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Saudi 's Oil Fields on Viagra?

Friday, 20 Jun 2008 | 9:53 AM ET

Saudi Arabia has long been the world’s preeminent oil producer and the kingdom’s royal rulers want to keep it that way.

But there is another possible narrative to the kingdom’s likely future – and ours too - which is far less comforting.

Rather than a petroleum stud with enough hydrocarbon juice to carry the world gradually into some kind of greener, post-petroleum energy era, Saudi Arabia may be far closer to running dry than we realize, because of years of overexploitation.

The Saudi’s current production is “really equivalent to is putting an elderly man on steroids and entering him in a marathon,” says Matthew Simmons, an energy investment banker, better known for his book on peak oil, Twilight in the Desert: The Coming Saudi Oil Shock and the World Economy.

Even when they only produce half or a third of their peak levels Saudi Arabia’s giant fields (most discovered decades ago) still out-produce just about all rivals.

But that’s achieved through massive injection of seawater into fields to pressure oil to the surface. The problem, says Simmons, is “what that really does is primary, secondary and tertiary recovery all at the same time…[and now]…the sweep is almost done.”

“When they go [out of service] they are going to go out in a whimper.” That seems to be exactly what happened in Mexico with the giant Cantarell oil field.

Alarmed by declining production PEMEX, the state oil company, repressurized the field (consider it Viagra for oil fields), and was able to quickly bring production back to 2 million bpd. But soon afterwards the field was in steep collapse. “All the way up there was a general sense that basically they had licked old age,” notes Simmons.

More modest production can be sustained for many, many years. There have been periodic rumors about some Saudi fields having already gone bust.

But actual Saudi production levels are state secrets, or as Simmons says officials are “as silent as the Mafia.” But there is precious little transparency anywhere in the region. Reserves for all OPEC countries are believed to be overstated because they are the basis for determining each cartel member’s export quota.

Considering how much the global economy depends on Saudi’s oil (the US sources 14 percent of its oil from the kingdom) this is a shaky (or sandy) foundation to depend on.

For that reason, Simmons suggests one of the most important results that could come from this weekend’s meeting in Jeddah is to get a commitment from their hosts to provide reliable production and reserve information – as are required by investor-owned oil companies.

The Wahhabist royals may prefer to keep their cards under their thobes, all the more reason for the rest of us to be clear-eyed about the risk of such obscurantism in such a vital commodity.

That applies to plans to open up ‘new’ fields, such as the $11 billion Khurais project to be online next June. It’s basically the last of the best fields but it’s not exactly new, and the reason it was not produced before is the formidable technical challenges it poses.

Now the Saudi’s think they have a solution: a 980-kilometer long pipeline to carry seawater to create an artificial aquifer with which to provide the necessary pressure. Simmons says this is “rolling the dice” because misplaced wells could “bury the field with brine.” After Khurais, there is just one more major project: the $9 billion Manifa heavy oil offshore field.

“After that the King has said very prominently that they will leave the rest of the oil in the ground for their grandchildren,” says Simmons approvingly.

But by then there may be paltry little left for Saudi’s next generation – or for any of the world’s grandchildren.

Questions? Comments? energysource@cnbc.com