[Congressional Record Volume 151, Number 122 (Tuesday, September 27, 2005)]
[Senate]
[Pages S10508-S10509]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                            MIDDLE EAST OIL

  Mr. STEVENS. Mr. President, I ask unanimous consent to have printed 
in the Record a recent article from Petroleum News which is entitled 
``Saudi Oil Shock Ahead,'' in which Matthew R. Simmons discusses the 
relative importance today of oil and gas exploration in the Arctic 
National Wildlife Refuge and discusses the valuable role this area can 
play in our national energy policy.
  There being no objection, the material was ordered to be printed in 
the Record, as follows:

                 [From Petroleum News, Sept. 11, 2005]

Saudi Oil Shock Ahead--Simmons Pokes Holes in Image of Unlimited Middle 
                      East Oil; Prepare for Worst

                           (By Rose Ragsdale)

       As Congress turns to legislation that could open a new era 
     of Alaska Arctic oil production, one highly regarded energy 
     analyst says he's convinced the move is critical to the 
     success of a national energy strategy.
       Matthew R. Simmons, author of ``Twilight in the Desert: The 
     Coming Saudi Oil Shock and the World Economy,'' (John Wiley & 
     Sons Inc., 2005), says crude from the Arctic National 
     Wildlife Refuge's 1.5-million-acre coastal plain could play a 
     valuable role in the nation's energy policy.
       Simmons, an investment banker who holds an MBA from Harvard 
     University, is chairman and chief executive officer of 
     Houston-based Simmons & Co. International, which specializes 
     in the energy industry. He serves on the boards of Brown-
     Forman Corp. and The Atlantic Council of The United States. 
     He's also a member of the National Petroleum Council and The 
     Council of Foreign Relations.
       Simmons recently shared his views with Petroleum News on 
     Alaska's oil and gas industry. He has been busy promoting his 
     book with appearances on several talk shows, including a 
     recent radio interview with Jim Puplava, host of Financial 
     Sense Newshour. ``Twilight in the Desert'' hit the bookstores 
     in the spring and is generating considerable comment in 
     energy, economic and political circles.
       Simmons' book is the culmination of years of research, 
     including scrutiny of 200 technical papers, published by the 
     Society of Petroleum Engineers, on problems encountered by 
     professionals working in Saudi Arabia's oil fields. The 
     papers, combined with transcripts from little-noticed U.S. 
     Senate hearings in the 1970s and Simmons' discovery that 
     little actual public and verifiable data exists on Saudi oil 
     reserves, form the backbone of observations and conclusions 
     in the book.
       While most energy economists start with the assumption that 
     Middle East oil reserves are plentiful, Simmons questioned 
     that assumption after he found that no one had ever compiled 
     a verifiable list of the world's largest oil fields and the 
     reserves they hold.
       His questions first surfaced at a Washington, D.C., 
     workshop, conducted by CIA energy analysts, where top energy 
     experts gathered several years ago.
       ``We'd spend a day doing a discussion of all the key 
     countries, and how much oil capacity they had in place over 
     the course of the corning three years,'' Simmons recalled. 
     ``And I basically said, 'How do you all even know that? What 
     are the three or four top fields in China?' And no one had 
     any answers.
       ``So I decided it would be interesting and educational to 
     see if you could actually put together a list of the top 20 
     oil fields by name,'' he added.
       That exercise revealed that Saudi Arabia, like most of the 
     other Middle East countries, extracted 90 percent of its oil 
     production from five huge fields, and the biggest of the 
     fields, Ghawar, had been producing oil for more than 50 
     years.
       ``What I also found is that the top 14 fields that still 
     produce over 500,000 barrels per day each, were 20 percent of 
     the world's oil supply, and on average they were 53 years 
     old,'' he observed.
       Historically, oil field discoveries fit a pattern that 
     Simmons likens to the nobility of a European country or the 
     pieces on a chessboard. In each of the world's great oil 
     basins, explorers have found a large field first, most often 
     the ``queen'' field but sometimes the ``king.'' Next 
     explorers typically find another large field, usually the 
     other half of the royal pair. After that, oil basins 
     typically yield several moderate-sized fields, or ``lords.'' 
     Beyond that, only small pools of crude reserves or 
     ``peasants'' typically remain, he said.
       In ``Twilight in the Desert,'' Simmons not only documents 
     the history of Saudi Arabia and its oil fields, he also 
     questions the Middle East country's claims that it still has

[[Page S10509]]

     plentiful oil reserves. He notes that Ghawar is the ``king'' 
     field and is flanked by a score of lesser fields, ranging 
     from ``queen'' size in Abqaiq to much smaller pools.
       Simmons also suggests that Saudi production is very near 
     its peak. But the feedback he has received from technical 
     people who have read the book, leads him now to believe that 
     Saudi Arabia has ``actually exceeded sustainable peak 
     production already.''
       ``And I think at the current rates they are producing these 
     old fields, each of the fields risks entering into a rapid 
     production collapse,'' he said.
       Simmons said energy economists are reluctant to even 
     entertain the notion that Saudi oil output is past its peak 
     because they really don't understand the difference between 
     oil supply peaking and running out of oil.
       ``I continue to remind people that the difference is as 
     profound as someone saying, `I'm getting a little bit 
     hungry,' and someone saying, `I have about two more minutes 
     to live before I starve to death,''' Simmons said. ``. . . We 
     will never run out of oil, in our lifetime, our children's 
     lifetime, our grandchildren's lifetime. But by 2030 we could 
     easily have a world that can only produce 10 or 15 or 20 
     million barrels per day, and the shortfall from what we 
     thought we were going to produce is only a modest 100 million 
     barrels per day. So this is really a major, major, major 
     global issue.''
       Compounding the problem is that every energy supply model 
     used by economists today starts with the assumption that 
     Saudi oil is plentiful, Simmons said. ``What's interesting is 
     that we've based all of this assumption on no data,'' he 
     explained.
       Meanwhile, as the world's thirst for oil grows, Saudi 
     Arabia and other oil-producing countries will be unable to 
     keep pace. Some analysts say Saudi Arabia is capable of 
     producing 20 million to 25 million bpd, but Simmons says that 
     level of production is ``impossible.''
       ``And I also believe that--Ghawar, for instance, which is 
     really the whole nine yards, because that is 60 percent of 
     their production--that North Ghawar, which is the top 20 
     percent of the field, has a productivity index that is about 
     25 times the productivity index of the rest of Ghawar, and 
     that's the area that is almost depleted now,'' Simmons 
     observed. ``And when that drops, you could basically see 
     Ghawar go from 5 million down to 2 million bpd in a very 
     short period of time.''
       Until now, Simmons said the United States has been lucky 
     because Saudi oil production was 3 million bpd when U.S. oil 
     production peaked in 1971. Saudi output soared and today 
     ranges from 9 million bpd to 11 million bpd.
       Elsewhere, explorers discovered the last three great 
     provinces of brand new oil in the last three years of the 
     1960s--Prudhoe Bay in Alaska in 1967-68; Siberian oil fields 
     in the same period of time; and oil in the North Sea in 1969.
       ``And Siberia, Alaska, and North Sea oil, effectively 
     combined to produce: the North Sea peaked in 1999 at a little 
     over 6 million bpd, it's already down 25 percent; Alaska oil 
     peaked in the 1990s at 2 million bpd; it's now at about 
     900,000 bpd; and Siberia oil peaked at about 9 million bpd; 
     and it's about 5 million bpd,'' Simmons said. ``And we 
     haven't basically found another province since the late 
     `60s.''
       To meet growing demand from existing customers as well as a 
     new surge in demand from emerging countries such as China and 
     India, Simmons said producers have continued to pull more and 
     more oil out of the North Sea. ``And then we found deep water 
     which was a fabulous last shot from the basins (in which) we 
     already had shallow water production. And we took the Middle 
     East oil back up to unsustainably high levels of 
     production,'' he said. ``So probably, we're sweeping the 
     cupboard bare. People looked at the way we were able to do 
     this and thought, `Wow! This is actually easy,' without 
     realizing what we were actually doing was totally non-
     sustainable.''
       America needs more oil sources and Alaska is a good place 
     to look, Simmons said. As for ANWR, he said it's ludicrous 
     for people, whether geologists or environmentalists, to make 
     definitive statements about the quantity of oil reserves in 
     the refuge.
       ``Drilling on the (North) Slope has been tricky. Otherwise, 
     it would not have been so hard to find the 'king,' Prudhoe 
     Bay, or we would never have drilled Mukluk,'' he said. ``So 
     we shall never know whether ANWR is a series of dry holes or 
     where the missing `queen' of the slope lies until an intense 
     drilling is done. A few dry holes does not mean much 
     either.''
       The environmental community's claim that ANWR contains only 
     a six months supply' of oil is a calculation that assumes the 
     nation has no other source of oil when ANWR oil comes on 
     line, Simmons said.
       ``On that standard, we end any new energy development, 
     period,'' Simmons said. ``What is very important about the 
     urgent need to find more oil at ANWR, the Naval Reserve or 
     somewhere else on the slope is the inevitable decline of 
     North Slope oil, and the fast decline that will happen if a 
     gas pipeline is built and the gas caps (are) blown down.''
       Moreover, it would not take 10 years to get a big oil find 
     in ANWR into production since the infrastructure is in place, 
     Simmons observed.
       ``At some point, the oil that flows through the 2 million 
     bpd pipeline must fall to a level insufficient to get oil 
     over the Brooks Range other than by shutting in for part of a 
     month so the oil can be batched,'' he explained. ``If all 
     ANWR does is extend the life of the pipeline, it has filled a 
     very valuable role.
       ``If a `lord' is found, let alone a `queen,' it is a home 
     run,'' he added.
       As for the rest of Alaska, Simmons said he has no idea 
     whether the state contains other large pools of oil. ``The 
     only way oil is ever found (and gas, too) is to 
     drill wells,'' he said.
       Though the world needs more oil sources, Simmons does not 
     see additional reserves curbing prices in the long term.
       While others lament the high price of oil, the investment 
     banker says crude oil at current prices of 18-20 cents a pint 
     is ``cheap.''
       ``Obviously it's cheap. I don't know what's the next 
     cheapest liquid we actually sell in any bulk is, that has any 
     value. I suspect there are places around the United States 
     where municipal water costs more than 18 cents a pint,'' he 
     observed. ``And yet for some reason, we created a society 
     built on a belief that oil prices in a normal range were some 
     place in the $15-20 level. It turns out $15 per barrel, which 
     is the average price of oil--in 2004 dollars--it sold for, 
     for the last 140 years, is less than 4 cents a pint. So we've 
     basically used up the vast majority of the world's high flow 
     rate, high quality sweet oil at prices that were effectively 
     so cheap, you basically couldn't sustain an industry. And now 
     we're left with lots of oil. But it's heavy, gunky, dirty, 
     sour, contaminated-with-various-things oil. It doesn't come 
     out of the ground very fast, is very energy intensive to get 
     out of the ground, and we're going to pay a fortune for it.''
       Simmons predicted we would encounter problems with oil 
     supplies this year, nearly a month before Hurricane Katrina 
     struck the Gulf Coast.
       He said we must operate the nation's refineries at 100 
     percent, or we have major product shocks, and we have to 
     import oil at a rate of 10 million to 11 million bpd, or we 
     lose crude oil stocks. We have to basically create almost 3 
     million bpd of finished product imports and we have to run 
     the system 24/7, all summer long, and we still liquidate 
     stocks, he said.
       ``So we have actually now created a pending domestic 
     embargo, and we're going to be lucky to get through the 
     summer without some periodic shortages,'' he told Financial 
     Sense Newshour the week of Aug. 6. ``We probably will, but 
     the odds are probably as high we will have some shortages, 
     and then if we get through the summer we have a fabulous 
     respite from Labor Day to Thanksgiving, until we hunker to 
     try to figure out how the world gets through the Winter of 
     2005 and 2006 because oil demand globally could easily go to 
     86-88 million bpd during the winter, and that could easily 
     exceed supply by 2 million to 5 million bpd.''
       In a worst case scenario, Simmons said oil prices could 
     easily soar past $100 a barrel without slowing down.
       Such high prices would simply be a sticker shock, not an 
     end to driving, he said. ``At $3.20 a gallon, gasoline costs 
     20 cents a cup. A cup of gasoline can take a full car of 
     people about 1\1/2\ miles. If you think this is expensive, 
     try and hire a rickshaw or a horse-drawn wagon and pay only 
     20 cents to go a mile and half. After haggling price for an 
     hour or so, you pay about $5 to $6 for the ride and thank the 
     person for not making you walk.''
       To cope with the coming oil shock and much higher oil 
     prices, Simmons told Financial Sense Newshour, the world, led 
     by the United States, will have to become drastically energy 
     efficient virtually overnight. A series of changes, including 
     transporting all goods that currently travel by truck, by 
     rail or water, could cut oil consumption 20-40 percent, he 
     said.
       ``So by getting trucks off our highway system we have a 
     major impact on removing traffic congestion. And traffic 
     congestion is public enemy number 1 through 5 on passenger 
     car fuel efficiency. So it's a real win, win, win,'' he 
     observed.
       He also suggested returning to a system of growing most 
     foods close to where they will be consumed and using 
     technology to allow people to work at home or in their 
     village rather than requiring them to commute to a central 
     location.
       Simmons also advocates jumpstarting the largest energy R&D 
     program ever envisioned, and ``just pray that over 5-7 years 
     it has the same impact as when people got serious about 
     developing radar, and developing nuclear power, so that we 
     could actually win World War II.''
       ``But if we don't do these things, then this really ends up 
     being a very dark world--no pun intended,'' he added.

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