Khurais joins Saudi giants

Tom Ashby

• Last Updated: June 26. 2008 12:49AM UAE / June 25. 2008 8:49PM GMT

Black gold: oil is rising in value at an astonishing rate but Saudi has so much in reserve that it need not fear price increases. Marwan Naamani / AFP

If you want proof that the planet’s oil reserves are nowhere near exhaustion, there are few better places to look than Khurais, a stretch of Arabian wilderness somewhere between Riyadh and Dammam.

Outsiders do not get to see places like this much these days because Western multinationals have been barred access to Saudi oil since 1988, when the monopoly operator, Saudi Aramco, went fully into government hands.

Saudi Arabia has about a quarter of the planet’s proven oil reserves and acts as the kingpin of the world’s petroleum economy, supplying one in every 10 barrels sold and holding almost all the spare capacity.

So when it develops a new chunk of reserves, particularly at a time of record high prices, the oil kingdom adds confidence to the global economy.

The maze of steel pipes and towers at the Khurais development were due to start pumping crude oil from next June, adding another 10 per cent to current capacity of 11 million barrels per day, Aramco officials said on a tour of the facility this week.

The company took a group of journalists to the site a day after King Abdullah hosted a summit to discuss the causes of the increase in oil prices, which have doubled in the past 12 months to US$140 (Dh514) a barrel.

Western leaders fear the “third oil shock” of recent decades could tip the global economy into recession.

The fact that Khurais – with 27 billion barrels of reserves worth $3.5 trillion at today’s prices – is only being fully developed today says something about the state of the Saudi Arabian oil industry.

The field was actually discovered in 1952, but considered so marginal that, along with two satellite fields, it was mothballed after a few years of modest production.

Faced with forecasts of growing demand, Aramco took the decision to develop it three years ago, at a cost of $10 billion, and has now almost completed the largest single oilfield development ever.

Saudi Arabia could have simply increased output at its current portfolio of producing fields, but to maintain the world’s lowest depletion rates the company chose to bring new reserves into production instead, officials said.

In other words, Khurais simply joins the ranks of other giant Saudi oilfields that are expected to keep pumping at a plateau rate for more than five decades.

“Our strategy calls for a soft landing of production rates, such that you maximise the recovery and enhance the sustainability of plateau production,” said Amin Nasser, the senior vice president of exploration and production at Saudi Aramco.

The visit was aimed at dispelling one of the factors behind the latest price rise – namely that some industry insiders have expressed serious doubts over the size of Saudi Arabian oil reserves, and whether the country will be able to satisfy a forecast surge in demand in the next few decades.

Matthew Simmons, an oil industry consultant, is a leading proponent of the “peak oil” theory, suggesting that Saudi oil output has already peaked, or is close to peaking, and the world is facing a collapse in production that will shake the economy to its core.

But if Khurais is any indicator, that would appear to be far from the truth.

Giant oilfields like Khurais act like giant underground pistons. Water is pumped in at the bottom, and the oil is forced through tiny pores in the rock and up to the surface. If the wells draw the oil too quickly, water breaks through the oil layer, cutting off huge bubbles of oil that will probably never be recovered.

So the key is to produce at a rate slow enough to maximise the recovery of oil and ensure that only a minimum of oil is left in the ground.

Worldwide, the average depletion rate is between four and nine per cent every year, meaning the average field will last 11 to 25 years.

But Aramco’s conservative approach to production, which is shared by some other Gulf exporters, ensures that Khurais will stay at 1.2 million barrels per day for at least 50 years. Mr Nasser said Saudi oilfields start life producing at a depletion rate of two per cent, rising to a maximum of four per cent.

“Our actions have been louder than words, despite all the critics and all the cynics,” said Mr Nasser. “We have seen unscrupulous theories come and go, emerge and fizzle, rise, peak and decline, while we have continued to deliver.”

Mr Simmons’s theory focuses on Saudi’s 50-year-old Ghawar field, the largest in the world, where he presents data showing a rising content of water in the oil produced and concludes that it, too, has already peaked.

Muhammed Saggaf, a senior Aramco manager, showed a graph indicating that Ghawar’s water content had actually fallen to 28 per cent in the past 15 years, while oil production had remained stable at five million barrels per day.

Mr Nasser said Ghawar would continue producing “very high rates” for decades and would not need enhanced recovery technology for another 20 to 30 years.

Aramco is currently engaged in the biggest capital outlay in the company’s 75-year history, and expects to invest $60 billion on upstream projects in the next five years. In the next three years, it plans to bring on stream new giant fields with a total of 50 billion barrels of reserves.

“We work with giants and we will continue to work with giants for the foreseeable future,” said Mr Nasser, adding that no field would be developed in Saudi Arabia unless it had an expected production plateau of 30 years.

Saudi Arabia says it has proven reserves of 264 billion barrels and a policy of replacing every barrel produced with new discoveries every year.

The total reserve base – comprising proven, possible and probable reserves – stood at 735 billion barrels, Mr Saggaf said, and the company aimed to increase this to 900 billion barrels in the next 20 years.

Because of its conservative production policy, its recovery rates are among the highest in the world. Mr Saggaf said that Aramco currently recovered about 50 per cent of its reserves, but wanted to increase this to 70 per cent in the next 20 years.

At the Abqaiq field, one of the country’s oldest, where production started in 1948, officials said it had already produced 57 per cent of the reserves, and aimed to hit 73 per cent.

Even if the country did not find another barrel, the increase in recovery to 70 per cent would be equivalent to adding another 80 billion barrels in proven reserves, Mr Saggaf said.

Mr Nasser warned against extrapolating declines in smaller oil basins with the giant reservoirs of the Middle East.

“There are certain declines in areas where there is only 30 per cent of reserves. We have seen analysts trying to extrapolate what happened in these areas to where 70 per cent of resources are in the Middle East,” added Mr Nasser. “Up to 2030, I think there are abundant resources for demand without putting any of our reservoirs in danger of depletion. Up to today, we maintain very low depletion rates in our reservoirs.”

tashby@thenational.ae