Can Saudi Arabia keep its oil promises?

John W. Schoen Senior Producer • Profile • E-mail

Despite all the press attention, OPEC’s regular meeting in Vienna last week was largely a non-event: There wasn't really much to discuss.

With global oil demand undeterred by a $50-a-barrel price tag, oil producers are pumping as fast as they can. So the semi-annual haggling over output quotas — ordinarily the gathering’s main event — is all but irrelevant.

Leaders of the Organization of Petroleum Exporting Countries said last week they have agreed to raise their formal production limits by 500,000 barrels a day to try to lower soaring oil prices. Though widely expected, economists have dismissed the move noting that the 10 member nations bound by it are already pumping that much. They said oil markets — and drivers suffering sticker-shock at the gas pumps — are unlikely to see much of a difference.

Meanwhile, the discussion about what to do about high oil prices has already been overtaken by promises from Saudi Arabia — the only oil producer seen able to boost capacity from current levels — to raise production to keep prices from rising even further.

But a just-released book by veteran oil industry investment banker Matthew Simmons is raising questions about those Saudi promises. Based on research drawn from hundreds of technical papers spanning four decades, “Twilight in the Desert” argues that the kingdom's aging oil fields won't be able to sustain the higher levels of production needed to satisfy the world's growing thirst for oil.

“We’ve had an illusion for the last 40 years that there was so much oil in the Middle East that it would never run out,” Simmons said in a recent interview. “What I’m offering is evidence. And all the optimists are offering is hope.”

Simmons arrived at his assertions after a two-year review of hundreds of technical papers written by Saudi geologists and petroleum engineers. At the center of his argument is that the Saudis are relying heavily on just a handful of prolific oil fields that are now rapidly aging — with little evidence that new, untapped fields are waiting in the wings. To maintain production levels at those few, aging oil fields, Simmons writes, increasing amounts of water have to be pumped into the ground to force oil to the surface. “The picture that emerges,” he writes, “undermines the optimistic but unsubstantiated claims of Saudi officialdom.”

Not surprisingly, Saudi officialdom has been vigorously refuting Simmons' assertions ever since word of his book and its findings first started circulating in oil industry circles last year.

“The world is more likely to run out of uses for oil than Saudi Arabia is going to run out of oil,” Adel al-Jubeir, top foreign policy adviser for Saudi Arabia’s de facto ruler Crown Prince Abdullah, told the Associated Press last week.

Saudi officials also have argued that refining bottlenecks — not a lack of crude supplies — is the real cause of the recent spike in gasoline and diesel fuel prices

Hard data on OPEC production has been scarce for decades; one of Simmons' central arguments is that the world needs a better mechanism for verifying the production capacity of all oil producers. But the arithmetic that is driving oil prices higher is fairly simple.

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