Time for the Reservoir Skunk Works?

ABSTRACT: Skunk Works describes a small group working outside the box on important problems. Could it be time for a skunk works on energy reserves?

ANAYSIS: In 1943, a few aeronautical engineers at the Lockheed Aircraft Corporation created an entirely new plane, the P-80 "Shooting Star" jet fighter. They did it in 143 days, 37 days ahead of schedule, working under an old circus tent, next to a smelly plastics factory. One of the engineers answered the phone on a hot summer day with the phrase "Skonk Works here" and the name stuck. It is also said that Al Capp objected to lifting his term from the Li'l Abner comic strip, and it was changed to Skunk Works. (from Worldwidewords.org.) ]

BP's annual assessment of worldwide oil reserves published last January shows 40 years of recoverable oil worldwide – some 1,147.7 thousand million barrels. This is a slight increase over 2002's 1,146.3. Other assessments are similar. Since January, Shell, BP itself, and others have downgraded their reserve estimates. And world demand for oil has grown more than anticipated. The 40 years may be optimistic. Still, that probably leaves reserves of the same order of magnitude – just good for a shorter time – maybe 35 years or so. However, there is a spreading fear that we may not have nearly that much oil.

Reserves Auditing
One of those concerned about a reserves shortfall is Matt Simmons of Simmons and Associates an energy investment banker. Simmons worries that reserves calculated for older, major fields may be vastly overstated and that those fields may be nearing exhaustion. In particular, Simmons lately warned a seminar at the Hudson Institute that Saudi Arabian fields, notably the world's largest Ghawar field producing for 56 years and under water drive from the beginning, may be past their maximum production (peak of the so-called Hubbert curve) and headed not just down a gentle decline curve, but for a precipitous drop. (The Ghawar field is Saudi Arabia's most prolific and has provided most of the recent additional oil to battle the recent crude oil price run up.)

Simmons is not the first to advance the possibility of a precipitous drop, nor is he alone in advocating it. But he has assembled technical evidence that points to it. He analyzed hundreds of SPE technical papers going back to the beginning of the prolific Saudi fields. Here, and in most other fields in the world, there is no independent audit of reserve estimates. These fundamental components of an oil producing country's wealth are stated on the say-so of the owner or producer. As an investment banker who prepares information for potential investors, Simmons wants audited reserve figures. While there is no suggestion of Saudi dishonesty from Simmons, quite the opposite, he does note that the decline of oil fields in the U.S. in the 70s was precipitous and wholly unexpected.

Simmons assertions have drawn vigorous denials from the Saudis, as well as from many in the oil industry. Indeed, Simmons himself says he hopes he is wrong.

Where Do We Stand?
This is the first question. The first answer is, we don't know. We're running out of oil, but we don't know how fast. We may have oil for 35 or 40 years; we may not. We may be on the downside of the Hubbert curve, or more discoveries in the years ahead may grow reserves and put us back on the upside. Eventually we'll be out. But a sudden loss of the Ghawar field would be devastating. Knowledgeable people take strong positions on either side of these alternatives and disagree often furiously. But neither can prove the other wrong. Reserves auditing is an idea whose time has come.

Time for the Skunk Works
And what can we do? Because we may have plenty of oil for many years, or we may run out suddenly with little or no time to develop alternatives. We – private industry, the government, academe – need to form small groups of our most knowledgeable scientists and engineers – skunk works – and put them on the problem. We need to assign them the job of improving the alternative energy technologies and finding new forms of energy. Then they need to get them ready, engineered, for mass production and rapid deployment. Putting small groups of people to work in these vital areas will be costly, but it is certainly affordable even for companies that must struggle to achieve quarterly profits. Anyway, the spin-off from such groups might actually make them profit centers. In the face of all we do not know about our petroleum supply, any lesser effort would be irresponsible.

While we are doing this we can get on with a professional audit of the world's petroleum reserves.