The issue of energy security and energy independence is creeping up now for serious debate. Major stakeholders are looking it at minutely for it has wider ramifications and long-term implications. What the world was striving for — energy security or energy independence — needs to be sorted out. It cannot be kept lingering any further without serious consequences.
Aramco CEO Khalid A. Al-Falih, at a recent appearance at the Center for Strategic and International Studies in Washington, reignited this debate. In order to understand future scenarios, and plan accordingly, the CEO of the world’s largest and most integrated oil company, the virtual global gas station, needs a firm answer.
“We believe the US can increase its energy security by increasing its energy interdependence. That may seem like a contradiction, but the US already has diverse sources. I also believe it’s appropriate for the US to start developing alternative technologies now, but it needs to be prudent because conventional fuels still will be needed to meet growing demand,” said Al-Falih.
Despite sobering statements emanating from the major consuming capitals, Saudi Arabia has not deferred its investment options as of yet, but the policy could definitely be open for reconsideration. “Within the foreseeable future we’re not adjusting our investments based on any discussions in Washington. Other producing countries might, such as Canada with its oil sands. The US will also need to consider producing more of its domestic resources, although some of them are in parts of the country where oil is viewed as evil. That issue should be addressed because all of us here know that oil is not evil,” Al-Falih said.
In a bid to insure supply security, Riyadh is not only endeavoring to add new resources to its existing reserves base, it continues to test and apply new technology, too, to continue extracting more from existing resources.
While addressing delegates at the Offshore Technology Conference in Houston earlier this month, Aramco Senior Vice President for Exploration and Production Amin H. Nasser said Saudi Aramco was working to improve its oil recovery rate to 70 percent from 50 percent over the next 20 years by focusing on enhanced oil recovery techniques and other new technologies. This is an exciting development.
This would help Aramco expand its estimated reserves from 742 billion bbl to 900 billion bbl.
“In the most optimistic scenario, world oil demand is placed at 125 million bpd, and this would require 15-40 million bpd of additional capacity and compensation for declining fields,” he added.
The world has 4.7 trillion bbl of recoverable and potential recoverable bbl, or at least 150 years of production at present levels, Nasser estimated. However collaboration between service companies, academia, national oil companies, international oil companies, and technology providers was crucial in overcoming the technology hurdle to fully exploit the available oil resources, he emphasized.
Some of these resources have decreased significantly in size and are difficult to access due to remote locations and complex geology. Utilizing technology, Aramco has been particularly successful in its water cut. The Abqaiq Arab-D reservoir, which produces 300,000 bpd, has cut water by 35 percent. Oil recovery from the field is expected to increase to 70 percent without enhanced oil recovery techniques. Ghawar’s water cut is 28 percent and it produces 5 million bpd of oil.
“Horizontal wells and equalizers to reduce the pressure draw down helped with the water cut,” Nasser emphasized.
And this assurance from the custodians of the world’s largest reserve base comes at a time that the murmur of peak oil has arrived and is back in fashion. Marshall Adkins, analyst at Raymond James, thinks the peak was touched last summer. Indeed that was the time when crude was scaling new peaks, one after the other. He cites the behavior of Saudi Arabia then as evidence. In order to prove his point, James says that despite the calls to open the taps, Riyadh “failed to exceed 9.6 million bpd level. It was the same maximum output that Saudi Arabia touched in 2005. With massive economic and political incentive to pump as much as it could, the implication is: This is actually the limit of what Saudi Arabia can supply to the world market.”
James, however, misses out the point that the producers throughout the episode kept insisting the spikes were not at all due to lack of supplies but rather non-fundamentals, especially speculation, were to blame. Furthermore, it may not be out of place to point out at this juncture that Saudi output capacity is already about to touch the 12.5 million bpd point later this year. So indeed the Saudis can produce much more than James is describing as their ceiling.
The scare of peak oil is an old phenomenon, tormenting the human minds ever since the oil era began. In 1874, Pennsylvania’s state geologist fretted that the US had four years worth of supply left. In 1914, Washington claimed just 10 years of crude supply was left. In 1940, the US announced its reserves would be depleted in 15 years and in1977, US President Jimmy Carter said not enough oil would be available for imports in a decade.
But all these turned out to be false alarms. The global estimated oil reserves grew from 60 billion barrels in 1920 to 600 billion barrels in 1950 to two trillion barrels in 1990 to three trillion barrels by 2000.
It would be worthwhile to add that despite having not found any super giant wells since 1971, over 1.5 trillion barrels have been added to the global reserves. And during the same 35 years period, less than 800 billion barrels have been consumed.
It is said that oil is found in the minds of men. But for that the world needs a conducive environment.
With emphasis on energy independence, rather than security and interdependence, the question remains: Do we have this environment? A moot question indeed!
