In his recently published book "Twilight in the Desert: The Coming Saudi Oil Shock and the World Economy," author Matthew Simmons argues that Saudi Arabia will in coming decades be unable to maintain its current level of oil production, with large-economic repercussions. Simmons also examines the political and social climate of the nation and its desire to conceal the potential shortfalls from global consumers.
Matthew Simmons , an oil industry analyst and CEO of Simmons & Company International, was online Thursday, August 4, at 3 p.m. ET to discuss Saudi oil supplies.
The transcript follows.
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Ottawa, Canada: There have recently been large oil discoveries in China's Bohai Bay. How do you see this affecting the oil supply situation over the next decade?
Matthew Simmons: The Bohai Bay is probably a very productive area but you're talking about fields that have production profiles of 50-100,000 barrels a day each and they're apparently not very long life reserves. So you'd have to have scores of them to replace the giant fields of Saudi Arabia.
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Suwanee, Ga.: Some analysts think the world will reach its Hubbert's Peak in the next year. What is your opinion of when this will occur?
Matthew Simmons: The biggest worry I have as a result of doing the research on Saudi Arabia's oil is that there is a real risk that they have already exceeded sustainable peak oil production and the longer the produce at current risk [ I think that should read "the longer they produce at current rates" / Bill ] the higher the risk that they could start into a production collapse. If that turns out to be true than the odds are 95% that the world has then exceeded sustained peak oil production. What the people that get into the peak oil debate often don't think about is that peak oil is not the maximum amount of oil you could produce in a single day, it's realistically the amount you could produce per day for at least a half decade. Therefore it could already be happening. And we'll never know that until we get better data.
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Saint John, Canada: Given that there is a well understood technology for synthesizing other fossil fuels into oil (mostly coal) do you believe it will be possible to offset the production declines from conventional oil wells by increased coal liquefaction? How environmentally destructive is that process?
Matthew Simmons: I don't understand the environmental impact of coal gasification. Almost every single aspect of using unconventional oil, whether it's coal or Canadian tar sands or oil shales are all incredibly energy intensive, so they use a lot of energy to convert them into usable energy, and they don't come out of the ground at high amounts. So it becomes a daunting task to begin offsetting oil coming out of a highly pressurized oil field, which can come out at a rate of 5-10,000 barrels per day per well with unconventional oil sources, which are energy intensive and come out in small amounts.
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Mount Shasta, Calif.: Of all the sources of world oil/gas reserve estimates, which do you deem most accurate?
Thank you very much for authoring your book and making yourself available to answer questions today on washingtonpost.com.
Matthew Simmons: The most accurate are the small companies who have chosen to have their reserves audited by an independent third party. The smaller the company the more necessary it is to do that because it becomes your borrowing base, and your banks insist on it. It's like a company saying they don't need an audit. The bigger the reserve base the more likely it is that there was no third party assessment and the greater the odds that the estimates could be wrong. Thank you for the compliment.
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Philadelphia, Pa.: It seems to me that many of the potential energy policies that could improve national security would also help address the problem of global warming. Can you comment on this overlap?
Matthew Simmons: I think ironically if oil is approaching its peak then the worst fears about global warming aren't realized, because we can't produce the increased amount of oil that gives rise to the worry. Secondly, in the areas of the world that have experienced peak oil, they have in almost every case quickly gone into production declines which further lessens the global warming risk to the extent that global warming is created by fossil fuels.
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Melbourne, Australia: Have you had any feedback or response to your book from Saudi oil industry insiders?
Matthew Simmons: I've had a lot of interesting feedback from retirees. So far I haven't had any feedback from anybody that's currently within Saudi ARAMCO. I gather by what third party sources say is that there is an edict within Saudi ARAMCO to never again mention my book. They've had their say, they totally disagree with my book, and that's that-the issue's closed.
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Seattle, Wash.: Hello Mr. Simmons,
How would you respond to the Cambridge Energy Research Associate's analysis, as described in a recent Washington Post article "It's Not the End of the Oil Age" by Daniel Yergin, which paints a less urgent picture?
It's Not the End Of the Oil Age.
Thanks,
Kathy
Seattle, Wash
Matthew Simmons: I'm one of three co-authors of an op-ed piece that we have just submitted to The Washington Post that hopefully will get published. What the three of us collectively feel is that it is a very unrealistic assessment, it is not a detailed, bottom up field by field, they ignore by and large depletion issues, and it's based on an enormous belief that technology and enthusiasm and urgency will create new oil supplies. That is precisely the same logic that CERA used very loudly in 2001 and 2002 to dispute the critics views that natural gas in North America was running into trouble. And it took less than 24 months after they had dismissed any problems in natural gas before they made a discovery that we had a natural gas crisis. I think what they're doing being as casual on future oil supplies, let alone predicting we're headed toward another oil glut, is doing the world a great disservice.
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London, U.K.: Mr. Simmons.
In your book you claim that Saudi Arabian oil production has peaked or is on the verge of peaking. However the Saudi authorities claim that they will be able to increase daily production to more than 12 million barrels per day in the near future.
If what you are saying is true then why would the Saudis claim that they can increase production?
Matthew Simmons: I suspect that they actually believe they can, and I would point to the unfortunate experience of almost all our major oil companies in the U.S. and England who five years ago were just as confident they could grow their production over the next decade by 5-7% per annum. And all of this turned out to be unjustified optimism. Today most of the major oil companies are witnessing production declines. It turns out that estimating future oil production is just as difficult as measuring future earnings per share. It's an art vs. a science and it's very easy to get fooled, especially when you're dealing with old oil fields.
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Laurel, Md.: How significantly will the new Caspian Sea oil pipeline effect world supplies?
Are any other important delivery systems in the works to increase economically feasible supplies?
Matthew Simmons: The Caspian Oil system is one of the largest new oil pipelines built in two or three decades. But what's interesting is that it's being built on the assumption that two or three major Caspian oil projects that will take the next 5-7 years to create and then the further 5-7 years to reach peak production will actually work. And if they do work it adds less than 2 million barrels a day to the world oil market by 2016.
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Wheaton, Md.: Are you predicting a world oil shortage? Don't you think newly discovered oil in central Africa and the former Soviet states will compensate for the loss of oil from Arab-occupied lands?
Matthew Simmons: The oil coming out of West Africa and Central Africa is not likely to significantly increase the oil supply of Africa because of the declines taking place in the existing base. The oil coming out of Russia is now apparently starting back into decline because they haven't really come up with any significant new discoveries. So it's hard to find an area that could come on fast enough to ever start to mitigate a decline in Middle East oil.
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Detroit, Mich.: In the short run, which country do you expect can best make up any shortfall of oil production by Saudi Arabia?
Matthew Simmons: If things really went well, Libya. Libya's new opening up could potentially add 2-3 million barrels a day, but it would take at least 5-10 years for that to happen. Algeria could add possibly a million barrels, with everything going right. Some think the UAE could maybe had 500,000 barrels a day, some say Kuwait could add 500,000. But these are all best case scenario estimates and they all assume that the current production bases in each of these countries stays flat.
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London, Ontario: I have read recently that now King Abdullah will have a bit of a time reining in members of the extended family who want to pursue a policy of protecting their oil reserves and getting the best price the market will bear. He was somewhat insulated from this sort of criticism while he was the power behind the thrown, but it appears that his policy of supplying as much oil as possible may be under attack from factions looking out for Saudi interests. Could this spell the end of $60/barrel oil? Will we look back at this as the "golden age" of cheap energy?
Matthew Simmons: I think it will be very interesting to see what changes if any come from the fact that King Abdullah is now king vs. de facto king. It wouldn't surprise me if even King Abdullah led a new era of taking more seriously cutting back on their production so that they can ensure that it lasts for a long period of time, and that policy would not be driven by greed or anger toward the west but simply a husbanding of their only resource to make sure they don't risk a production collapse. And from where those pressures arise is unclear, but once people spend time reading the detail that they could have read if they had just gathered the papers written by all their own technical people because that's the logical conclusion all these cumulative technical papers leads to--production conservation as the only solid insurance policy to protect against a pending production collapse. There's nothing that worse Saudi Arabia could accidentally do to
harm the west than accidentally create a production collapse in their oil flows.
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