The world’s most essential oil field may be in decline.
by James D. Hamilton, The Atlantic
Running Dry
No country is more important to oil markets than Saudi Arabia. The kingdom produced roughly 9.2 million barrels of crude a day in 2006, and accounted for 19 percent of world oil exports. Many analysts expect it to supply a quarter of the world’s added production over the next few years. And as the only producer with significant excess capacity, it has played a crucial role in alleviating temporary supply disruptions, increasing daily production by 3.1 million barrels during the first Gulf War, for example, when oil production in Iraq and Kuwait dropped by 5.3 million barrels.
The Ghawar oil field is the kingdom’s crown jewel. Stretching for more than 150 miles beneath the desert, it is the largest known deposit in the world. It produces perhaps twice as much oil as any other field, and has doubtless accounted for more than half of Saudi Arabia’s oil production. Yet the Saudis have been removing oil from this reservoir for half a century. Sooner or later, its production must fall.
The Saudis do not release data on how much oil they are extracting from individual wells, or on the remaining reserves of individual oil fields. But the total amount that the kingdom produces has been declining, down a million barrels a day over the last two years of data.
The Saudis have claimed these cuts have been in response to weak demand. However, the big drop in production began in the spring of 2006, when the price of oil was rising from $60 to $74 a barrel; the claim that no one wanted to buy Saudi Arabia’s light crude strains credulity. The drop in production has also coincided with a huge new Saudi effort to find and pump more oil: The number of active oil rigs in Saudi Arabia has tripled over the past three years.
Frustrated by the lack of hard data on Ghawar, Stuart Staniford, a computer scientist with a doctorate in physics, has conducted a painstaking study of publicly available information. His research has been reported at theoildrum.com, a Web site that analyzes energy markets.
The Saudis have developed Ghawar by using peripheral water injection- water is pumped into the reservoir, driving the remaining oil to the surface. More details about Saudi production were available before 1980, allowing Staniford to infer that the depth of the remaining oil column in northern Ghawar at that time was about 500 feet. Evidence from many sources suggests that the water level has been rising at about 18.4 feet per year. If you extrapolate that trend, this would mean that the northern part of Ghawar is by now quite depleted.
Staniford has also built a detailed computer simulation of the Ghawar reser