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Twilight in the Desert: The Coming Saudi Oil Shock and the World Economy

ISBN: 978-0-471-73876-3
448 pages
June 2005
Twilight in the Desert: The Coming Saudi Oil Shock and the World Economy (047173876X) cover image
Twilight in the Desert reveals a Saudi oil and production industry that could soon approach a serious, irreversible decline. In this exhaustively researched book, veteran oil industry analyst Matthew Simmons draws on his three-plus decades of insider experience and more than 200 independently produced reports about Saudi petroleum resources and production operations. He uncovers a story about Saudi Arabia’s troubled oil industry, not to mention its political and societal instability, which differs sharply from the globally accepted Saudi version. It’s a story that is provocative and disturbing, based on undeniable facts, but until now never told in its entirety. Twilight in the Desert answers all readers’ questions about Saudi oil and production industries with keen examination instead of unsubstantiated posturing, and takes its place as one of the most important books of this still-young century.
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Illustrations ix

Preface xiii

Acknowledgments xxi

PART ONE FROM BEDOUIN TO BOURGEOISIE 1

1 The Birth of a Nation 5

2 The History of Major Saudi Arabian Oil Discoveries 23

3 Saudi Arabia's Road to Oil Market Dominance 43

4 The Veil of Secrecy over Saudi Oil Reserves and Production 69

PART TWO THE EBBING OF THE SAUDI OIL BOUNTY 99

5 Saudi Aramco 101

6 Oil Is Not Just Another Commodity 129

PART THREE GIANTS AT THE TIPPING POINT 149

7 Ghawar, the King of Oilfields 151

8 The Second-Tier Oilfields 181

9 The Best of the Rest 199

10 Coming Up Empty in New Exploration 231

11 Turning to Natural Gas 245

PART FOUR TWILIGHT IN THE DESERT 261

12 Saudi Oil Reserves Claims in Doubt 265

13 Facing the Inevitable 281

14 Reading Between the Lines of the Latest News from Aramco 309

15 Aramco Invokes "Fuzzy Logic" to Manage the Future of Saudi Oil 325

16 In Search of Crisper Truths among the Confident Saudi Claims 333

17 Aftermath 341

Appendix A Methodology 355

Appendix B Supporting Technical Data 365

Appendix C The 1974 and 1979 Senate Hearings 377

Notes 385

Bibliography 391

Index 409

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Matthew R. Simmons is Chairman and Chief Executive Officer of Simmons & Company International, a Houston-based investment bank that specializes in the energy industry. Mr. Simmons serves on the boards of Brown-Forman Corporation and The Atlantic Council of the United States. He is also a member of the National Petroleum Council and the Council on Foreign Relations. He has an MBA from Harvard University.
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Compelling analysis by an energy industry insider who speaks regularly on the topic to industry groups, think tanks, and the news media.  Recently profiled in Barron’s.

Very well-documented and favorably reviewed by a variety of creditable petroleum engineers, oil industry experts, and bestselling authors.

Exploding interest in author’s analysis as evidenced by a recent profile on author in Barron’s, a massive increase in his company’s web traffic and numerous requests for media interviews and speaking engagements. The author’s website www.simmonsco-intl.com received 6 million hits and 30,000 downloads of  material about Saudi oil resources in 2004.

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“…a must read for anyone concerned with our culture of ‘conspicuous consumption’” (Lobster, Winter 2005/06)

“…a realistic look at the future of Saudi Arabian oil supplies” (Wexus, 7th December 2005)

"The Texas energy specialist, Matthew Simmons, has suggested that the world derives false comfort from the Saudi Arabian assurances of willingness to increase production to meet consumer shortfalls." (Financial Times, 16th September 2005)

"Oil industry expert Matthew Simmons thinks...claims and forecasts are exaggerations and unrepresentative...the book goes into good detail..." (Lloyds List, 26th August 2005)

"...an analyst who is warning that the end of booming oil production is nigh, or already upon us..." (The Business, 4th September 2005)

"This book by Matthew Simmons comes at a timely moment...[and is] therefore essential reading for industry, government, the investment community and academia. It has a message for everyone." (Times Higher Education Supplement, 9th September 2005)

"...there are many valuable insights in Simmons' book. His basic points are right on target." (BusinessWeek, August 1, 2005)

"...This is a ground-breaking book by an analyst of unimpeachable authority..."  (New Statesman, 25 July 2005)

In 1956, Shell Oil geologist M. King Hubbert discovered a grand illusion in the American oil industry. For tax purposes, he noted, American oil companies regularly delayed the declaration of new oil reserves by years and even decades. The result was a false impression that new oil was being found all the time. In fact, discoveries had peaked in 1936.
Based on this observation, Mr. Hubbert predicted that American oil production would peak in 1969. He was wrong by one year. We briefly produced 10 million barrels a day in 1970 but have never hit that level since. Even with the addition of Prudhoe Bay, Alaska, American production has slipped to eight million barrels a day -- which is why we import 60% of our oil.
Across the oil industry, the uneasy feeling is growing that world production may be approaching its own "Hubbert's Peak." The last major field yielding more than a million barrels a day was found in Mexico in 1976. New discoveries peaked in 1960, and production outside the Middle East reached its high point in 1997. Meanwhile world demand continues to accelerate by 3% a year. Indonesia, once a major exporter, now imports its oil.
The Saudis claim to have huge oil reserves. Do they really?
Before an uneasy feeling grows into full-blown pessimism, however, one must consider the supposedly vast oil resources lying beneath Saudi Arabia. The Saudis possess 25% of the world's proven reserves. They routinely proclaim that, for at least the next 50 years, they could easily double their current output of 10 million barrels a day.
But is this true? Matthew R. Simmons, a Texas investment banker with a Harvard Business School degree and 20 years' experience in oil, has his doubts. In "Twilight in the Desert" (John Wiley & Sons, 422 pages, $24.95), Mr. Simmons argues that the Saudis may be deceiving the world and themselves. If only half of his claims prove to be true, we could be in for some nasty surprises.
First, Mr. Simmons notes, all Saudi claims exist behind a veil of secrecy. In 1982, the Saudi government took complete control of Aramco (the Arabian American Oil Co.) after four decades of co-ownership with a consortium of major oil companies. Since then Aramco has never released field-by-field figures for its oil production. In fact, no OPEC member is very forthcoming. The cartel sets production quotas according to a country's reserves, so each member has reason to exaggerate. Meanwhile, OPEC nations are constantly cheating one another by overproducing, so none wants to publish official statistics.
As a result, the world's most reliable source for OPEC production is a little company called Petrologistics, located over a grocery store in Geneva. Conrad Gerber, the principal, claims to have spies in every OPEC port. For all we know, Mr. Gerber is making up his numbers, but everyone -- including the Paris-based International Energy Agency -- takes him seriously, since OPEC produces nothing better.
The Saudis, for their part, obviously enjoy their role as producer of last resort and feel content to let everyone think that they have things under control. Yet as Mr. Simmons observes: "History has frequently shown that once secrecy envelops the culture of either a company or a country, those most surprised when the truth comes out are often the insiders who created the secrets in the first place."
Mr. Simmons became suspicious of Saudi claims after taking a guided tour of Aramco facilities in 2003. To penetrate the veil, he turned to the electronic library of the Society of Petroleum Engineers, which regularly publishes technical papers by field geologists. After downloading and studying more than 200 reports by Aramco personnel, Mr. Simmons came up with his own portrait of Saudi Arabia's oil resources. It is not a pretty picture.
Almost 90% of Saudi production comes from six giant fields, all of them discovered before 1967. The "king" of this grouping -- the 2000-square-mile Ghawar field near the Persian Gulf -- is the largest oil field in the world. But if Saudi geology follows the pattern found elsewhere, it is unlikely that any new fields lie nearby. Indeed, Aramco has prospected extensively outside the Ghawar region but found nothing of significance. In particular, the Arab D stratum -- the source rock of the Ghawar field -- has long since eroded in other parts of the Arabian Peninsula. The six major fields, having all produced at or near capacity for almost 40 years, are showing signs of age. All require extensive water injection to maintain their current flow.
Based on these observations, Mr. Simmons doubts that Aramco can increase its output to anywhere near the level it claims. In fact, he believes that Saudi production may have already peaked. Is he right?
Mr. Simmons's critics say that, by relying on technical papers, he has biased his survey, since geologists like to concentrate on problem wells the way that doctors focus on sick patients. Still, the experience in America and the rest of the world shows that oil fields don't last forever. Prudhoe Bay, which was producing 1.2 million barrels a day five years after being brought on line in 1976, is now down to less than 400,000.
The mystery of Saudi oil capacity bears an eerie resemblance to Saddam Hussein's apparent belief that his scientists had developed weapons of mass destruction. Who are the deceivers and who is the deceived? No one yet knows the answers. But at least Matthew Simmons is asking the questions. (Wall Street Journal, June 28, 2005)

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