The mysteries of the largest oil field in the world unveiled

It was a state secret and the source of the riches of a kingdom. It was so important that American military planners one day discussed how to seize it by force.

For oil traders, it was a source of endless speculation.

The market finally knows it: in Saudi Arabia, Ghawar, the largest conventional oil field in the world, can produce much less than anyone thought.

When Saudi Aramco released its first-ever profit figures since its nationalization almost 40 years ago, it also lifted the veil of secrecy around its mega-oil fields.

The company's bond prospectus revealed that Ghawar is able to pump a maximum of 3.8 million barrels a day – well below the more than $ 5 million that had become commonplace in the market.

"As the largest oil field in Saudi Arabia, Ghawar's production capacity figure is surprisingly low," said Virendra Chauhan, upstream manager of Energy Aspects Ltd.. in Singapore.

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The Energy Information Administration, a US government agency that provides statistical information and is often used as a reference by the oil market, has established Ghawar's production capacity at 5.8 million barrels per day in 2017.

In a 2004 Washington presentation, when she tried to demystify theories of American oil banker Matt Simmons as "peak oil," Aramco said the field has been pumping more than 5 million barrels a day since at least the previous decade.

In his book Twilight in the desertSimmons argued that Saudi Arabia would have trouble increasing its production due to the imminent depletion of Ghawar, among other factors.

"Field-by-field production reports disappeared behind a wall of secrecy more than two decades ago," he wrote in his book in reference to the nationalization of Aramco.

The new details on Ghawar prove one of Simmons' arguments, but he missed other technological changes that allowed Saudi Arabia – and more importantly, American shale producers – to Significantly increase production, as global oil production has not yet reached its maximum.

The prospectus gave no information on why Ghawar can produce today a quarter less than 15 years ago – a significant reduction for all oil fields. The report also did not specify whether capacity would continue to decline at a similar pace in the future.

Aramco could not immediately comment.

Lost Crown

The new maximum production rate for Ghawar means that the Permian in the United States, which pumped 4.1 million barrels a day last month, according to government data, is already the largest oil producing basin.

The comparison is not accurate, the Saudi deposit is a conventional reservoir, while the Permian is an unconventional formation of shale, but it shows the evolution of the balance of power in the market.

Ghawar, which is about 280 km long, about the distance between New York and Baltimore, is so important to Saudi Arabia, as the field accounted for "more than half of the total cumulative crude oil production in the kingdom. ", according to the newspaper. bond prospectus.

The country has been pumping since the discovery of the Dammam No. 7 well in 1938.

At the summit of Ghawar, discovered in 1948 by an American geologist, Saudi Arabia relies largely on two other mega-fields: Khurais, discovered in 1957, capable of pumping 1.45 million barrels a day, and Safaniyah, discovered in 1951. still today the largest offshore oil field in the world with a capacity of 1.3 million barrels per day. In total, Aramco operates 101 oil fields.

The 470-page bond prospectus confirms that Saudi Aramco is able to draw a maximum of 12 million barrels a day, as Riyadh has been saying for several years. The kingdom has access to 500,000 additional barrels per day of production capacity in the so-called neutral zone shared with Kuwait.

This region is no longer producing anything because of a political conflict with its neighbor.

While the prospectus confirmed the overall maximum production capacity, the distribution between the fields is different from that badumed by the market.

Saudi Arabia's policy is to retain about 1 to 2 million barrels a day of its capacity and only use it during wars, disturbances elsewhere or exceptionally high demand.

Saudi Arabia briefly pumped a record of more than 11 million barrels a day by the end of 2018.

"The company also uses this available capacity as an alternative supply option in the event of unexpected production failure in any field and to maintain its production levels during routine field maintenance," he said. said Aramco in its prospectus.

Costly strategy

For Aramco, this is a significant cost because it has invested billions of dollars in facilities that are not used regularly.

However, the company said that the ability to exploit its unused capacity also allowed it to make big profits during a tighter market, generating an additional $ 35.5 billion in business revenue from 2013 to 2018 .

Last year, Saudi Energy Minister Khalid Al-Falih said that maintaining this supply reserve would cost about $ 2 billion a year.

Aramco also revealed reserves in its five major business areas, revealing that some of them have a shorter life expectancy than expected.

Ghawar, for example, still has 48.2 billion barrels of oil, which is expected to last another 34 years at peak production rate.

Nevertheless, companies can often increase their reserves over time by deploying new techniques or technologies.

In total, the kingdom has 226 billion barrels of reserves, representing an additional production of 52 years at a maximum capacity of 12 million barrels per day.

The Saudis have also told the world that their fields are aging better than expected, with "low depletion rates of 1% to 2% per annum", slower than the 5% drop presumed by some badysts.

However, he also indicated that part of his reserves – about one fifth of the total – had been drilled so systematically for nearly a century that more than 40% of their oil had already been mined, a significant figure for an industry that is generally struggling to recover more than half of the underground barrels.