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Sense and nonsense from Nansen Saleri

Assume you are an elected official from Connecticut, Minnesota, Virginia, or California, all states that have begun to wrestle with the implications of peak oil. Then last Monday you read Dr. Nansen Saleri’s op-ed, “The World Has Plenty of Oil,” in the prestigious Wall Street Journal. Should you accept his cornucopian view of our energy future, which holds that a peak in world oil production is many decades away?

Saleri, who has a PhD in chemical engineering, worked for Chevron from 1974-1992, then joined Saudi Aramco to become Manager of Reservoir Management. After leaving Saudi Aramco, he founded Quantum Reservoir Impact, a Houston-based consulting firm that helps industry players meet their production targets and increase their reserves.

On QRI’s website you’ll find a statement of their principles. One jumps out: “We talk straight.” Saleri makes some valid points in his WSJ op-ed, but his straight talk is mixed in with a number of wild claims that are unsupported by the facts.

1. Saleri’s time frame for peak oil—four to six decades from now—is even more delirious than those picked by the U.S. Energy Information Administration and Cambridge Energy Research Associates (CERA). This delayed peak is also at odds with a forecast from another Saudi oil man, Dr. Sadad al-Husseini, who retired from Saudi Aramco in 2004 after 32 years with the company. At the Oil & Money Conference in London last fall, al Husseini argued that we were at the beginning of a long production plateau. “The industry has hit a ceiling in its ability to discover new reserves and to add timely new capacity to offset accelerating production declines,” al-Husseini said in an update he sent to us yesterday.

2. Saleri adds apples and elephants when he aggregates conventional oil and unconventional petroleum to come up with the enormous sum of 12-16 trillion barrels of oil in place. The unconventional oil resource, however large, will be produced very slowly. For example, at current production rates—1,700 barrels per decade—the trillion “barrels” of Colorado oil shale will last five million years. Now that’s a reserves-to-production ratio!
Says al-Husseini: “Dr. Saleri's speculation regarding remaining hydrocarbon resources skirts several hard realities. These include the very slow timing and massive cost for converting unconventional resources, the soaring cost of developing new production capacity, and finally the cost of refinery processing to generate suitable transportation fuels. The question is not what volumes of tar sands or coal are sitting out there but rather how fast can they be converted to relevant fuels and at what cost.”

3. Overly optimistic recovery rates. Saleri expects that technology will allow us to double recovery efficiencies. Enhanced oil recovery technologies bring more oil to market, but not a lot more and usually only after mature fields are in decline. In a series of articles in this publication last year, Tom Standing documented that EOR techniques in the US added only 760,000 b/d to supplies when they peaked in 1992. Despite application of best-in-class EOR techniques, U.S. EOR production has declined by 15% since that 1992 peak..

EOR is often made possible by throwing “good energy at bad.” The early success of California’s steam floods, for example, was due in large measure to a glut of cheap natural gas from New Mexico’s San Juan basin, one of the world’s most prolific gas provinces. But gas production in the San Juan basin has peaked, and as the price of natural gas soars, there will come a time when we can no longer afford to burn gas to heat heavy oil.

4. Casual with some facts. Saleri is a bit off the mark in his citations from M. King Hubbert—the visionary who in 1956 correctly anticipated a peaking in U.S. oil production between 1965 and 1970. Saleri also misquotes CERA as forecasting that daily global liquids production will rise from 86 million barrels/day today to 115 mmb/day in 2017. Actually, CERA forecasts that world liquids production capacity will increase from 91 today to 112 mmb/d by 2017. We know this because a team of us bet CERA $100,000 that their forecast won’t happen. We are prepared to bet Saleri, or anyone else for that matter, $1,000,000 that world oil production will peak before 2030.

5. “The world is not running out of oil anytime soon,” says Saleri. Who said we were? Peak oil isn’t about this oft-repeated red herring of “running out;” it’s about not being able to grow production beyond a certain level. Since peak/plateau oil will require a massive paradigm shift, let’s stop confusing people with what it isn’t.

6. Saleri touts the coming of “superior alternatives.” Wake us when they arrive. When it comes to flexibility of use, energy density and energy quality, no raw fuel beats petroleum, the black magic. All the alternatives take more energy to extract and refine, leaving less net energy to run the economy. Most tend to have much larger carbon footprints. Comparing petroleum to corn ethanol is like comparing filet mignon to soup bones.

7. The sin of certitude. So many factors will affect future global oil supply—geopolitics, resource nationalism, wars, shortages of rigs and skilled labor, hurricanes, etc.—that it is impossible to predict exactly when production will peak. But the preponderance of current analysis suggests this event is highly likely within the next eight years. Thus, it’s enormously misleading for Saleri to argue that “we are nowhere close to reaching a peak in global oil supplies. Nor is it honest, during a time of rising resource nationalism, to insist that “market forces…will tame transitional obstacles.” Tell that to ExxonMobil and Shell, both of which have lost billions to takeovers in Venezuela and Russia.

A retired friend of ours from the oil industry, Buzz Ivanhoe, once offered some sage advice: “When my colleagues in the industry are presenting, they are either buying or selling.” Saleri’s piece in the Wall Street Journal is a sales pitch. You shouldn’t buy it.

Let’s give the final word to al-Husseini, another Saudi with a more grounded world view. In a recent email he wrote:

“We have seen oil prices quadruple over the past five years and thus expected an avalanche of new exploration discoveries and production capacity. This did not happen. In fact, the outlook for the next decade is even less encouraging.”

Steve Andrews and Randy Udall are energy analysts and co-founders of ASPO-USA.

Editorial Notes: Dr. Nansen Saleri’s op-ed is online: “The World Has Plenty of Oil”. Related article on Saleri-Simmons debate (WSJ).

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