Can Saudi Arabia keep its oil promises?

Despite the recent surge in prices, demand for oil continues to grow — especially from rapidly developing economies in China and India. Global demand is currently about 84 million barrels per day and growing by about 2 to 3 percent a year, which means another 2 million barrels a day or so will be needed by next year. If demand growth continues, even higher levels of daily production will be needed to meet that demand. If production fails to meet demand, oil-consuming nations face the prospect of even higher oil prices, shortages or both.

So where will the added production of millions of barrels a day come from? With all other OPEC members producing at capacity, Saudi Arabia, the world's largest producer, is widely believed to be the best hope for meeting increased demand. (Russia, the world’s second-largest producer, will be able to add a few hundred thousand barrels at day at best over the next few years, according to estimates by the U.S. Energy Information Administration.)

Saudi officials say they’re ready to boost production from current levels of 9.5 million barrels per day by drawing on some 1.5 million barrels per day of surplus capacity. And they’ve pledged to boost that capacity another 1.5 million — to 12.5 million barrels per day — by 2009. The kingdom’s oil minister said last month that production levels of 12.5 million to 15 million barrels per day can be sustained for up to 50 years.

But Simmons says a review of technical reports written by Saudi geologists and petroleum engineers paints a very different picture. These reports, he writes, detail massive injections of water needed just to sustain current levels of production. That process eventually causes an oil field to “water up,” he writes, as the injected water bypasses oil and supplants it in producing oil wells. When that happens, he writes, overall production levels can fall rapidly.

Saudi officials have countered that new technologies allow them to produce oil that was once deemed “unrecoverable.” Simmons argues that these new production techniques have become “super straws” that have increased the rate of depletion from aging wells, but won’t boost output.

Simmons also writes that the Saudi’s massive Ghawar oil field — which accounts for more than half of total production — is more than 40 years old, and he argues that the most productive areas already have been tapped. The past four decades of technical papers also show little evidence of promising new oil fields, according to Simmons. And past Saudi promises to boost output haven’t been backed up by actual oil shipments, he says.

“My guess is they're probably struggling to maintain 8 to 8.5 million a day of production and saying they’re doing 9.5 (million),” he said.

If Simmons' assertions are correct, the world faces an energy crunch at least as significant as the oil shocks of the 1970s. Alternative energy sources are beginning to play a significant role. But most analysts and industry experts concede it will take at least a decade before renewable sources like solar, wind or bio fuels make a significant dent in global energy demand. Even then, most of these alternative sources are being used to produce electricity; oil is primarily used as a transportation fuel, for which there are no readily available substitutes.

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Simmons says he hopes his book will provide a “wake-up call,” at the very least pressuring oil producers to allow independent verification, oil field by oil field, of production levels and surplus capacity.

“I hope I’m being overly pessimistic,” he said. 

If he’s not, and growing oil demand is about to overtake global production capacity, Simmons argues that governments around the world need to begin preparing for that event, which he says would amount to “the 9/11 of energy.”

“I really do believe that if we understand these problems and go to a war footing,” he said, “we can actually fix this thing.” But he says doing so will take, among other things, “a scientific expedition that exceeds what we did when we created radar and the atomic bomb.”

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