Is our Oil Supply Sustainable?
Peak Oil has surfaced into public awareness in the last 18 months, even if we are currently experiencing cheaper petrol prices than earlier this year. In this book, Matthew Simmons sets out in detail the case he made at a conference I attended last year, based on the study of over 200 technical papers published by the Society of Petroleum Engineers. These reveal the gap between reality and rhetoric with respect to the claims of reserves and production capacity. As chairman and chief executive of a Houston based investment bank specialising in the energy industry, Simmons is well placed to conduct an authoritative analysis.

The book begins with a fascinating account of the history of Saudi Arabia, moving along to the discovery of its major oil reserves and the way in which it achieved oil market dominance. One factor that is not often reported is the explosion in Saudi population, which in turn creates an increased demand for domestic energy, not to mention more general issues of the equitable distribution of its wealth. It is striking that global consumption of oil rose from 20 million barrels a day in 1960 to 50 million in 1970. Current consumption is running at just over 85 million barrels a day and is forecast to rise substantially. Some analysts take the view that there will be no real difficulty in increasing production, especially since increased prices will change the economics of recovery of proven reserves. The reader will find a wealth of technical detail in the book concerning the way in which oil is recovered, the use of water in maintaining pressure within oilfields, and overall patterns of production and decline.

A crucial turning point occurred in 1982, when the main oil exporting countries ceased to provide field by field oil production data. The question of reserves and production capacity was also the focus for the 1979 US Senate staff report. Ironically, the lack of oil information drove down prices, which in turn led to an underinvestment in production capacity, which is part of our current supply problem. It is often claimed that technological advances ('turbo-charged super-straws') will increase the amount of recoverable oil, but more often than not they simply speed up the depletion rate. And, owing to what is technically known as rate sensitivity, increased short-term production may in fact lower the eventual overall amount of oil recoverable from a given field.

In 1977 Saudi Arabia estimated its proven reserves at 100 billion barrels, a figure raised to 150 billion in 1979 and 250 billion in 1988 - in the absence of any large new discoveries. This figure has crept steadily upwards despite the fact that Saudi Arabia has produced another 46.5 billion barrels in the intervening period. Moreover, much of this production has come from a few giant and ageing fields, as is amply documented by Simmons. This leads him to observe that estimating oil reserves is a voodoo science. A further danger is that many calculations are based on computer modelling, and these models may in turn contain dubious assumptions. So the 1970s figure of 100 billion may be much nearer the mark. The problem is that we have no real way of knowing unless OPEC takes up his challenge to provide properly audited figures of estimated reserves.

Simmons concludes that official optimism is not supported by the facts emerging from the technical papers. In addition, much of the daily output comes from a handful of giant fields and there have been no really substantial discoveries for their eventual replacement. In this connection, Lester Brown quotes Sadad al-Husseini, recently retired as head of exploration and production at Aramco, as saying that new oil output coming on-line has to be sufficient to cover both annual growth in world demand of at least 2 million barrels a day and the annual decline in production from existing fields of over 4 million barrels a day. 'That's like a whole new Saudi Arabia every couple of years,' Husseini said. 'It's not sustainable.'

A recent Internet posting suggests that they may be reserves of 4 trillion barrels in Venezuela and 2 trillion under the Rockies. In such a scenario, Saudi Arabia would cease to become the swing supplier, and geopolitics would change accordingly. It is ironic that these claimed discoveries are in the US and Venezuela, when one considers the relationship between these two countries. However, in the absence of confirmation and given the long lead time between discovery and production, the thesis of this book holds. It is rather alarming to read that no serious energy plan has considered the scenario of oil peaking and suddenly declining in Saudi Arabia. Hence the importance of his auditing proposal. Otherwise we are in danger of walking backwards into the future, without proper consideration of how the world economy will cope with a shrinking supply of Arabian oil.

This review first appeared in Omnipedia - see www.internationalfuturesforum.com general