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February 24, 2004
Forecast of Rising Oil Demand Challenges Tired Saudi Fields
By JEFF GERTH

When visitors tour the headquarters of Saudi Arabia's oil empire ? a sleek glass building rising from the desert in Dhahran near the Persian Gulf ? they are reminded of its mission in a film projected on a giant screen. "We supply what the world demands every day," it declares.

For decades, that has largely been true. Ever since its rich reserves were discovered more than a half-century ago, Saudi Arabia has pumped the oil needed to keep pace with rising needs, becoming the mainstay of the global energy markets.

But the country's oil fields now are in decline, prompting industry and government officials to raise serious questions about whether the kingdom will be able to satisfy the world's thirst for oil in coming years.

Energy forecasts call for Saudi Arabia to almost double its output in the next decade and after. Oil executives and government officials in the United States and Saudi Arabia, however, say capacity will probably stall near current levels, potentially creating a significant gap in the global energy supply.

Outsiders have not had access to detailed production data from Saudi Aramco, the state-owned oil company, for more than 20 years. But interviews in recent months with experts on Saudi oil fields provided a rare look inside the business and suggested looming problems.

An internal Saudi Aramco plan, the experts said, estimates total production capacity in 2011 at 10.15 million barrels a day, about the current capacity. But to meet expected world demand, the United States Department of Energy's research arm says Saudi Arabia will need to produce 13.6 million barrels a day by 2010 and 19.5 million barrels a day by 2020.

"In the past, the world has counted on Saudi Arabia," one senior Saudi oil executive said. "Now I don't see how long it can be maintained."

Saudi Arabia, the leading exporter for three decades, is not running out of oil. Industry officials are finding, however, that it is becoming more difficult or expensive to extract it. Today, the country produces about eight million barrels a day, roughly one-tenth of the world's needs. It is the top foreign supplier to the United States, the world's leading energy consumer.

Fears of a future energy gap could, of course, turn out to be unfounded. Predictions of oil market behavior have often proved wrong.

But if Saudi production falls short, industry experts say the consequences could be significant. Other large producers, like Russia and Iraq, do not have Saudi Aramco's huge reserves or excess oil capacity to export, and promising new fields elsewhere are not expected to deliver enough oil to make up the difference.

As a result, supplies could tighten and oil prices could increase. The global economy could feel the ripples; previous spikes in oil prices have helped cause recessions, though high oil prices in the last year or so have not slowed strong growth.

Saudi Aramco says its dominance in world oil markets will grow because, "if required," it can expand its capacity to 12 million barrels a day or more by "making necessary investments," according to written responses to questions submitted by The New York Times.

But some experts are skeptical. Edward O. Price Jr., a former top Saudi Aramco and Chevron executive and a leading United States government adviser, says he believes that Saudi Arabia can pump up to 12 million barrels a day "for a few years." But "the world should not expect more from the Saudis," he said. He expects global oil markets to be in short supply by 2015.

Fatih Birol, the chief economist for the International Energy Agency, said the Saudis would not be able to increase production enough for future needs without large-scale foreign investment.

The I.E.A., an independent agency founded by energy-consuming nations, and Washington see investment in energy exploration and field maintenance as vital, but such proposals face strong opposition inside Saudi Arabia. Tensions with the West, particularly the United States, make such investment politically difficult for Saudi society. For example, an effort by Crown Prince Abdullah, the kingdom's de facto ruler, to encourage Western companies to invest $25 billion in his country's natural gas industry essentially collapsed last year.

"Access to Persian Gulf oil reserves, especially Saudi Arabia's, is the key question for the whole world," Dr. Birol said.

President Bush has said he wants to make the United States less reliant on oil-producing countries that "don't like America" by diversifying suppliers and financing research into hydrogen fuel cells, but achieving that remains far off.

His administration backs foreign investment initiatives in the gulf region, including Saudi Arabia, and his energy policies rely on Energy Department projections showing the world even more dependent on Arabian oil in 20 years. That may be enough time for governments to find alternatives, but oil field development requires years of planning and work.

Publicly, Saudi oil executives express optimism about the future of their industry. Some economists are equally optimistic that if oil prices rise high enough, advanced recovery techniques will be applied, averting supply problems.

But privately, some Saudi oil officials are less sanguine.

"We don't see us as the ones making sure the oil is there for the rest of the world," one senior executive said in an interview. A Saudi Aramco official cautioned that even the attempt to get up to 12 million barrels a day would "wreak havoc within a decade," by causing damage to the oil fields.

In an unusual public statement, Sadad al-Husseini, Saudi Aramco's second-ranking executive and its leading geologist, warned at an oil conference in Jakarta in 2002 that global "natural declines in existing capacity are real and must be replaced."

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A great, thought-provoking link, Ming.

With Lutz's "Hybrid engines don't make sense," story, coupled with GM's resolution to continue to strive toward a marketable hydrogen fuel-cell vehicle, I was beginning to question.

As it sits: is a hydrogen fuel cell the best course of action? Is E-85 America's mid-to-long term solution, or is Ford's idea of a hydrogen internal-combustion engine a better route?

Ghrank
 

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When the earth's oil supplies get to the halfway-used point - in other words, when we've used half of the reserves of oil on the planet - the price of oil will go up.

In inflation-adjusted terms, the price of oil has generally decreased over the last century. Even though the price of a gas is more expensive now then it was thirty years ago, adjusted for inflation, the price has actually decreased over time.

Part of this has rested on improved abilities to find and extract oil from new sources. But, eventually, there won't be new oil (and especially new inexpensive oil) to find. At that point, the price will do nothing but increase.

Experts disagree on when this point will be reaches. Some argue we are already there. Others look to a 2010 - 2015 timeframe. Others argue this halfway point is farther out in the 2030 - 2050 timeframe. But all seem to agree it will happen in this generation.

See http://hubbertpeak.com/summary.htm for an overview.

Since our whole economy is based on oil, that will have a devestating effect on the cost of living. It will become paramount to find alternative, abundant and inexpensive energy sources. While hydrogen is plentiful, keep in mind that hydrogen doesn't generatlly exisit in a pure state - it's usually bonded to something else. Extracting the hydrogen costs energy -- for that reason hydrogen is better thought of as a storage and transportation medium than an energy source.

But, hydrogen is very useful as a kind of "common fuel" - a way of converting energy from many sources (solar, wind, natural gas, whatever) into a common fuel for the economy. The question is - can we perfect these techologies and systems quickly enough to convert an entire industrial economy in the timeframe required?
 
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