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Here's a troubling scenario. Peak oil is true, it has already started, and the world's swing producer of crude is struggling to keep its place at the top of the heap.
To be sure, no one is saying it, at least not in those words. But the fact is that as more data is uncovered, the scenario is increasingly plausible and is clearly beyond the scope of what most people in the mainstream are even factoring into their own daily equation.
Yet, according to the Wall Street Journal, the Saudis are indeed having trouble finding new monster fields, and their production capacity may have flattened out, similar to what's happened in Russia recently.
The Journal reports the following: "The Khurais complex, sprawling across a swath of red dunes and rocky plains half the size of Connecticut, is expected to add 1.2 million barrels a day to an oil market caught between growing demand and a paucity of significant new discoveries." Indeed, even though this big field is going online next year, the work required to bring it on has been incredibly intense as 'Saudi Arabian Oil Co., known as Aramco, has embarked on the most complex earth- and water-moving project in its history. It is spending up to $15 billion on a vast network of pipes, oil-treatment facilities, deep horizontal wells and water-injection systems that it calls "one of the largest industrial projects being executed in the world today."'
In other words, as we've noted a myriad times, here and elsewhere, the easy oil is gone, and as conventional sources such as Mexico's Cantorral field dry up, and the Canadian tar sands will be eventually depleted, easy, friendly sources of oil for the U.S. will be looked upon as historical facts, and wistful memories.
According to the Journal, Khurais is probably the next to last big field for the Saudis. That means that "after Khurais, Saudi Arabia will have only one known mega-field left to fully develop, the even more challenging Manifa field, offshore in the Persian Gulf." Beyond that "Much of the kingdom's reserves beyond these lie either in aging fields or smaller pockets."
And if we are to believe what Mathew Simmons wrote in "Twilight in the Desert" these other fields are not likely to be producing all that well given their poor maintenance and lower than accounted for reserves.
Add the following to the equation. Saudi King Abdullah recently told a group that the Saudis still have vast reserves and that he has instructed his officials to leave them untapped, so that future generations of Saudis have something to fall back on.
Nigeria, aside from the usual rebel activity, has recently been reported to have poor maintenance on its fields, leading to lower yields.
Venezuela is well documented to have thousands of wells, that could produce oil, that are laying dormant due to ill maintenance and poor overall management of its reserves.
Mexico's biggest field, Cantorral, even by Mexico's own accounts has less than a decade of significant production, if that much left.
Brazil's government, after much ado about its recent offshore find, has recently warned investors that it may not be as big a find as expected.
And Russia's oil production has recently been reported as flattening out.
Ethanol has been a bust, as the U.S. has little infrastructure to support it as a fuel, and due to the fact, that as some predicted, corn based ethanol is expensive to produce and has indeed led to rising food costs, around the world, including by some reports even in Japan, the world's second largest economy.
And solar and wind power, although fairly decent alternative sources for producing electricity, are still not as reliable as fossil fuels.
Now, we return to Khurais, the field that is turning out to be the make or break spot in the desert. It's history is one filled with mixed promise, as it has had one or two periods of activity in the past, but has been shut down by the Saudis, due to a lack of ability to meet expectations.
According to the Journal, Khurais has problems with its geological characteristics, as it has low natural gas pressure, a factor that makes it harder to get the oil out of the ground. It's location is far from a big enough water source to allow water injection into the ground in order to extract the oil.
Perhaps the most difficult part of the whole project is the amount of work that has been required to even come close to get the field near production, with the Saudis having spent $6 billion and having hired, Halliburton, Foster Wheeler, Eni, and others to do the work required.
Which means that the Saudis have to get this right, from the start, something that has not happened often lately. According to the Journal: "Aramco has suffered lately from soaring costs and increasing project delays. Through most of the 1990s, it cost Aramco around $4,000 to add one barrel of daily production capacity. A huge project called Shaybah, finished in 1997, required Aramco to run roads and pipelines deep into the country's forbidding Empty Quarter and cost around $2 billion. For that, Aramco got 500,000 barrels a day in oil-production capacity."
Conclusion
We are indeed living in interesting times. Food riots, militias in the streets, and governments pursuing policies beyond the expected norms of self interest.
At the center of much of the situation around the world, is as usual, the division of resources. In the current situation, the world is clearly running out of oil.
More specifically, it's getting more difficult to find it, process it, trasnport it, and refine it.
At each step along the way is the hand of humanity, with politics, self interest, and prejudice leading to bad analysis, bad policy, and even more bd implementation of any hints of good policy that has made its way into the equation.
In other words, much of what's happening now is self inflicted, not by anyone in particular, but more as a collective self-screw job.
And anyone who's seen any self-respecting low budget sci-fi flick knows how this whole thing could turn out. As they used to say on Hill Street Blues: "Let's be careful out there."
So is this the end of civilization? Probably not, but it is highly suggestive that gasoline prices aren't going below $3 per gallon and staying there for any significant amount of time in the foreseeable future.
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