Saudi Plan for Oil Production Unattainable

Yesterday,  President Bush and Saudi Prince Abdullah discussed high oil prices. Prince Abdullah promised nothing in the short term but had the following plan for the long term:

The officials said the Saudis used the meeting to detail for Mr. Bush the steps they intended to take to cushion the global market from future increases in demand from fast-growing economies like China and India, and from the United States and other industrial nations.

Saudi Arabia's plan, which it began discussing publicly weeks ago, calls for spending up to $50 billion to increase its maximum sustainable production capacity to 12.5 million barrels a day by 2009, and to 15 million in the subsequent decade, from about 10.8 million barrels now. The Saudis are currently pumping about 9.5 million barrels a day.

There is an Achilles heal to that plan. It is known as the Ghawar Oil Field. Last October, there was a meeting of the Society of Exploration Geophysicists conference in Denver. Petroleum Geologist, Glenn Morton, noted the following at the meeting:

The next night at one of the parties, I spoke to a person who was involved in the session (he will remain nameless as he is an old friend and a real bigwig at an important company).  I told him some of my ideas about the future of oil and Ghawar in particular. He said that this would explain something he had heard--that Saudi Arabia was desperately trying to hire western explorationists to explore Saudi Arabia for more fields. Why would they do this if they had all sorts of excess oil production capacity.

Speaking of Ghawar, I went to a talk on an attempt to collect 4D seismic over that field (4D is time-lapse 3d seismic. Two surveys are acquired in identical patterns after a period of time in which oil is produced from the field. we use it to monitor fluid flow).  At Ghawar, the world's largest field, they began water injection when the field was put on line back in the early 50s. I will draw the picture, eventually I will get it onto my web page, but I am tired tonight having just returned to Houston.  Below, I's are injectors, P's are producers and O is areas occupied by oil.  The initial injector well were just beyond the initial oil water contact of the Arab D reservoir. As the oil was extracted, a formerly producing well would be turned into an injector (a P would become an I), so you will see what it looks like today after lots of producers have been turned into I's. Water is injected into the carbonate reservoir in order to maintain reservoir pressure and allow the field to be produced at 5 million barrels per day. If the pressure were to drop, the production rate would fall quickly. Here is what I saw.

I..I...I...I....I....I....I........I..OPOOPO.I....I...I....I.....I......I.....I
I..I...I...I....I....I....I......I..OOOOOOOOOOO...I...I....I.....I......I.....I
I..I...I...I....I....I....I.....I..OOPOOOOOOOOOPOOI...I....I.....I......I.....I
I..I...I...I....I....I....I........OOPOOOOOOOOOPOOI...I....I.....I......I.....I
I..I...I...I....I....I....I.......OOPOOOOOOOOOPOO.I...I....I.....I......I.....I
I..I...I...I....I....I....I.......OOPOOOOOOOOOPOO.I...I....I.....I......I.....I
I..I...I...I....I....I....I.......OOPOOOOOOOOOPOO.I...I....I.....I......I.....I
I..I...I...I....I....I....I.......OOPOOOOOOOOOPOO.I...I....I.....I......I.....I
I..I...I...I....I....I....I........OOPOOOOOOOOOPOOI...I....I.....I......I.....I
I..I...I...I....I....I....I........OOPOOOOOOOOOPOOI...I....I.....I......I.....I
I..I...I...I....I....I....I........OOPOOOOOOOOOPOOI...I....I.....I......I.....I
I..I...I...I....I....I....I.......OOPOOOOOOOOOPOO.I...I....I.....I......I.....I
I..I...I...I....I....I....I.......OOPOOOOOOOOOPOO.I...I....I.....I......I.....I
I..I...I...I....I....I....I...........0OOOOOOOO...I...I....I.....I......I.....I
I..I...I...I....I....I....I........I..OPOOPO.I....I...I....I.....I......I.....I

Notice how little oil there is. Oil used to cover the entire area, 30 km across.This is approximately the right relationship of the old field size to the present field size in Uthmaniyah area of Ghawar.

That picture verified what I had been told privately by reservoir engineers who have worked Ghawar.  If anyone remembers my post on the reservoir engineering conference last March,  you will recall that I was told that reservoir simulation models had predicted that Ghawar would undergo a massive decline in production in 2008-2009.  But reservoir models always overestimate the amount of oil one gets.

Consider an oil field like a glass and a straw. When the glass empties it takes more pressure to get the liquid through the straw. Water is injected into the oil fields to keep the pressure up. You can tell if a field is getting long in the tooth by seeing how much water comes up with the oil. What about Ghawar? Last year the New York Times reported the following:

Saudi Arabia's reported proven reserves, more than 250 billion barrels, are one-fourth of the world's total. The most significant is Ghawar. Discovered in 1948, the 300-mile-long sliver near the

Persian Gulf is the world's largest oil field and accounts for more than half of the kingdom's production.

The company told The New York Times that its field production practices, including those at Ghawar, were "at optimum levels" and the risk of steep declines was negligible. But Mr. Price, the former vice president for exploration and production at Saudi Aramco, says that North Ghawar, the most valuable section of the field, was pushed too hard in the past.

"Instead of spreading the production to other fields or areas," Mr. Price said, the Saudis concentrated on North Ghawar. That "accelerated the depletion rate and the time to uncontrolled decline," or the point where the field's production drops dramatically, he said.

In Saudi Arabia, seawater is injected into the giant fields to help move the oil toward the top of the reservoir. But over time, the volume of water that is lifted along with the oil increases, and the volume of oil declines proportionally. Eventually, it becomes uneconomical to extract the oil. There is also a risk that the field can become unstable and collapse.

Ghawar is still far too productive to abandon. But because of increasing problems with managing the water, one Saudi oil executive said, "Ghawar is becoming very costly to maintain."

The average decline rate in Saudi Aramco's mature fields — Ghawar and a few others — "is in the range of 8 percent per year," without additional remediation, according to the company's statement. This means several hundred thousand barrels of daily oil production would have to be added every year just to make up for the diminished output.

Every oil field is unique, and experts cannot predict how long each might last. For its part, Saudi Aramco is counting on Ghawar for years to come.

The company projects that Ghawar will continue to produce more than half its oil. One internal company estimate from 2002 puts Ghawar's production at 5.25 million barrels a day in 2011, more than half the total expected crude oil capacity of 10.15 million, according to United States government officials and oil executives.

"The big risk in Saudi Arabia is that Ghawar's rate of decline increases to an alarming point," said Ali Morteza Samsam Bakhtiari, a senior official with the National Iranian Oil Company. "That will set bells ringing all over the oil world because Ghawar underpins Saudi output and Saudi undergirds worldwide production."

In short, not only won't Saudi Arabia help us out of our oil woes, they can't.