Crude World (3 page)

At the Ras Tanura export terminal in Saudi Arabia

I visited Ras Tanura because oil was not out of my mind. I am old enough to remember, as a young boy, the round-the-block lines at American gas stations in 1973. Responding to American support for Israel in the Yom Kippur War, Arab members of OPEC boycotted shipments to the United States, creating an artificial shortfall across the globe that caused a quadrupling of world prices, from $3 a barrel to $12. The world awoke from decades of petroslumber. By 1979, with the Iranian revolution, a barrel reached nearly $40. Eventually, as relative peace returned to the Middle East, prices drifted downward until, in the wake of the Asian financial crisis, a barrel cost only $12 in 1999. OPEC, slow to react to the Asian crisis, belatedly tightened its quotas and, as the world economy expanded again, prices moved upward once more.

With the global economy in recession in late 2008, oil prices collapsed from the highs reached in the boom times of just a few months earlier. Recovery and triple-digit terrain are inevitably linked, with prices destined to shoot higher at the smallest hiccups—the world, in other words, that existed when I visited Ras Tanura, where Aref al-Ali, my escort from Saudi Aramco, gestured at the storage tanks around us. “One mistake at Ras Tanura, and the price of oil will go up,” he noted. There was pride in his voice, but also fear.

The port was a fortress. Its entrances had an array of security gates and bomb barriers to prevent terrorists from cutting off the black oxygen the modern world depends on. Before reaching Ras Tanura, we had to pass through several Saudi Arabian National Guard checkpoints on the highway from Dhahran. Even Ali, who worked in Aramco’s headquarters in Dhahran, needed special permission to enter Ras Tanura. The House of Saud was concerned about the havoc that could
be wrought by a speeding zealot with fifty pounds of TNT in the trunk of his car. But the Saudis had even greater worries.

Two things can ruin Saudi aspirations for another fifty years of financial windfalls. Global warming has fomented worldwide efforts to discourage the use of fossil fuels and develop alternative forms of energy. For Saudis, this is akin to turning their gold into dust. But it is not just a warming planet that is scaring their customers. Rising prices drive them away, too. The more oil costs, the more incentive consumers have to use less of it—and that explains why Americans, when the price of a gallon reached $4, finally began to cut back on their driving. The last thing Saudi Arabia wants is for its clients to conclude that they must find other energy sources because oil is running out and prices for it will only get higher.

National leaders, politicians and economists are not the only ones confounded by oil. Geologists are tricked by the substance, too. Oil cannot be inventoried, like timber in a wilderness. It is underground, unseen by engineers, who can, at best, make educated guesses about how much is there. What’s known is that as much as half of the world’s proved reserves of conventional oil have been consumed, but at least a trillion barrels remain. (The large reserves of “unconventional” oil in Canada and Venezuela are unlikely to provide more than modest new supplies, due to the difficulty of turning them into usable oil.) A trillion barrels of yet-to-be-recovered oil is quite a lot, but there’s a rub. The notion of reservoirs as underground lakes, from which wells extract oil like straws sucking a milkshake, is incorrect. Oil exists in drops squeezed inside rocks such as sandstone. A new reservoir may contain sufficient pressure to make these drops flow to the surface in a gusher, but after a while—usually within a few years and often sooner—natural pressure lets up and is no longer strong enough to push oil to the surface. At that point, “secondary” recovery efforts are begun, like pumping water or gas into the reservoirs to increase the pressure.

This process is unpredictable because reservoirs are fickle. If too much oil is extracted too quickly, or if the wrong types or amounts of secondary efforts are used, the quantity of oil that can be recovered from a field can be greatly reduced; this is known as “damaging a reservoir.”
It does not matter how many wells are drilled—the field will not yield more oil and, in fact, its output might collapse. This is what Hubbert realized in 1956. A modern example is Oman. In 2001, its daily output reached nearly 960,000 barrels before suddenly falling. The country went on a multibillion-dollar program to modernize its recovery techniques; in addition to injecting advanced detergents and polymers into the reservoirs, engineers lit fires underground to force the oil out (a trick known as in situ combustion). Nonetheless, Oman’s production has fallen to less than 800,000 barrels a day. Herman Franssen, a consultant who worked there for a decade, sees a lesson for nations that try to sustain high levels of output. “They used all these new technologies,” he told me, “but they haven’t been able to stop the decline.” Saudi Arabia may have enough oil to last for generations, but that is not the issue. Crunch time comes long before the last drop of oil is sucked from the Arabian desert. It begins when producers are unable to increase their output. If we do not know when that moment will arrive—and it may arrive any day now—we cannot know when to begin preparing for it, so as to soften its impact. The blow may come like a sledgehammer from the darkness. That’s why the debate over peak oil is not just about numbers. It is about the future.

Saudi Arabia possesses 21 percent of the world’s conventional reserves. The kingdom has 264 billion barrels, almost twice as much as the runner-up, Iran. Every day, the Saudis provide about 9 million barrels of the approximately 85 million barrels the world consumes. New fields are discovered now and then in other countries, but they tend to offer only small increments. The much-contested reserves in Alaska’s Arctic National Wildlife Refuge probably amount to only 10 billion barrels. When the world needs more oil, it has little choice but to call on Riyadh.

Before visiting the kingdom I tried to top off my understanding of its earthly treasure by going to Washington, D.C., to hear a speech that Oil Minister Naimi was delivering at a conference just a few blocks from the White House. Naimi was the star attraction at a gathering of the American petropolitical nexus. Samuel Bodman, the U.S. energy
secretary at the time, was on the dais next to him. David O’Reilly, chairman and chief executive of Chevron, was waiting in the wings. The moderator was an éminence grise of the oil world, James Schlesinger, a former energy secretary, defense secretary and CIA director.

“I want to assure you here today that Saudi Arabia’s reserves are plentiful, and we stand ready to increase output as the market dictates,” said Naimi, dressed in a gray business suit. “I am quite bullish on technology as the key to our energy future. Technological innovation will allow us to find and extract more oil around the world.” He described the task of increasing output as just “a question of investment” in new wells and pipelines, and he noted that consuming nations need to build new refineries to process increased supplies of crude. “There is absolutely no lack of resources worldwide,” he reiterated.

Naimi’s spokesman, Ibrahim al-Muhanna, told me that his boss was too busy for an interview but might have time in Riyadh. When I arrived in the kingdom a few weeks later, Muhanna said that not only would an interview with Naimi be impossible, but I could not talk to
anyone at the ministry. It was as though my queries constituted an unfit challenge to the kingdom’s geological manhood. At the last minute I was allowed to see Ras Tanura, and I was encouraged to visit Aramco’s oil museum in Dhahran, but that is something a Saudi schoolchild can do on a field trip. After a volume of phone calls, Muhanna finally agreed to see me, but not at the ministry. We got together in the lobby of my hotel. He began by noting that the Saudis are no different from other oil producers who refuse to divulge production data.

Ali al-Naimi, Saudi minister of oil

“They will not tell you,” he said. “Nobody will. And that is not going to change.” Referring to the fact that Saudi Arabia is often called the central bank of oil, he added, “If an outsider goes to the Fed and asks, ‘How much money do you have?’ they will tell you. If you say, ‘Can I come and count it?’ they will not let you. This applies to oil companies and oil countries.”

Muhanna was aware of the absurdity of what he was saying, because there is no dispute about the financial reserves of the United States, and in our digitized world monetary reserves are tracked by computers rather than stored in warehouses filled with hundred-dollar bills from floor to ceiling. Muhanna was just doing his job, which in this case consisted of throwing rhetorical dust in my eyes. I responded by mentioning that outsiders remained unconvinced by the Saudis’ “trust us” stance, in light of the legendary cheating in OPEC and in the industry. I noted that Royal Dutch/Shell had just admitted that it had overstated its reserves by nearly 24 percent. The quality of slipperiness would seem to apply to more than the physical properties of oil. Muhanna would not hear of it. “There is no reason for any country or company to lie,” he continued. “There is a lot of oil around.”

I knew better than to ask him about Matthew Simmons. When I had met Muhanna in Washington a few weeks earlier, he had nearly broken off our conversation at the mention of Simmons’s name. “He does not know anything,” Muhanna said. “The only thing he has is a big mouth. Either you believe us or you don’t.” The truth about whether the world will have enough crude in the years ahead remains as well concealed as the millions of barrels of oil I couldn’t see at Ras Tanura.

• • •

The quandary is not Saudi Arabia’s alone. If Simmons and other peakists are correct, the global economy can expand only so much before demand pushes against a limit in supplies again and economic growth is choked off not by toxic subprime loans but by high petroleum prices ($250 a barrel, anyone?). This scenario assumes that alternative sources of energy will not replace oil anytime soon; for now, it seems a safe assumption, alas. In America, one of the most popular nightmare scenarios of peak oil is promoted in a book entitled
The Long Emergency
, which warns that an oil shortage will trigger an economic meltdown and years of unrest, anarchy, disease and starvation. The end of the suburban lifestyle, hinged to two-car families and commutes to work, school and Walmart, will be just the first casualty.

For Simmons, scenarios of postpeak calamity were intriguing but diversionary. He preferred to focus on the question of what was happening rather than what might happen. The onetime debater found a precise topic—Ghawar, the treasure of Saudi treasures—and drilled into it (figuratively). Ghawar is the largest oil field in the world and has produced about 60 billion barrels of oil so far. The field provides more than 5 million barrels a day, which is about half of the kingdom’s daily output. If Ghawar is facing problems, so is Saudi Arabia and, indeed, the world. Through his research, Simmons learned that the Saudis were using increasing amounts of water to force oil out of Ghawar—a sign of a field beyond its prime. Simmons also realized that most of Ghawar’s wells are in the northern portion of the 174-mile-long reservoir. That might seem benign news—when the north runs low, the south can be tapped—but it was bad news, Simmons concluded, because the south of Ghawar is geologically more difficult to draw oil from.

“Someday (and perhaps that day will be soon), the remarkably high well flow rates at Ghawar’s northern end will fade, as reservoir pressures finally plummet,” he wrote. “Then, Saudi Arabian oil output will clearly have peaked. The death of this great king leaves no field of vaguely comparable stature in the line of succession. Twilight at Ghawar is fast approaching.”

The Saudis and their allies did not agree. Nansen Saleri, a senior Aramco figure when Simmons began making trouble, described the Houstonian as a banker trying to masquerade as a scientist. Saleri wryly stated, “I can read two hundred papers on neurology, but you wouldn’t want me to operate on your relatives.” Daniel Yergin, whose consulting firm, Cambridge Energy Research Associates, earns its keep by providing advice to the oil and gas industry, offered a been-there-heard-that sigh. “This is not the first time that the world has ‘run out of oil,’” Yergin wrote. “It’s more like the fifth. Cycles of shortage and surplus characterize the entire history of the oil industry.” At the time of these let’s-all-just-take-a-deep-breath lines, oil cost about $50 a barrel. Prices would nearly triple before being taken down by the global economic crisis, which was like cold water on the demand for oil.

The shots from Yergin and the Saudis delighted Simmons, who had not become wealthy by being an impeccable follower of convention. Simmons knew the risks he ran with peak oil—that people who shout “the end is nigh” do not tend to be treated well by peers or history. He noted in his book that in 1979 the
New York Times
published a story under the headline “Saudi Oil Capacity Questioned.” He realized that previous Cassandras had failed to anticipate new technologies like deep-water and horizontal drilling, which found new sources of oil and raised the amounts recovered from aging reservoirs. Yergin was correct to cite the errors of earlier doomsayers, but Simmons factored all of that into his research. Technology could accomplish only so much, he concluded, raising the ante by inviting the Saudis to prove him wrong. “If they want to satisfy people, they should issue field-by-field production reports and reserve data and have it audited,” he told me. “It would then take anybody less than a week to say, ‘Gosh, Matt is totally wrong,’ or ‘Matt actually might be too optimistic.’”