Twilight in the Desert: The Coming Saudi Oil Shock and the World Economy
By Matthew R. Simmons
448 pp., hardcover. John Wiley & Sons, Inc. – Jun. 2005. $24.95.
A year ago peak oil author Dave Cohen christened 2009 "A Year We Will Live To Regret."1 But as it happens, 2010 has brought its own mother lode of discouragement, failure and tragedy. It began on the heels of the bungled climate change summit in Copenhagen, a major blackout in southern France and news of a disastrous crash in Yemen's oil revenues. Before the year had rounded its halfway mark, it had presided over the Deepwater Horizon oil spill, the worst environmental disaster in U.S. history. And as if all this weren't enough, 2010 also saw the sudden and unexpected death of one of the very icons of the peak oil movement, the revered Matthew R. Simmons.
It has been said of Simmons that no one in America was more influential in warning of the coming oil crisis, and that's surely true enough.2 Appearing in documentaries and in frequent TV and radio spots, he was a vital go-between for journalists reporting on the ever-escalating cost of fuel and a pained, bewildered public. He had even been a presidential energy advisor. But that description of Simmons only scratches the surface, for he did far more than simply raise awareness of oil depletion. Above all, he was the voice of informed reason in debates over whether Saudi Arabia, long the world's oil producer of last resort, could indefinitely continue to provide whatever quantities of oil the global economy may need.
His controversial bestselling book Twilight in the Desert represents the seminal attempt to answer this question. He began writing it in 2003, following a visit to the headquarters of Saudi Arabia's state-owned oil company, Saudi Aramco. Simmons was then chairman and CEO of Simmons & Company International, an investment banking firm that he'd founded in 1974 and that has since acted as financial advisor on more than $134 billion in transactions within the oil and gas services industry.3 During the visit, a Saudi Aramco senior manager explained that the company used "fuzzy logic" to maximize recovery from the nation's oilfields. That term didn't sit well with Simmons, and for the first time he became skeptical of Saudi Arabia's alleged oil potential.
His skepticism was confirmed when he came across an extensive collection of technical papers from the Society of Petroleum Engineers (SPE) offering an in-depth look into Saudi oil production over the past 40 years. This collection, containing more than 200 papers, documented a decades-long saga of technical difficulties that had taxed the talents and ingenuity of some of the world's foremost oil engineers. The picture that these documents painted was a far cry from the boastful claims long made by Saudi officialdom regarding the supposed robustness of its oilfields.
To date, Saudi Arabia's all-time record output was roughly 10 million barrels a day, achieved in 1981. Current production fluctuates between approximately 8 and 9 million barrels a day, according to demand. Yet many oil observers insist that the country could raise its output to 12, 16 or even 20 to 25 million barrels per day, and that it could sustain these rates for as long as 50 years into the future. After researching and writing Twilight, Simmons knew better. In my favorite Simmons quote of all time, he wryly remarked to radio talk show host Jim Puplava, "I can tell you on your program that, trust me, my net worth will exceed Bill Gates' by 2030, and you'd be a fool to believe it—unless Bill Gates had a terrible financial collapse. There's nothing illegal about me telling you that. I can want that. And that's kind of what the world has done."4 Simmons' wit was as quick as his energy savvy and wisdom were great.
The most troubling trends dogging Saudi Arabia's oilfields, as revealed in Twilight, are all textbook examples of what can happen when oil reserves are exploited too hastily or vigorously. According to our best current understanding of the science of oil production, Simmons explains, every oilfield has an ideal production rate. Exceeding this rate is known as "overproducing" a field, and it can cause irreparable damage resulting in far more oil being permanently left behind. In short, overproducing brings more immediate returns but reduces the longevity of a field and the amount of oil that can ultimately be recovered.
As the 40-year SPE paper trail attests, multiple generations of Aramco scientists and engineers have been struggling to address the classic signs of overproduction in some of Saudi Arabia’s great oilfields. These include dramatic drops in reservoir pressure, increasing quantities of water produced along with the oil and premature gas cap formation. Simmons argues that they represent the dear price that Saudi Arabia has had to pay for its otherwise commendable decision to assume the responsibility of world's chief swing oil producer.
Based on the available evidence, Simmons concludes that Saudi oil production is at or nearing its peak sustainable level, and that it's likely to start dropping irreversibly in the quite foreseeable future. Further, the decline rate promises to be quite steep because Aramco's experimental use of water injection to maintain reservoir pressure right at the start of the fields’ development—rather than at the end, as is standard—has swept the proverbial cupboards bare. Worse yet, because Saudi Arabia is essentially the only oil-producing nation with any spare production capacity left, its peak also signals the world peak.
Twilight is organized into a neat, easy-to-follow structure with four main sections. Parts one and two supply background information that is crucial to understanding the technical discussions in parts three and four. This background includes an account of Saudi Arabia's brief national history and how it came to dominate the world oil market, a detailed run-down of Saudi Aramco's operations and a basic primer on the steps involved in discovering and developing oil reserves. The book’s third part is an exhaustive assessment of each of Saudi Arabia’s dozen or so major fields and their unique technical challenges. And finally, the last section of the book explores at length the social, institutional and economic implications of the waning of Saudi Arabia's oil bounty.
A common theme running through the oilfield analyses is that too much about these fields' geology and behavior remains poorly understood. The mighty Ghawar field is a case in point. Once having supplied as much as two-thirds of Saudi Arabia's total output and six percent of global production, Ghawar is believed to be the largest oil-bearing structure ever to have existed on planet Earth. And yet, only one northernmost region of this great field has proven relatively trouble-free, and has thus been the source of the lion's share of Ghawar's oil. The remaining 80 percent of Ghawar produces far more modest flows because of “reservoir pressure anomalies" seemingly linked somehow to a baffling set of faults, fractures and other geological phenomena.
In addition to the SPE papers, Simmons draws on an array of other equally revealing primary sources, chief among them a Senate staff report released in 1979. This report seriously questioned Aramco's claimed sustainable peak rate of 12 million barrels a day and quite presciently concluded that 9.8 million barrels a day was probably a more realistic goal. Yet it warned that even at that level the major fields would have tipped into decline before the turn of the century.
One of Simmons' biggest peeves was the secrecy surrounding oil reserves and production not just in Saudi Arabia, but in all OPEC countries. Twilight recounts how OPEC countries once routinely reported field-by-field production figures to industry periodicals like the Oil & Gas Journal but stopped doing this when Saudi oil minister Zaki Yamani took office in 1982. The result was a confusing maelstrom of contradictory reserves and production numbers that continues to this day. Oil-producing countries have little to gain by dispelling this veil of secrecy, because doing so would reveal that the geese laying their golden eggs are steadily succumbing to old age. As a result, the policy of secrecy has stuck.
The book goes into great depth about the need to break this veil and how that might be done. It calls for an international forum for systematically collecting and reporting worldwide energy data, something for which Simmons had long agitated. Indeed, asked once how he would begin to address energy policy if elected president, Simmons began, “Probably cry”—and then, once the laughter had dissipated, added, “I would basically hold my fireside chat after having the conversation all day with the 20 most important world leaders and saying we need tomorrow morning to slap a $20-a-barrel transportation fine on any producer of oil that will not release their basically field-by-field production statistics, because we have a week to figure out how bad this problem is."5 Witticisms aside, Simmons was so adamant about this need for an international energy forum that he felt Twilight would have done the world a great service if all it did was supply the necessary catalyst.
As an outspoken peak oiler, Simmons was always something of a provocateur. At the end of his life, however, he became a loose cannon. His own firm ended its association with him after he lambasted BP Plc. for its hand in the Deepwater Horizon spill and predicted that the spill would bankrupt BP within weeks. Then he shocked everyone with his suggestion that the wellbore be sealed through the detonation of a nuclear bomb. (He pointed out that the Russians had used this approach repeatedly—and he reasoned that we needn't worry about radioactive contamination because the seafloor well was even deeper than the old Nevada test sites—but his idea was nonetheless roundly attacked as insane.) After "retiring" from Simmons & Co., he devoted full time to the Ocean Energy Institute, a think tank and venture capital fund that he'd established three years earlier to pursue offshore wind energy. Just two months later, on Sunday, Aug. 8, he died of a heart attack in a hot tub at his home in North Haven, Maine, at the age of 67. His hard words for BP had gained him enough notoriety that in no time speculation, never substantiated, was flying around the Web that his death had really been an assassination carried out by some wronged party.6
In the years leading up to Simmons' death, there had been excited murmurings within the peak oil community over his plans to write a second book. According to one source, it was going to deal with the increasingly decrepit infrastructure and aging labor force of the oil industry, and how these threaten to bring about just as serious a collapse in oil production as the one imposed by Mother Nature.7 The world will never know what Simmons might have put in this unwritten book, nor what additional contribution it might have made to the literature. But Twilight remains an essential piece of scholarship that deserves to be remembered and read for decades.
1 Dave Cohen, “2009 — A Year We Will Live To Regret,” Energy Bulletin, Dec. 17 2009, http://www.energybulletin.net/node/51013 (accessed Dec. 6, 2010).
2 Steve Andrews, Sally Odland, John Theobald and Randy Udall and others, “Remembering the remarkable Matthew R. Simmons,” Energy Bulletin, Aug. 19 2010, http://www.energybulletin.net/stories/2010-08-19/remembering-remarkable-... (accessed Dec. 6, 2010).
3 “History and Purpose of EOCM,” Energy Opportunities Capital Management, http://www.energyocm.com/history.html (accessed Dec. 6, 2010).
4 Matthew R. Simmons, interview with Jim Puplava, "Financial Sense Newshour," Financial Sense: Uncommon News & Views for the Wise Investor, Apr. 7, 2007, http://www.financialsensearchive.com/transcriptions/2007/0407.html (accessed Dec. 6, 2010).
5 Simmons, interview with Puplava, "FSN Expert Roundtable: Energy Roundtable," Financial Sense, Feb. 2, 2008, http://www.financialsensearchive.com/Experts/roundtable/2008/0202.html (accessed Dec. 6, 2010).
6 Braden Reddall and Kristen Hays, "Energy bank Simmons cuts ties to outspoken founder," Reuters, Jun. 16, 2010, http://www.reuters.com/article/idUSN1617784120100616 (accessed Dec. 6, 2010); Rich Blake, "BP Shares Sink on Oil Spill Bankruptcy Worries," ABC News, Jun. 10, 2010, http://abcnews.go.com/Business/bp-survive-company-result-oil-spill-gulf-... (accessed Dec. 6, 2010); Kent Bernhard, Jr., "Matthew Simmons Reflects On Deepwater Horizon Disaster: One Lesson From Pearl Harbor," Portfolio.com: a bizjournals property, Jun. 3, 2010, http://www.portfolio.com/industry-news/energy/2010/06/03/matthew-simmons... (accessed Dec. 6, 2010); “Matthew R. Simmons Retires as Chairman Emeritus of Simmons & Company International to Dedicate his Full Attention to The Ocean Energy Institute,” Earth Times, June. 16, 2010, http://www.earthtimes.org/articles/press/ocean-energy-institute,1348001.... (accessed Dec. 6, 2010); Scott Malone and Edward McAllister, “Oil guru Matthew Simmons dies in Maine,” Reuters, Aug. 9, 2010, http://in.reuters.com/article/idINN0926746220100809 (accessed Dec. 6, 2010).
7 Totoneila, “DrumBeat: November 8, 2006,” The Oil Drum, Nov. 8, 2006, http://www.theoildrum.com/story/2006/11/8/82046/5724 (accessed Dec. 6, 2010).