AS NEWS of bloodshed and conflict turns Americans' attention to the Middle East, an under-reported energy crisis unfolding in the region threatens the foundations of the international economic order.
Recently respected media outlets have begun to turn their attention to reports coming out of the Arabian Desert that petroleum production in Saudi oil fields may be peaking and could fall into decline in the near future. Should reports that yields in the world's leading producer are declining prove correct, the world could face an intractable energy crisis. This ordeal would create immense economic pain, and force the developed world to -- finally -- create a sustainable approach to meeting the world's energy needs.
The latest gloomy report coming out of the Saudi desert appeared in this month's issue of The Atlantic written by Economics Prof. James D. Hamilton of the University of California, San Diego, a frequent economic commentator at econbrowser.com. The article disputes the Kingdom's claims that its one million barrel per year decrease in production during the last two years was a result of an intentional decision to lower production in response to low demand.
Noting that oil prices are at all-time highs as demand has skyrocketed from developing countries such as China and India while the supply from oil-producing countries has stagnated, Hamilton argues that the true source of the Saudis' declining production stems from the exhaustion of reserves in their most significant deposits located in the Ghawar field, which "has doubtless accounted for more than half of Saudi Arabia's oil production" according to Hamilton. He cites models created by computer scientist Stuart Staniford, which show production at the field has now fallen into decline after more than 50 years of operation.
Other analysts in the energy industry echo Hamilton's concern. Most notably, Matthew Simmons, CEO of Simmons & Company International and one-time an energy advisor to the Bush administration, argued that Saudi Arabia has been hiding news of declining production in its oil fields in his book "Twilight in the Desert: The Coming Saudi Oil Shock and the World Economy," published in 2005.
Western observers and the general public should be especially concerned about reports of declines in Saudi oil fields in light of publicly acknowledged declines elsewhere in the world. Production in the lower 48 states has been declining since the 1970s, while production at large, mature fields across the world from the North Sea to Venezuela have started to fall in the past decade. Many analysts hoped that fields around the Persian Gulf could compensate for declines elsewhere while keeping pace with expanding demand from developing nations. With promises of boundless oil reserves in the Middle East proving to be illusory, a crisis seems inevitable in the long term.
A 2005 report commissioned by the U.S. Department of Energy echoed these fears. The report's author, Robert Hirsch, a senior energy program advisor at the Science Applications International Corporation, compiled reports issued from activists, leading oil companies such as Shell and government agencies such as the Energy Information Administration. In his report, Hirsch shows that even the most optimistic analyses, which assume that fears of decline in Saudi oil production do not come to fruition, show world oil production will peak within 20 years.
With such a dramatic energy crisis approaching, it is imperative that Americans demand that their leaders create a comprehensive energy policy. Without such a policy, Americans could face an economic recession far worse than the one that emerged from the 1970s embargo crisis -- the worst American recession since the Great Depression.
As bad as tensions are in the Middle East, they would assuredly become much worse if skyrocketing oil prices cause the world's leading powers to engage in a scramble to control access to the region's ever more valuable reserves.
Ultimately, crafting a long-term solution to this problem will require a great deal of patience, contemplation and sacrifice. Though such a solution will likely be immensely complex and take many years to fully implement, the American public can take the first step by paying closer attention to the oil fields of the Arabian Desert.
Adam Keith's column appears Tuesdays in The Cavalier Daily. He can be reached at akeith@cavalierdaily.com.
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