Twilight in the Desert: Well-Documented Warning on Peak Saudi Oil

©2011 Reflections of a Rational Republican

Twilight in the Desert: The Coming Saudi Oil Shock and the World Economy is Matthew Simmons’ thoroughly researched and well-documented account of Saudi Arabia’s aging oil fields and what it means for the global economy. In the book, Simmons argues that Saudi Arabia’s years of plenty may soon be behind it. The focus on Saudi Arabia is critical since the Kingdom supplies about 70% of the world’s spare oil capacity. Even the smallest decline in the Kingdom’s oil output could wreak financial havoc on the industrialized world.

Style – 5.00

One of this book’s benefits is that Matthew Simmons looks under every rock to get a comprehensive picture of Saudi Arabia’s oil production. The downside of this detailed approach is that the book can be very technical and sometimes gets into the minutia of the oil and gas business. Furthermore, Simmons is not the most entertaining of writers. As such, it can be extremely difficult to read more than ten or twenty pages at a stretch.

Therefore, I rate the book’s style  a 5.0 out of ten.

Structure – 7.00

At a high level, the book has a chronological structure that starts with the history of Saudi oil production. However, it sometimes jumps back and forth between the history and the central thesis of the book. I think it might have been more effective for Simmons to choose one approach rather than combine the two. My opinion is that a thesis-driven structure may have helped make the book a bit easier to read and follow.

Overall, the book receives a rating of 7.0 out of ten for structure.

Substance – 10.00

Twilight in the Desert covers the history of Saudi oil production from its very beginning in the early twentieth century to its maturation in the last decade. Simmons spends a great deal of time covering the dynamics of the oil industry in general and Saudi Arabia in particular. He notes:

“Ninety percent of all the oil that Saudi Arabia has ever produced has come from seven giant fields. All have now matured and grown old, but they still continue to provide around 90 percent of current Saudi oil output. The Kingdom’s three most important fields have been producing at very high rates for over 50 years.”

Simmons also compares Saudi production at these super giant fields with other major fields that had similar rates of production in the United States, China, the former Soviet Union, Norway, and the United Kingdom, among others. All these fields have reached peak production, and most have experienced a dramatic decline thereafter.

Simmons’ evidence is compelling, and his logic is impeccable. Therefore, I rate the book’s substance a solid 10.0.

Sentiment – 10.00

To be fair, I already agreed with Matthew Simmons before I read his book. However, his arguments are well-researched and compelling, and they solidified my beliefs in peak oil.

More importantly, Matthew Simmons is not some pot-smoking, hippie environmentalist wacko. He is a serious businessman and investment banker with decades of experience in the oil and gas industry.

He data-intensive approach also really resonated with the way I process and view the world. Consequently, I rate the book’s sentiment a 10.00 out of ten.

Significance – 8.00

This book may turn out to be one of the most prescient warnings of the twenty-first century. If Simmons turns out to be right about the imminent and sharp decline of Saudi oil production, the global economy and America’s way of life could experience a sharp and unstable decline. Given elevated oil prices over the past several years, the world may already be on the edge of this precipice.

Because his predictions seem to be so timely, I rate the book 8.0 out of ten in this category.

Overall Rating – 8.60

©2011 Reflections of a Rational Republican

The book’s overall rating is 8.60 out of ten, after assigning the appropriate weights to each item. If you have any interest in peak oil theory, or want to learn more about the difficulties of extracting oil from aging oil fields, this book is a must read.

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About Sean Patrick Hazlett

Conservative clean energy crusader, national security hawk, financial analyst, engineer, and former military officer.
This entry was posted in Book Reviews, Business, Clean Energy, Defense, Energy Security, Finance and Economics, International Security, Media, Middle East, Peak Oil, Policy, Politics, Predictions and tagged , , , , , , , , . Bookmark the permalink.

59 Responses to Twilight in the Desert: Well-Documented Warning on Peak Saudi Oil

  1. Nobody says:

    I think that if you consider the costs of policing the Middle East, you don’t need any peak oil to get convinced that America should do something about its petroleum dependency. I mean, the US does not even buy this oil, the Saudis sell more oil to China than to America. The whole point of these acrobatics in the Middle East is to facilitate Saudi supplies to other countries, so as to keep the global price under control and allow the US to buy oil relatively cheap from South America and Canada.

    To add insult to injury, this effort is not only born by the US alone, it’s not even appreciated by the rest of the world who directly benefits from it. It only fuels more conspiracy theories and accusations in imperialism. Truly, the world needs a global sucker and America has become one.

    • Fortunately, we’ve discovered fracking! 😉

      • Nobody says:

        I believe the crux of the issue is on the demand side. It’s not about supply. America would have been energy independent today, if, after the crisis of 1973, a serious attempt would have been made to control the demand with taxes. The US imports something like 60%-70% of its oil and it wastes twice as much energy per unit of GDP as Europe does. I mean these 60%-70% can be all explained away by the difference in energy density and depleting of domestic resources in the last few decades, caused again by the same inflated energy density. It basically all comes to fuel taxes that the Europeans pay, but the Americans don’t

        I mean, the US has an insatiable appetite for energy. Americans would gobble up any amount of energy if it’s cheap. The only reason that they were driving SUVs recently and not semi trailers is because gas was not cheap enough. It’s for the same reason that I think Simmons and others are fundamentally wrong. The world is not running out of oil. Maybe it’s running out of cheap oil. But the expensive oil which is left is not going to run out any time soon because its price would see to it. In the same way as, if the US cared to fix the floor for price of oil at $3/gallon ten years ago, it would have been still energy independent today

        • Maybe. Remember though, one effect of the 1973 oil crisis was that the United States stopped using oil, for the most part, in its power generation.

          That said, I would still agree that the United States did not do enough to increase its energy independence. I also agree that the American fossil fuel infrastructure is less efficient than the European one.

          Rather than increasing gasoline taxes, one way to drive down demand would be for the government to require knowledge workers to work two days a week from home. For me personally, my productivity would increase because I wouldn’t lose 3 hours a day to commuting, which would give me an extra two hours of work and one hour of sleep. It would also save massive amounts of oil.

          Anyway, just a thought.

  2. Scott Erb says:

    When I taught a first year seminar called “Syriana” I used this book in class. The class was basically built around themes in the film by that title, using it (which no student understood on first view at the start of the semester) to build knowledge of the oil, Mideast politics, US foreign policy, terrorism, and the like. I have to agree with your analysis. I ended up dropping the book because the style really made it hard for freshman students to get as much out of the book as they should. Yet I really do like it (and a fossil fuel geologist on campus knows Simmons – he’s kept me well supplied with books on the subject)!

  3. Moe says:

    Just yesterday on NPR news, heard a story about how Saudi oil is getting more and more expensive to process. The days of light sweet crude seem to be over.

    I’ve though for a long time that the only way we kick our own asses in terms of dealing with our oil dependancy is to raise the price at the pump and thus raise awareness. It would change behavior quickly (remember 2008?) and provide needed revenues which could be dedicated to R&D on delivering alternate methods.

    • That is exactly what I am worried about. President Obama release supplies from the Strategic Petroleum Reserve for the third time in history last week. The cynic in me says it was purely a political ploy to juice the economy. However, my pragmatic side (which dominates my personality) says it is in response to peaking Saudi oil. If that is the case, be afraid. Be very afraid…

    • Nobody says:

      You don’t have to do it quickly. Petroleum consumption is very much conditioned by consumption of long term goods such as cars and houses (sprawl). For one, this makes the demand relatively inelastic, it can’t be unwound quickly. Two, the demand is shaped very much by anticipations of the future price. This is the reason why the demand for gas often does not respond to immediate price signals. Because when people buys cars or housing, they are betting on the future price. And when it comes to the future, the proverbial American optimism often runs amok. However, a gradually rising petroleum tariff or gas tax can cut the demand long before it starts hurting anybody. Say a petroleum tariff that goes up every year by $1-$2/barrel, should be like 5-10 cent/gallon for the next 20 years. It’s the mid and long term certainty that matters, not necessarily the current price

      • Perhaps.

        I am also a strong advocate of CAFE standards as well. Sadly, our cars our lagging behind Japan, China and Europe.

        • Nobody says:

          I think CAFE standards are absurd. They should do something about the price. The markets will sort the rest out

        • Moe says:

          Me too Sean – CAFE standards are important; but we blew it when we let SUV’s be exempted and put them under the category of trucks. Ole’ letter of the law, screw the spirit of the law . . . .

        • Moe says:

          Yeah, that ‘compromise’ made a joke of the CAFE standards.

        • Nobody says:

          But here lies the answer to the question. Why? Because you want to keep things simple. The less legislation you have to do, the less chances are there that the politicians will mess it.

        • Nobody says:

          I think Krauthammer nailed it with this one

          *** Better a gas tax that activates free market mechanisms rather than regulation that causes cascading market distortions. ***

        • Nobody says:

          *** But isn’t a tax just another form of regulation? ***

          For one, it’s not the same because, unlike CAFE, taxes don’t tell people what they should do.

          Two, not all regulation is bad. This one acts directly on the free market mechanism by fine tuning it instead of a whole bunch of subsidy programs and standards.

          Three, Krauthammer does not propose more taxes or new taxes. It’s about the structure of taxes. A point can be made that what he offers is more distorting than what is already there. But it’s not that he is inventing new regulation here. I mean, taxes are already there and they are already distorting. It’s about how you distribute the already existing tax burden. He says, get the structure right and you don’t need all other regulation.

          Laffes is the same by the way. Laffer is actually the author of that Laffer curve. He is for sure no fan of taxes. But he says: we can’t go along with an overall tax increase; but tax swap is fine.

          • So, I think we agree that a tax is still a form of regulation, though not as heavy handed as one that explicitly tells you what to do.

            That said, I think we both missed an important point in the last couple of threads that you mentioned earlier, which would mitigate such a tax. I believe you suggested the tax would be revenue neutral — that is, it would substitute a less useful tax elsewhere. It that were the case, I am now for what I initially appeared to be against. 😉

        • Nobody says:

          Personally I favor tariffs or some combination of a swap and a tariff. Say a revenue neutral swap for a $1 gas tax and then raising the tariff by $1-$2 per barrel every year. The US may also want to get Canada into some kind of energy union. If Canada can agree to voluntarily limit its exports to other countries and stick to the US, then by raising a common tariff, it should be possible to decouple North America from the global oil market.

          • And why shouldn’t it? We continue to provide defense for North America and they provide us with energy.

            BTW, WTI and Brent prices have already started to decouple because of Libya, declining North Sea production, and increased imports from Canada via tar sands.

        • Nobody says:

          They should agree. Their oil is expensive to produce. I believe it’s in their interests to lock themselves in the same market with the US behind such a tariff. I think the US already has all export restrictions in place. Canada should duplicate the export restrictions and agree to a tariff union and it’s done

        • Nobody says:

          I think they have another Saudi Arabia in their oil sands in Canada. It’s just the matter of price. If such a tariff union can guarantee them the price, and it can, then this oil will never end. I believe $100/barrel is the right price for North America. It makes oil sands and other non conventional oil sources profitable, it encourages conservation and it makes alternative energies attractive for research and pilot projects by innovative companies. Shale gas is booming. I mean it’s a reasonable price for stopping wasting trillions in the Middle East and elsewhere. The US should simply pair its energy market with Canada in such a tariff union and that’s it.

        • Nobody says:

          Not really. I mean, the US politicians are a bunch of santa clauses who are trying to placate a horde of clinical gas junkies which is the US electorate. These people have transformed the vision of free market into a religion of free lunches long time ago. You need to explain to these people that sometimes cheap means that you end by paying more and it’s a hard task

        • Nobody says:

          But if you are ready to live with the current price, Canada can replace all your other imports. It’s not cheap. But if the global oil shoots to $150, your oil will remain at $100 because of export restrictions. It won’t go down much below $100 because this is what it apparently costs to the Canadians to produce their oil. But otherwise, you will have a stable price and enough supply for decades ahead and you don’t have to think anymore about what’s happening in the Middle East. Ultimately I believe businesses want stability. They prefer a stable extra price over this insane roller coaster.

          • Locking in a stable price is a good thing. What’s to stop the Canadians from defecting from the agreement if global oil prices hit $200 a barrel?

            This question is not meant to challenge you, but just to think through some of the implications of this policy. Perhaps there is some sort of adjustment mechanism?

        • Nobody says:

          You sign them to some agreement on energy union that includes common export restrictions or export taxes and the tariff. They get your market. You get exclusive access to their sands. They don’t have to worry about price fluctuations anymore and can start developing their sands in serious. You don’t have to worry about price fluctuations and can start pulling out of the Middle East.

        • Nobody says:

          The big oil will be thrilled by such arrangement by the way. It’s good for domestic oil producers in both countries.

        • Nobody says:

          To make this point more clear. If the Canadians try to go alone and ramp up production now they will be the first to go bust if the global price declines because their oil is among the most expensive. However, if you can secure your market for them by pushing other competitors out by raising the tariff, the they don’t have to worry and start producing. In return, you can ask them to agree to export restrictions to fix the ceiling for the price.

        • Nobody says:

          the they don’t have to worry and start producing. = then they don’t have to worry and can start producing.

    • Nobody says:

      Charles Krauthammer by the way has been advocating a revenue neutral tax swap since decades ago. Though I am not sure it can be done now since such a swap would amount to cutting taxes and opening another hole in the budget. And tariff is better in my view since it punishes only imports and does not hurt domestic producers, even though it’s less revenue generating than taxes.

      • Interesting. Thanks for providing the link.

        • Nobody says:

          *** Why do you think CAFE standards are absurd? ***

          They don’t make sense without an adequate price signal. But if the price is right, you don’t need them. If the price is right, then people will buy all kinds of fuel efficient cars, even the most expensive ones if they save them enough money at the pump. Or they may keep driving SUVs. It becomes the function of mileage people do on average.

          If the price is too low, people will only buy cars that conform to CAFE, to the very minimum. There is no incentive here for manufacturers to go beyond CAFE. Neither CAFE provide any incentive for people to stop using old cars or buy used ones.

          Another thing is that CAFE is basically just another one of many market distortions the government is piling up one on top of the another in order to avoid getting its taxes right. But getting the price right can stimulate conservation in many more places than just cars. A tax or a tariff can get it all right in one go. You don’t need dozens and hundreds of senseless legislations.

        • Moe says:

          Nobody, I don’t see any reason why it has to be one or the other. Let’s do both. Remember ’08 when the price of gas shot over $4 a gallon – the car companies were falling all over themselves introducing new more fuel efficient models.

        • Nobody says:

          You should have it very clear that the current taxes distort the market. That the government does not bill the cost of its freedom missions in the Middle East into the price of gas constitutes an implicit subsidy to drivers which is paid from taxes other people pay or the same people pay on items not related to gas consumption. The US government volunteered for a noble mission of stabilizing the Middle East and bringing democracy to the most unlikely places. When was the last time the US government wasted trillions on bringing democracy to a nation of 25 something mln people in Africa or Asia? These projects are part and parcel of the global gasoline consumption. It’s not enough that other countries don’t pay these costs while they are ranting about imperalism and neocolonialism. Even within the US these costs are paid by wrong people or by the right people but in wrong places.

          I mean, with all this blah blah blah about ethanol subsidies, the truth is that the ethanol subsidy is basically just trying to outsubsidize the huge implicit subsidy the same US government pays to its drivers for burning gas. Take these trillions wasted in the Middle East and bill them into the price of gas. You will already get a $1 gas tax at least, twice as much as the ethanol subsidy. Krauthammer is right about this. Get the taxes right and you don’t need any more subsidies and absurd CAFE standards. Laffer was making a similar point at the beginning of Obama, only on a much bigger scale. But he was ignored

          • I agree that all these subsidies distort the market and confuse it. I hate the ethanol subsidy. I am just not comfortable with a higher gasoline tax. The price signals are already high (but declining recently), but the US economic recovery is anemic at best. Raise gasoline prices via a tax and you risk plunging the economy into recession.

            I realize that my point is too focused on the short term, which is why your gradual tax increase might make more sense. We’ll see…

  4. Nobody says:

    *** A carbon tax would attach the national security and environmental costs to carbon-based fuels like oil, causing the market to recognize the price of these negative externalities. ***

    He nails it down here. Because this is just it. The price of these externalities is real and being inflicted on the US that very moment in the Middle East. But it’s not the drivers who pay it since the government diffuses these costs instead through other taxes over the whole economy.

      • Nobody says:

        In a textbook free market economy, there is no government which is running foreign policy and sending armies to the Middle East. The drivers can just as well create their own association and collect membership fees to pay for the armies that will bring stability and democracy to the Middle East aka securing stable oil supplies to the global market. There exists no other reason why this piece of arid wasteland populated by a few hundreds millions of people should be the super star of the global politics and US interests. Africa is far bigger and has more people.

  5. Nobody says:

    *** Sean Patrick Hazlett says:
    Saturday, June 25, 2011 at 13:10
    I agree that all these subsidies distort the market and confuse it. I hate the ethanol subsidy. I am just not comfortable with a higher gasoline tax. ***

    Then you can swap taxes in a revenue neutral way the Krauthammer way. The thing about such a tax swap is that you have here another absurdity. If I swap payroll taxes for a $1 gas tax, the price is not going to increase by $1. It will go up by say 80 cents. I mean for every gallon burned after such a revenue neutral swap, you get 20 cents that you take from the producer and put into the pocket of the driver. It’s revenue neutral only for the government. The driver wins 20 cents on every gallon after such a swap.

  6. Nobody says:

    *** Sean Patrick Hazlett says:

    After centuries, it unfortunately continues to be the “crossroad of civilization.” ***

    If the US does not get out of there in time, the next installment of this “crossroad of civilizations” sequel is quite likely to feature America facing the newly empowered Chinese imperial navy with its carrier killer ballistic missiles. At this point the costs of the addiction to petroleum imports may grow to be astronomical.

  7. Nobody says:

    *** Sean Patrick Hazlett says:

    I hope. I know they are building a series of bases to circumvent it, but it will take time… ***

    The truth is that there is some kind of disruptive technological shift in this field. In the future wars carriers may become the last place you will want to get stuck in

    But you don’t have to be there. Swap taxes. Or get a tariff.

    • I fear you may be right and if that happens, the era of one power keeping commerce smooth for the rest of the world will be history. Without carriers, the United States has far less power projection capability.

      • Nobody says:

        Again. You don’t have to be everywhere. Cut this addiction short and you are free.

        Look. The US economy is absolutely huge. If you take this monster and send it searching for alternatives to oil by using taxes or tariffs, the private sector will pour many many billions into this search. And once such an alternative is found, it will be the end of all petro-nuts: the Arabs, the Persians, Russia, Huge Chavez. This will be the end of them all.

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