Sunday night Leslie Stahl of 60 Minutes took a trip to The Kingdom. Her report centered on the usual Saudi claims to a massive reserve base of oil, with billions of barrels still as yet undeveloped. The Saudis took Leslie to their Stanley Kubrick sized oil command center, where they are of course masters of all they can see. Al Naimi was his usual charming self, never committing to any desired price for oil, but, always upbeat on the future of Aramco, The Kingdom, and the crucial role petroleum plays in the world.
But some cake started to show through the icing when two visits were made to Saudi’s newest oil fields, Shaybah and Khurais. While the report leaned in the direction of the impressive engineering undertaken at both fields, what was missed was a far more significant implication: even Saudi Arabia has run out of new, easy oil.
At Shaybah, incredibly expensive horizontal drilling is required now, with snake-lines running up to several miles, to extract the oil. At Khurais, millions of gallons of seawater will be needed every day to pump through the field to extract the oil. Howcome? Khurais has no natural pressure.
Remember, these are the two newest Saudi fields. Neither has started producing yet, and both have been the subject of continual delays. Live pictures of both, and Khurais in particular, reminded me more of petrochemical facilities, rather than oil fields. As I watched, it suddenly occurred to me what these two new Saudi fields recalled: Alberta Oil Sands projects, with all the highly engineered infrastructure and tons of steel in the ground one needs to process unconventional oil.
The 60 Minutes piece therefore concluded in a strange place. Everyone interviewed and all the messaging indicated that Saudi Arabia had nearly unlimited oil resources. But the pictures and the costs and the geological facts carried a different message: Saudi now has to spend upwards of 60 billion to bring two projects like this to fruition. Moreover, Khurais oil is going to be very energy intensive. Pumping millions of gallons of seawater from the coast will take energy. I joked to someone, it’s as though Saudi Arabia is building themselves a new Cantarell (the Mexican offshore field now in decline, and which has lost pressure).
The open secret now in Saudi Arabia is that the new barrel of oil no longer comes out of the ground by simple insertion, of a straw. This is no longer easy, cheap oil. In fact, it looks more like unconventional oil. This is why Saudi Arabia can certainly pump oil from existing fields at likely very low costs, maybe 1-5 dollars per barrel. But the new oil in Saudi Arabia is looking like the new oil everywhere else: difficult, and pricey.
-Gregor
