04-04-04

Deep below the dunes of Saudi Arabia's forbidding Empty Quarter, high-tech wells are producing oil that the kingdom contends will help keep it the world's No. 1 exporter of crude for decades to come. The state-owned energy company Saudi Aramco uses advanced technologies such as horizontal drilling to produce half a million barrels each day at its challenging Shaybah oil field, 765 km southeast of the capital Riyadh.

Saudi Aramco portrays Shaybah -- a man-made oasis amid the orange dunes of the Rub al-Khali, or Empty Quarter -- as a showcase for the know-how and natural oil wealth that have made Saudi Arabia the world's leading supplier.

But analysts have recently challenged the kingdom's optimism about its future, and Saudi oil officials have responded with an openness unusual in this inward-looking society as they try to persuade the world of the country's staying power as a strategic source. The debate began after Matthew Simmons, an investment banker specializing in energy, warned earlier this year that Saudi Aramco treats cutting-edge techniques such as horizontal drilling as a "fountain of youth" for its oil industry.

He contends that these advanced technologies could, in fact, have the opposite effect of accelerating the inevitable decline of Saudi Arabia's oil reserves. "What they're basically banking on is they've delivered for 70 years and they'll be able to deliver for another 70 years. That has no relevance whatsoever," Simmons said from his office in Houston.

"Are we still comfortable with 'trust me' as the underpinning of the well-being of the world economy?" To be sure, not all analysts agree with Simmons. Amy Jaffe, an energy fellow at the James A. Baker III Institute for Public Policy at Houston's Rice University, argues that the kingdom probably can keep its promises -- if it works at doing so.

"Whether Saudi Arabia is going to spend the maximum amount of money to develop the resource it has -- that is a question of politics and management," Jaffe said. "That is not a question of geology." The debate centres, in part, on the reliability of reserve estimates.

The issue of reserves has come under greater scrutiny after Shell downgraded its own oil and gas reserves by 20 %. BP, based in London, and El Paso, headquartered in Houston, also have reduced their reserve figures.

Saudi Arabia claims to have 260 bn barrels in proven crude reserves, or more than a quarter of the world's total supply. Shaybah alone contains 15.7 bn barrels -- more than all the proven reserves in Mexico or Norway. Saudi Arabia also boasts the world's lowest costs to develop its crude, at 50 cents a barrel.

Executives of Saudi Aramco -- one of the Middle East's most secretive oil monopolies -- are intent on convincing the world community that they have the oil and the will to keep it flowing at rates that will satisfy growing global demand. They are also sensitive to the geopolitics of oil, showing concern about their relationship with the United States at a time President George W. Bush has stated a goal of reducing US dependence on imports from the Middle East.

Senior company executives have argued their case at recent forums in Washington and will speak in Paris this month. They've also been more welcoming to visitors interested in seeing their operations.

Saudi Arabia pumps about 8.25 mm bpd of oil, second only to Russia. Unlike Russia, it exports most of what it produces and keeps an additional 1.5 mm to 2 mm barrels in spare production capacity for use in emergencies. During last year's war in Iraq, for example, Saudi Aramco executives say the company ramped up its output in just three days to forestall a global supply shortage.

Saudi Aramco executives contend that the company has enough recoverable oil in the ground to almost double its output to 15 mm bpd and to sustain this higher production for at least another half century. They also say there's no need for foreign investment to help the country explore for and produce more oil.

"We have what it takes, both from reservesand capabilities, to meet the kingdom's strategy," said Abd Allah Al-Saif, Saudi Aramco's senior vice-president for exploration and production.

Saudi Aramco says it has estimated its proven reserves based on guidelines set by the Society of Petroleum Engineers and two other eminent technical organizations.

Nansen Saleri, Saudi Aramco's oil reservoir manager, claimed the company's estimates are actually more conservative than these guidelines allow. That's because they exclude crude that can be produced using enhanced recovery methods such as the injection of steam or chemicals into layers of oil-rich rocks.

He said that Saudi Aramco's proven reserves would be 100 bn barrels larger if they included the "probable" or "possible" reserves that the company expects to pump using enhanced recovery techniques. Saleri added that Saudi Aramco expects to find at least 50 bn additional barrels in proven reserves over the next 25 years.
"These are not visionary statements we are making," he said. "These arevery achievable numbers."

Still, much of the kingdom has yet to be explored for oil, and Saleri said that while Saudi Aramco could start adding to its reserves immediately, it doesn't see the need. This is where critics find fault.

Simmons, the investment banker, said he studied 200 technical papers on Saudi Arabia that the Society of Petroleum Engineers has prepared over the past 22 years. He concluded that Saudi Arabia's five biggest oil fields are "very mature" and will require huge investments in technology to continue producing at high rates.

Simmons argues that the kingdom's easily produced oil is almost gone and warned that only a massive effort to find new fields will keep Saudi Arabia from fading in importance as a crude exporter.

Source: The Canadian Press