Saturday, May 14, 2005

Saudi oil in decline: The telltale sign

Matthew Simmons, Houston energy investment banker and skeptic about Saudi Arabian oil supplies, gives his most succinct and telling statement about reputed Saudi oil reserves in this piece:

[Simmons] observed technology applications and water handling infrastructure that should have been superfluous to a country reportedly awash with cheap reserves. “We’ve always been told they had 260 million barrels of reserves in 80 fields… they weren’t behaving that way,” he said.

He was particularly struck by Saudi efforts to rehabilitate old oil fields. “Why were they doing that if they had 80 [untapped] fields?,” Simmons asked rhetorically.
For those who don't know, the Saudis have been injecting water into their wells for years to force the oil out. This is a common practice in the oil industry for wells that have lost pressure. But, in a country that claims huge untapped reserves of easily obtained oil, it makes no sense. It would be much more cost-effective to develop other easy-to-get reserves that can be pumped without all this extra and expensive effort. Simmons' conclusion: They've already looked and can't find any other major reserves. Saudi Arabia and the world have passed peak "sustainable" oil production.

Simmons doesn't discount the possibility that Saudi Arabia and other countries might be able to overpump for a while longer and continue to diminish their ultimate overall output over time as they damage their wells. But, he believes this cannot be sustained for very long and so concludes that the real "sustainable" peak has passed.

Simmons outlines his views in detail in a new book entitled Twilight in the Desert: The Coming Saudi Oil Shock and the World Economy.

(Via Flying Talking Donkey.)

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