Crude World (4 page)

Curious to see a verdict from his peers, I followed Simmons into a gathering of shipping executives that took place in a restaurant at Chelsea Piers, along the Manhattan waterfront. Barges and sailboats floated past on the Hudson River. About thirty-five besuited men sat around a rectangle of tables as the host introduced Simmons, who had a rumpled aspect—thinning hair slightly askew, coat sleeves a fraction
too short. His speech skipped around in the appealing way of a brilliant, eccentric lecturer. He eventually hit his talking points, and the executives listened raptly. Simmons predicted that cheap oil would soon be a memory. The man on my right broke into a soft whistle, of the sort that meant “Holy cow”—not the sort that meant “This guy is wasting my time.”

As a finale, Simmons mentioned an interview in which he’d told a skeptical reporter that the price of a barrel of oil would hit the triple digits. At the time, in
2005
, a barrel fetched $
50
.

“A hundred dollars?” the journalist had scoffed.

Simmons issued another of his mischievous smiles as he recalled what he’d told the disbelieving journalist.

“I wasn’t talking about
low
triple digits.”

Whom to believe? Before visiting Saudi Arabia, I was advised by several oil experts to try to interview Sadad al-Husseini, who had just retired after serving as Aramco’s top executive for exploration and production. I faxed him in Dhahran and received a quick reply; he agreed to meet me. A week later, after I arrived in Riyadh, Husseini e-mailed me, asking when I would come to Dhahran. In a follow-up phone call, he offered to pick me up at the airport. He was, it seemed, eager to talk.

It can be argued that in a nation devoted to oil, Husseini knew more about it than anyone else. Born in Syria, Husseini was raised in Saudi Arabia, where his father was a government official who acquired Saudi citizenship for his family. Husseini earned a PhD in geological sciences from Brown University in 1973 and went to work in Aramco’s exploration department, rising to the highest position. Until retirement, he was a member of Aramco’s board as well as its management committee. He was one of the most respected oil experts in the world.

After meeting me at the cavernous airport that serves Dhahran, he drove me in his luxury sedan to the regal yet, by Saudi standards, modestly sized villa that houses his private office. As we entered, he pointed to an armoire that displayed a dozen or so vials of black liquid. “These are samples from oil fields I discovered,” he announced. Upstairs, there
were even more vials, and he would have possessed more than that except, as he said, laughing, “I didn’t start collecting early enough.”

We spoke for several hours. His message was clear: the world was heading for an oil shortage. His warning was quite different from the calming speeches that Naimi and Yergin delivered on an almost daily basis. Husseini explained that the need to find and produce more oil was coming from two sides. Most obviously, demand was rising. Less obviously, merely to maintain their reserve base, producers needed to replace the oil they extracted. It’s the geological equivalent of running to stay in place. But oil companies, Husseini said, were unable to do so. Husseini acknowledged that new fields are found from time to time—for instance, offshore near West Africa and in the Caspian basin—but he believed their output wouldn’t be sufficient. With demand rising a few percentage points every year at times of economic expansion, and with the output of older and larger fields declining by a few percentage points annually, the industry needed to find vast amounts of new oil to maintain an equilibrium of supply and demand. “That’s like [finding] a whole new Saudi Arabia every couple of years,” he said.

He spoke patiently and firmly, like a ship’s captain spotting an iceberg and explaining to his passengers that it was time to put on their life preservers. He did not disclose precise information about Saudi reserves—that could land him in jail—but he was unusually forthright and pessimistic for an insider. Traditionally, the Saudis have had an excess of production capacity that allowed them to control the market in times of emergency. In 1990, when Iraq’s invasion of Kuwait shut down not only Kuwait’s supply of oil but also Iraq’s, the Saudis upped their output to address the shortfall. They did the same when America created jitters by invading Iraq in 2003. The Saudis functioned, as they always had, as the central bank of oil. Husseini argued that those days were over—that at times of global economic expansion, the Saudis could not satisfy the world’s thirst for more.

At the energy conference in Washington, James Schlesinger, the moderator, conducted a question-and-answer session with Naimi at the conclusion of his speech, and one of the first questions involved
peak oil. Might it be true, Schlesinger asked, that Saudi Arabia was nearing the geological limit of its output?

“I can assure you that we haven’t peaked,” Naimi replied. “If we peaked, we would not be going to 12.5 and we would not be visualizing a 15-million-barrel-per-day production capacity. … We can maintain 12.5 or 15 million for the next thirty to fifty years.”

Husseini told me that the 12.5 million target was realistic but anything beyond it was not. Even if output can be ramped up to 15 million barrels a day, geology may not be forgiving. Fields that are worked too hard can drop off quite sharply, in terms of output, leaving behind large amounts of oil that, with better reservoir management, would have come to the surface. This is known as “trapped oil;” the haste to extract more oil can lead to less oil being extracted. “It’s not sustainable,” Husseini said. “If you are ramping up production so fast and jump from high to higher to highest, and you’re not having enough time to do what needs to be done, to understand what needs to be done, then you can damage reservoirs.”

On this, Husseini was not alone. I talked with Nawaf Obaid, a Saudi oil and security analyst regarded as being exceptionally well connected to the Saudi leadership. “You could go to fifteen, but that’s when the questions of depletion rate, reservoir management and damaging the fields come into play,” he said. “There is an understanding across the board within the kingdom, in the highest spheres, that if you’re going to fifteen, you’ll hit fifteen, but there will be considerable risks … of a steep decline curve that Aramco will not be able to do anything about.”

Even if the Saudis are willing to try for 15 million barrels a day with the world economy recovered, Husseini pointed out a practical problem. Saudi Arabia would need to drill a lot more wells and build a lot more pipelines and processing facilities. During times of expansion, the oil industry suffers a deficit of qualified engineers and of equipment and raw materials—for example, rigs and steel. Husseini said that such things cannot be wished from thin air to meet demand. “If we had two dozen Texas A&Ms producing a thousand new engineers a year and the industrial infrastructure in the kingdom, with the drilling rigs and
power plants, we would have a better chance, but you cannot put that into place overnight.”

You don’t need to be a Saudi geologist to grasp the peak crisis that awaits us. A fourth-grade understanding of math will do. In 2004 the Energy Information Administration (EIA), which is part of the U.S. Department of Energy, forecast that by 2020 Saudi Arabia would produce 18.2 million barrels a day, and that by 2025 it would produce 22.5 million barrels a day. Those estimates were not based on hard data about Saudi supplies but on the expected demand of the world’s oil consumers. The figures simply assumed that Saudi Arabia would be able to supply whatever it was called on to supply. A year later, the EIA revised those figures downward, but not because of new and accurate information about world demand or Saudi capacities. The United States changed the figures because the original ones were so patently unrealistic.

“That’s not how you would manage a national, let alone an international, economy,” Husseini said. “That’s the part that is scary. You draw some assumptions and then say, Okay, based on these assumptions, let’s go forward and consume like hell and burn like hell.” When I asked whether Saudi Arabia could pump 20 million barrels a day—about twice what it is now producing from fields that are not getting younger—Husseini paused. It wasn’t clear if he was trying to figure out the answer or if he needed a moment to decide if he should utter it. He finally replied with a single, forceful word: No.

“The expectations are beyond what is achievable. This is a global problem … that is not going to be solved by tinkering with the Saudi industry.”

Time has been good to Matt Simmons. A doubling of prices after the publication of his book prompted even Chevron and British Petroleum to announce that peak oil is a near rather than a distant event. The recession that followed, suppressing the need for oil, only put off the reckoning. We face an era of scarcity that involves higher prices for oil and fiercer competition for what’s left. We are a foggy-headed boxer on his knees, unaware of the blow that awaits us.

I stood beside a dirt road with some of the poorest women in Africa, waiting for one of the richest men in Africa.

Along with a few hundred unfortunate citizens of Equatorial Guinea, I was trying to avoid heatstroke at a sweltering spot where the dirt of the jungle met an unevenly paved road on the outskirts of Ebebiyin, a hungry and wary town that reminded me of a stray dog whose ribs poke hard at its skin. Around me, women swayed to a rhythm that was hard to resist, even though the lyrics were not of a can’t-stop-dancing variety: “We await you Mr. President / We are happy to see you / You are the people’s president.” In the near distance, a cloud of Martian dust heralded the arrival of the leader whose visage was on their T-shirts.

President Teodoro Obiang’s motorcade consisted of forty vehicles with enough firepower for a small war. In the lead were army-green trucks carrying elite soldiers in black ninja outfits. The jeeps in front of his armored Lexus SUV carried his Moroccan bodyguards—the president does not trust his own people to protect him—some of whom were perched on running boards, clutching machine guns aimed at the crowd. The president seemed to be invading rather than visiting. His personal armada was a projection of fear, not strength, because uneasy lies the head of a man who clutches a nation’s wealth. Obiang, whose salary was reportedly $60,000 a year, had recently been discovered to control bank accounts exceeding $700 million.

Teodoro Obiang, president of Equatorial Guinea, at a parade in Ebebiyin

The presidential Lexus halted amid Ebebiyin’s chickens-in-the-road squalor. Obiang strolled up the street, shaking hands with the people who lined the broken sidewalks as they shouted and gestured a bit awkwardly, unsure of the precise calibration of enthusiasm and piety desired. His posture was regal, almost rigid; he can turn on the populist charm, as dictators must do on occasion, but he wants everyone to know that he is not a common man. On this day, his strict posture and expensive suit conveyed a particular and intentional message: I am the leader, you are my subjects.

Obiang had traveled to Ebebiyin to celebrate the thirty-sixth anniversary of independence from Spain, but the weekend-long party had more to do with his alleged brilliance than the end of colonial rule. This is one of the keys to retaining absolute power anywhere: the nation and the dictator should be regarded as conjoined entities, so that the health of the former is impossible without the latter. Obiang enjoys being called “El Libertador,” suggesting that he freed the country from the nightmares preceding his longed-for intervention. It is not mentioned that he “liberated” the country only from a postcolonial genocidal regime in which he was an instrumental enforcer.

The highlight of the weekend was a parade down Ebebiyin’s finest stretch of asphalt. On the morning of the parade, I stopped by a two-story hospital a few hundred yards from the rutted tarmac upon which soldiers and workers would march in honor of their leader. The hospital had almost no medicine. A Cuban doctor—Equatorial Guinea does not have a medical school, and few of its citizens are licensed doctors—unlocked a storage room to show me the supplies, which consisted of bandages and a few bottles of aspirin and other pills. A place for dying rather than healing, the hospital had just received a dash of much-needed attention from the government: it had gotten a fresh coat of paint because it was visible from the reviewing grandstand and needed to look nice for the dignitaries.