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Matthew Simmons in his book “Twilight in the Desert” is a “Peak Production” oil analyst who expects Saudi Arabia to run out of oil soon, followed closely behind by the rest of the world going oil dry. To make his case, Simmons goes over detailed production reports for hundreds of wells. The problem is that he’s often wrong, or more precisely, his pre-conceived notion that oil is fossil fuel does not permit him to see how much oil the world truly has available.
Craig Smith and I wrote “Black Gold Stranglehold: The Myth of Scarcity and the Politics of Oil” to make sure that you, the reader, has available the other side of the argument. Let’s take a case in point. Simmons argues that Russia’s giant Samotlor Field reached peak production in 1983 and has dropped to a trickle since then. He writes on Page 290 of his book that the Soviets need for revenue pressed the managers of the Samotlor Field to boost production with water injection to 1.5 million barrels a day, a decision which pumped the field virtually dry. He wrote:
This water injection program boosted Samotlor’s production rate far beyond the originally planned ceiling. When the field’s output peaked in 1983, its production briefly hit almost 3.5 million barrels per day. By 1999, Samotlor’s output had also fallen to 300,000 barrels.
Now let’s look at the facts. Samotlor in Western Siberia is one of the largest oil fields in the world. The field, discovered 40 years ago in 1965, is the seventh largest in the world, covering hundreds of square kilometers. Over 16,700 wells have been drilled in the Samotlor area in the last four decades, which have produced some 15.5 billion barrels of oil.
In 2003, BP (British Petroleum, which incidentally has taken to referring to itself as “Beyond Petroleum” in the slick environmentally correct TV ads the company is currently running) combined with two private Russian groups – the Alfa Group and Access-Renova Group – to form TBK-BP, an $18 billion 50-50 between BP and the Russian groups.
This transaction, the largest in Russian corporate history to date, was advised by Vladimir Lechtman, the Moscow partner in charge for Jones Day, the global law firm with 2,200 lawyers in 30 offices around the world. TNK-BP, Russia’s second-largest oil company, employing close to 100,000 people, is the leading company operating in Samotlor.
We can bet pretty safely that BP did not make a billion-dollar bet on Samotlor because they agreed with Matt Simmons that the field was in the final stages of depletion. Nor was TNT-BP ready to be hoodwinked by inflated Russian estimates of oil reserves, a charge Simmons typically makes of foreign countries, including Saudi Arabia.
TNT-BP has contracted to have independent audits of its oil reserves conducted by DeGolyer and MacNaughton, one of the world’s largest international petroleum reservoir consultants with offices in Dallas, Houston, Moscow and Calgary.
Almost immediately upon formation, TNK-BP also hired Haliburton and Schlumberger, two leading international service companies, to help them revitalize the Samotlor oil fields. Haliburton and Schlumberger implemented a method known as “hydraulic fracturing” to ensure high well flow rates in fields experiencing low-pressure drops. The company reports that Samotlor oil production has increased as a result of these techniques, from 30 tons of oil per day per well in 2000, to 117 tons per day per well in 2004.
Hydraulic fracturing is a century-old technique in oil exploration that involves connecting into a central, larger fracture many pre-existing fractures and flow pathways in reservoir rock. The technique is consistent with the argument we make in “Black Gold Stranglehold” that oil is an abiotic product naturally produced by the Earth such that it seeps upward through pre-existing fissure structures in underlying rock, including metamorphic rock.
TNK-BP has also drilled new wells in Ust-Vakh, the most promising area of the Samotlor, an area where independent audits estimate that only 4.8 percent of the oil in place has been recovered. TNK-PB reports consistently indicate dramatic production increases in Samotlor resulting from these new imitatives.
Gregory Ulmishek, a Russian oil expert at the U.S. Geological Survey, notes the oil production advances made by TNK-BP, commenting that the Western Siberia where Samoltar is located is “the second richest basin in the world, second only to the Middle East, with huge reserves and very substantial undiscovered resources.” The USGS mean estimate is that 55 billion barrels of undiscovered oil resources remain to be found in Western Siberia.
“Peak-production” theorists like Simmons seem to operate from a closed mindset, reasoning that since oil is “fossil fuel,” we are bound to run out sooner or later. By analogy, we could draw a “peak production” graph for draining water out of a swimming pool. First, there is no water drawn out of the pool, then we are drawing a lot of water out – to the point where there is no water remaining in the pool. If we look at each well as a fixed resource, this is all we see.
TNK-BP, whether the company announces it or not, is operating from a more expansive mindset, one in which more production can still be gotten out of wells others would see as “near depletion,” a mindset which sees opportunities to drill new wells even in a field that already has 16,700 wells.
Matt Simmons thinks there is only a finite amount of oil in any given field, just as there is only so much water in any given swimming pool. This is consistent with thinking that oil comes from decaying ancient forests and old dinosaurs. Since the end of World War II, the Russians have thought differently, with their scientists supporting the theory that oil is generated naturally within the Earth.
Where Simmons sees only the “doom-and-gloom” of oil depletion, the Russians typically think that oil is abundant and that our estimates of limitation can often be exceeded by applying new technologies with a resolve to succeed, not a determination to fail. Maybe this change in paradigm is one of the major reasons Russia has advanced to the point where the country competes with Saudi Arabia to be the world’s leading oil exporter.