mushroomed, spurred by the dramatic unpredicted rise in oil prices.

Those who express the most vocal public skepticism about a medium-term peak in oil supply tend to be economists. Among this community, the most biting scorn comes from those economists specializing in energy. There is still widespread agreement among many of the world’s most respected energy economists that all energy supplies, and particularly oil, will remain plentiful for at least another 20 to 30 years. A few even argue we will have more oil in 2100 than we do today. As a group, these energy economists tend to spend far more time worrying that demand for oil might soon start to wane, than spending any serious analytical time on the supply side of the oil equation.

The suspicion that Saudi Arabia’s oil resources might fall short of the claimed proven reserves and production capacity began to take shape for me during a visit to the kingdom in 2003 as a guest of Saudi Aramco. My doubts drove me into a research project involving the intense study of over 200 technical papers about Saudi Arabia’s petroleum resources and production operations. These papers were written by engineers and scientists closely familiar with the key Saudi oilfields and were published by the Society of Petroleum Engineers (SPE).The problems documented in these technical papers confirmed my initial suspicions and led to the conclusions presented in this book. These problems are detailed in the book so that readers may judge for themselves whether or not my conclusions are warranted. A jury examining this evidence would, I believe, find it difficult not to share my concern about the future sustainability of Saudi Arabia’s high-volume oil output.

Saudi Arabian oil officials occasionally admit that their older fields are declining, but they quickly note that reduced output from older fields can be made up with oil from an inventory of discovered but yet-to-be-produced fields and anticipated new discoveries in the many unexplored areas in the kingdom. Such sources, they claim, could sustain production rates of as much as 15 million barrels a day for at least 50 additional years. Unfortunately, these officials have never provided any information to substantiate these claims. Most of the fields Saudi Aramco lists in its inventory of discoveries have never produced substantial quantities of oil for a sustained period of time. Further, very few areas of the country have not been explored rather intensively.

Saudi Arabia and the other major oil-producing nations have refused for over two decades to provide data to verify and substantiate either their reserve claims or their production levels. Given the rapid growth in oil demand that is now underway and the shortage of spare production capacity outside of Saudi Arabia, the lack of verifiable data must soon be addressed by some international forum. It is imperative that we create a credible and reliable worldwide system for collecting and reporting energy data.

It is impossible to predict with any certainty just when the problems afflicting Saudi Arabia’s oilfields will finally become insurmountable and send the kingdom’s daily oil output into an irreversible decline. Access to more detailed information about Saudi resources and production would make more accurate estimates possible. But this event is not a far-fetched fantasy, and it is not so distant in the future that it deserves no concern today. Moreover, the many consequences of such an event, some clearly predictable and others quite unforeseen, are of such monumental importance to the world economies that to ignore the eventuality of this occurrence is naïve.

Sooner or later, the worldwide use of oil must peak, because oil—like the other two fossil fuels, coal and natural gas—is non-renewable. The main reason that many oil experts have scoffed at claims that peak oil might occur sooner rather than later is their belief in the super-abundance of Saudi Arabia’s oil resources. Twilight in the Desert challenges this belief through a lengthy review of the all-too-real oilfield problems occupying the time and talents of some of the best technical oil experts in the world. In passing, the book should also demonstrate to both technical and nontechnical readers that oil is by no means simply “another commodity.”The enterprise that supplies the oil the world consumes so lavishly is everywhere a highly complex business, even in the Middle East and Saudi Arabia, where conventional wisdom has always assumed that oil was easy to find, cheap to produce, and almost inexhaustible in its supply. The risk is high that twilight may soon descend on oil production in Saudi Arabia.

How This Book Is Organized

The unique contribution of Twilight in the Desert is the analysis of the Saudi Arabian oil and gas industry based on the technical papers published by SPE (Society of Petroleum Engineers). This analysis occupies Parts Three and Four of the book. Petroleum industry professionals who have some familiarity with Saudi Arabia will be able to go directly to Part Three (the true heart of this book) and get right into the series of individual field assessments. For all other readers, Parts One and Two establish the background and context for understanding the technical discussions of the Saudi oilfields and appreciating the implications for the kingdom’s future oil output and the world’s energy supplies.

Part One first reviews the brief national history of Saudi Arabia and its rise to a position of global prominence as the world’s largest oil producer. Chapters 2 and 3 detail the origins and growth of Saudi oil production and the key events that influenced and shaped it from World War II to the Iranian revolution. Chapter 4 discusses the mature decades of the Saudi petroleum industry and introduces the issues and problems that began to occupy more and more of the attention of Saudi Aramco from the mid-1970s.

Part Two first provides an overview in Chapter 5 of the Saudi oil and gas industry and the organization that operates and manages it, Saudi Aramco, the world’s largest oil company. It then introduces, in Chapter 6, the principal technical challenges Aramco has been facing as its main fields have grown increasingly mature, and that now are perhaps the main focus of the company’s activities.

Part Three examines each of the mainstay giant and super-giant fields that have been the source of the greatest volumes of Saudi Arabia’s oil production, as well as the lesser fields that have contributed and the new projects that are expected to sustain future production. Part Three also discusses oil and gas exploration in Saudi Arabia over the past 35 years and Aramco’s attempts to secure additional new sources of natural gas to meet the kingdom’s surging domestic energy needs.

Part Four draws further conclusions from the findings of the analysis in Part Three with regard to the present state and future prospects of Saudi Arabia’s oil and gas production. Chapter 12 offers a critical assessment of Saudi claims to have some 260 billion barrels of proven oil reserves, as well as vast volumes of natural gas. Chapter 13 assembles information about giant and super-giant oilfields from other petroleum provinces under the assumption that the production histories of these great fields offer a paradigm for what is likely to happen in Saudi Arabia. Chapter 14 reviews the significant number of technical papers that have been presented by Saudi Aramco authors at major SPE conferences during the later part of 2003 and 2004. Chapters 15 and 16, use the analytical findings to speculate about the likely future of oil production in Saudi Arabia. The final chapter, “Aftermath,” raises a number of critical issues that must be addressed if the nations of the world are to cope with the impacts of diminishing oil supplies and make a successful transition to an economy based on alternative fuels and energy sources.

The SPE papers are the most significant body of information for this book and the basis of its unique value: An appendix describing my methodology in studying more than 200 of these papers is provided at the end of the book. In addition, there are, of course, a great many other sources that contributed to my research. Chief among these are the general knowledge and array of more detailed information that I have acquired as a keenly interested observer and historian of the international energy industry—and an avid participant in the financial side of it—since the early 1970s. Other information comes from earlier research projects I have conducted, most notably a study titled “The World’s Giant Oilfields” completed in 2000. I have also made judicious use of more general literature published by Saudi Aramco—brochures, periodicals, and reports.What I observed during the visit that I made to Saudi Arabia in 2003 and the information presented by Saudi Aramco officials has been invaluable. And finally, I have benefited greatly from information gained through personal correspondence and conversation with many expert authorities on various aspects of petroleum technology, and also with a number of retired former Aramco employees who generously shared their insights with me.

I hope you find the information gathered in this book equally valuable.

Acknowledgments

I would like to thank scores of professional friends in the oil industry and a number of industry organizations for the assistance they have given me in writing this book. At the top of the list is the Society of Petroleum Engineers (SPE), which made available to me its remarkable library of technical papers, including the more than 200 written by engineers and managers working at Aramco and then Saudi Aramco once the original company was nationalized. The detailed information about oil production operations in each key Saudi Arabian oilfield and the challenges and problems they presented proved invaluable in creating this book. Some of the world’s best technical experts and petroleum analysts helped me refine my knowledge of oil exploration, geology, and reservoir management practices, the problems encountered in handling water injection and water incursion, and gas issues in oil-producing wells—the issues that make reservoir management such a complex task, even in 2005. Among these experts, I would particularly like to single out Dr. David Donohue and his colleagues at the International Human Resources Development Corporation (IHRDC), Professor Kenneth Deffeyes, Carl Thorne, Herbert Hunt, Bruce Hunt, Darab (“Rob”) Ganji, George Spaid, Dr. Tom Hamilton, Dr. Richard D. Chimblo, Michael Lynch (former Senior Drilling Engineer at Aramco), Dr. Ali Bakhtiari (Senior Expert in Technology and Development, National Iranian Oil company), Michael Talbert, Dr. Herman Franssen, Dr. Fatih Birol (Chief Economist, International Energy Associates), and Jeff Gerth at the New York Times.

Two individuals deserve special recognition: my executive assistant, Judy Gristwood, who tirelessly converted my hand-scribbled notes into what finally became a draft manuscript and managed the complicated process entailing several rounds of revision and editing; and Dr. Charles McCabe, retired editor of Gulf Publishing Company’s Ocean Industry, who served as my chief editor. Chuck probably had no idea what he was getting into when I recruited his help in the spring of 2004. His broad knowledge of the oil and gas industry, editor’s skills, and alert critical eye have been invaluable. Without Chuck and Judy, I could never have produced this book.

I also had the tremendous good fortune to attract the interest of John Wiley & Sons as I was completing my book. They quickly decided not only to publish the book, but to fast-track the publication schedule. Working with the team at Wiley has been a pleasure, particularly since I had prepared myself to go through the tedious process of self-publication to get this message to the world’s energy planners while there is still time to manage the coming adjustment to the post-petroleum world.

Finally, I would like to acknowledge the patience and encouragement I received from my dear wife, Ellen, and our five daughters as I spent over a year struggling through the exhaustive process of researching and writing this book.

The Kingdom of Saudi Arabia and the Middle East Region

SOURCE: Simmons & Company International

PART ONE

FROM BEDOUIN TO BOURGEOISIE

Of all the many nations that emerged into the harsh light of history and modernity during the twentieth century, none moved so rapidly from obscurity to glaring prominence as Saudi Arabia. Dominated by the Ottoman Turks and warring tribal chiefs in the 1890s, the Arabian Peninsula was in political disarray, and the Saud family, traditional rulers of the area around Riyadh from the mid-1400s, was in exile in Kuwait. The British sought to exercise influence by establishing protectorates among the traditional monarchies along the southern and eastern coasts of Arabia.

The present nation came into being only in 1932 when Abdul Aziz ibn Saud proclaimed the kingdom of Saudi Arabia after reclaiming the traditional family homeland and battling rival tribes for 25 years to gain control of most of the peninsula. He ruled a largely rural people who followed centuries-old traditional ways as farmers and nomadic herders driving their sheep, goats, and camels across the desert expanses. They practiced Wahhabi Islam, an austere doctrine requiring strict observance of Muslim laws that had been taken up by the Saud family in the mid-1700s and spread throughout Arabia by their conquests. The new kingdom was poor and utterly lacking in industrial development.

By the beginning of 1970, less than 40 years after its founding, Saudi Arabia was suddenly thrust into assuming a major role in economic activities and political events that affected the entire world. The world’s urgent and virtually insatiable need for more oil catapulted the kingdom onto the center of the world stage and suddenly made it wealthy almost beyond any historical precedent. The Saudi people were moving into splendid new cities and developing tastes for modern Western goods and entertainments. Its oil industry began diversifying further downstream and gaining world-class technical sophistication.

But Saudi Arabia was by no means a modern state in the early 1970s, nor is it one today. As a monarchy with no elected assembly or parliament, the nation is still dominated by the Saud family and has been ruled for its entire history by Ibn Saud and his hereditary successors—his five eldest sons. These six men have dominated a vast expanse of desert and mountains for 103 years. While oil provided Saudi Arabia great wealth and an enviable array of public services and welfare systems, it has not built an economy that generates enough professional jobs for a rapidly growing population. Saudi society is extremely conservative and, from a Western perspective, restricts the freedom of women severely. The Wahhabist clergy enforce strict Muslim law and impose criminal punishments considered barbaric in the West. The once symbiotic relationship between state and religion appears threatened by rivalries that divide the allegiances of the people. And as the world has recently discovered, the peculiarly Saudi Arabian mix of monarchy, conservative Islam, social restrictions, and economic contradictions has proven to be a fertile breeding ground for discontent, opposition, and terrorism.

Saudi Arabia has also been an extremely reliable proprietor of the world’s most critical oil supply. The kingdom has maintained a very close relationship with the United States and has generally shown a sympathetic understanding of the interests of the Organization for Economic Cooperation and Development (OECD) nations. As the largest producer in the Organization of Petroleum Exporting Countries (OPEC), Saudi Arabia has been a “dove” in policy disputes, working to maintain fair oil prices and safe, reliable oil supplies.

The critical issues facing the Saudi oil industry cannot be properly appreciated without some understanding of Saudi Arabia and its people. How did a disparate collection of desert tribes come to occupy such a critical position on the world stage? What are the composition and organization of Saudi society today? What are the country’s concerns and challenges? What forces are driving the internal dynamics of this desert nation? How do Saudi Arabia’s demographics and economic realities impact its oil-producing future? Part I answers these questions, to provide background necessary for understanding the current Saudi oil situation.

1

The Birth of a Nation

A Century of Extraordinary Change and Economic Challenges

The West has had very little appreciation of the rich history and culture of the entire Islamic Middle East. Knowledge of Saudi Arabia, in particular, was almost nonexistent until oil was discovered in 1938. Even after oil was found, the kingdom remained cloaked in obscurity for another three decades. Once the kingdom was thrust onto the world stage, obscurity gave way to glaring celebrity and negative stereotypes. Today, although much more is known about Saudi Arabia, ignorance and prejudice are only slowly giving way to understanding.

Only a handful of geopolitical experts and oilmen has ever traveled to this remote part of the world. Despite the critical role Saudi Arabia’s oil now plays in the world economy, many people still assume the country consists of a few thousand wealthy princes squandering an endless flow of petro-dollars in self-indulgent decadence. This view may once have had a certain plausibility. Today, however, the real picture is vastly different.

Knowledge of Saudi Arabia, in particular, was almost nonexistent until oil was discovered in 1938.

While Saudi Arabia became an oil producer in the late 1930s, the kingdom’s rapid emergence as a global energy and economic power took place when U.S. oil production suddenly peaked in 1970. This event, coming at a time of rapidly increasing global oil demand, created an immediate potential for supply shortages. Saudi Arabia was the only producer with the capacity to keep pace with the world’s ravenous appetite for oil. Seizing the opportunity, the kingdom leapt from the rank of a leading oil producer, with output of about 2.5 million barrels a day in 1965, to super-star status by providing over eight million barrels a day in 1974. For the next three decades, Saudi Arabia would become the key swing supplier of oil exports to the rest of the world, adjusting its output according to changes in world demand.