Letters

From the August/September 2006 issue

Peak Oil Panic

I enjoyed Ronald Bailey’s “Peak Oil Panic” (May 2006), but cannot agree on many points. Mexico’s Cantarell field has peaked and is going into decline. That is the third largest field ever found. Kuwait recently reduced its claimed reserves by 50 percent, taking 5 percent of global reserves off of the table. Its Burgan field has peaked below where it had been projected to peak and it is expected to begin to decline after a brief plateau period. So much for the second largest field ever discovered.

Most recently, Saudi Aramco revealed that its production will fall at about 8 percent a year, but they think they can reduce the decline to 2 percent a year by in-fill drilling and reservoir management. The Ghawar field has been the backbone of Saudi production for many decades. The Saudis have been struggling with declining well productivity and growing water cut, and are running out of options. They now pump about 12 million gallons of salt water into the Ghawar to maintain reservoir pressure, and more and more of it is finding its way to the well heads. The space between the gas cap and the water table shrinks every year. Now they are plugging vertical wells and running new horizontal wells with lots of side branches. It won’t end up producing more oil; it just accelerates depletion and makes the final decline steeper.

The 10 percent yearly decline in North Sea Norsk and U.K. fields ought to be warning us of Ghawar’s future. The Saudis have the best technology and reservoir management team in the world, but you can’t pump what is not there. When shortfalls have occurred recently, they were only able to bring additional, undesirable heavy/sour crude to market. The Saudi peaking announcement was bad news for the planet. They will never pump the volume of oil the cornucopians have predicted. Incidentally, the Saudis have used advanced secondary reservoir management techniques right from the start. There is no backup plan to get a second life out of their fields.

I really don’t see any credibility in pronouncements from economists, political hacks, or AM shout-radio wackos that lots more oil or a cheap suitable replacement will come along and save us. I much prefer the wisdom of people who know something about the business.

The brewing natural gas disaster is going to be great fun too. It is likely that natural gas hookups will end in a few years, given the lack of exploration success with 63 percent more drilling rigs in the field since 2003. I expect that prices will go through the overhead and the electric grid will start going down as line pressures fall and combustion turbines running on natural gas shut down.

Norm Erickson

Rochester, MN

One thing I didn’t see in Ronald Bailey’s article is that oil companies also track “probable” and “possible” categories of reserves. Some of these will be moved eventually to proven categories, while some won’t. But the proven categories, defined by the Securities and Exchange Commission as those reserves a company has a 90 percent probability of producing, certainly don’t represent all the oil companies plan to produce. There are longer-range projects generated routinely to move reserves from the unproven categories to proven status.

Kelly L. Stark

Midland, TX

Ronald Bailey replies: Norm Erickson is certainly right that the production of various oil fields does peak eventually, but the day that global production peaks does not appear to be at hand. As I pointed out, the International Energy Agency and the U.S. Geological Survey both argue that oil production can continue to grow and meet world demand until

Erickson appears to be relying on a couple of unsourced reports regarding the reserves of Kuwait and Saudi Arabia. In March, Kuwaiti Energy Minister Sheikh Ahmad Fahd al-Sabah denied the story, declaring, “The information is related to only 31 reservoirs we are currently working on. It does not include reserves in another 74 reservoirs which are not developed.”

In addition, the minister upped Kuwait’s reserves by 10 billion barrels. The Associated Press reported in April that Saudi Oil Minister Ali al-Naimi declared that the kingdom could reach and sustain 15 million barrels per day in output if needed.That would be up from 10 million to 11 million barrels per day now.

Of course it’s possible that oil-producing nations are lying, but why they would do so in the face of such currently high prices is not at all clear. Global natural gas supplies are plentiful, and if the U.S. runs short it will be because we failed to build facilities for importing liquefied natural gas.