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Calif. Field Goes from Rush To Reflection of Global Limits

By Steven Mufson
Washington Post Staff Writer
Tuesday, July 29, 2008

BAKERSFIELD, Calif.

In May 1899, a pair of oil prospectors wielding picks and shovels dug into a bank of the Kern River where some gooey liquid had seeped to the surface. About 45 feet down, they hit oil, and when the local newspaper printed the news, it set off an oil rush that swept up hundreds of fortune seekers, oil companies, a big railroad and even some enterprising school districts that bought up tracts in hope of turning a profit.

Today, on an arid square of land the size of Manhattan, thousands upon thousands of black derricks crowd the landscape, bobbing gently up and down and sipping crude oil from the field discovered a century ago. The wells aren't gushers these days, but they still squeeze out a few barrels a day here, a few more there.

Chevron has injected steam into the reservoirs, coaxing the sedimentary rock into giving up millions of barrels of heavy oil that was too thick and sticky to retrieve using the technology of decades past.

But the Kern River field, like most U.S. oil fields, is in decline. After surging to new highs during the 1980s, Kern River production has dropped to just over 80,000 barrels a day, more than 40 percent below its peak. Enhanced recovery techniques will continue to prolong its profitable life, but its days are numbered.

Kern River is the story of America's oil supply. Four decades ago, the United States was the world's biggest oil producer. But U.S. crude oil output peaked in 1970, at 9.6 million barrels a day, which was enough to cover the bulk of the country's needs back then. Now, U.S. crude production stands at 5.1 million barrels a day. Together with liquids derived from natural gas and other inputs, domestic production covers only 42 percent of the country's needs. The balance comes from imports. Ever since President Richard Nixon called for "Project Independence" in a 1973 address to the nation, U.S. energy independence has been little more than a throwaway line in political speeches.

The United States is at the leading edge of what may lie ahead for worldwide oil production. Global petroleum output is still rising, but the rate of growth is slowing. Supply is not increasing fast enough to keep up with soaring global demand, putting ever more upward pressure on oil prices.

New technology is opening virgin areas for exploration -- especially off the shores of Brazil, the west coast of Africa and the Gulf Coast of the United States -- and extending the lives of older fields. But elsewhere, war and other political obstacles are impeding the development of prospects that would otherwise be the most accessible and cheapest to exploit.

Even if these fields become fully available, many oil experts warn that the world's production will hit a peak soon if it hasn't already. With the exception of Iraq's, most of the "easy oil" in large reservoirs close to the surface is gone. Mexico's biggest field, Cantarell, is in steep decline. Indonesia has become a net oil importer, withdrawing from the Organization of the Petroleum Exporting Countries as output from its largest fields has slipped and new discoveries have lagged. Production in the North Sea is plummeting, and Russian output is hitting a plateau.

Future discoveries may not turn the tide. New deepwater fields peak fast and then decline because of their unique geology. Deepwater prospects and fields of heavy oil, like those already being exploited in western Canada and Venezuela, are expensive and energy-intensive to develop.

In the meantime, it's getting more expensive to keep oil flowing from existing fields. Older infrastructure, including aging pipelines on the North Slope of Alaska and outdated equipment in Iran, cry out for costly maintenance.

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Christophe de Margerie, chief executive of the French oil giant Total, says the "optimistic case" for future global output is 100 million barrels a day. That's just 15 million more than the current figure. If de Margerie is right, global oil demand is on track to outstrip maximum possible supply by the middle of the next decade.

With so many fields in decline, the International Energy Agency said in a sobering July 1 report that "over 3.5 million barrels a day of new production will be needed each year just to hold global production steady." That amount is so great that it would fill up a reservoir the size of Kern River every year.

The prophet of limited supply is Matthew Simmons, a voluble Houston-based consultant who says the world hit its sustainable peak oil level in May 2005. He argues that even Saudi Arabia's super-giant Ghawar field -- with original reserves of 82 billion barrels and covering a 160-by-30-mile expanse -- is in decline. A self-labeled "Darth Vader of darkness," he travels the world and preaches his message in presentations to investors, military officers and Chinese officials.

According to his philosophy of "peak oil," supply is so tight that the price of oil, even at its current level, is still too low. He predicts it is headed to $500 a barrel.

At the other end of the debate is Saudi Oil Minister Ali al-Naimi, a voice of optimism. "I am bullish about the role of technology in meeting future and current needs," Naimi said at a meeting in Washington. "Tight conditions in oil markets have caused some observers to speculate that oil supplies are at or near their peak," he said. "I believe such views are short-sighted and ignore the extent to which technology has enabled us to find and produce oil." If technology enables the portion of oil recoverable from Saudi fields to rise 1 percent, he noted, that would amount to 3.5 billion barrels, or about a year's worth of Saudi production.

Naimi's role is to assuage a nervous market. He blames the continued run-up in prices on "speculators." And he asserts that Saudi Arabia would be able to meet the world's rising demand for years to come.

Many experts find themselves between these two poles.

Sadad Husseini, who spent 31 years as a petroleum engineer for the Saudi state oil company Aramco, says Saudi Arabia faces challenges as it cranks up its production capacity to 12.5 million barrels a day. That's 2 million barrels a day more than the record production it reached during the Iran-Iraq war almost three decades ago. "They're developing everything they can," Husseini said.

Though Saudi Arabia drilled fewer than 300 new wildcat, or exploratory, wells from the early 1930s through 2006, Husseini said even a sharp increase in exploration in Saudi Arabia wouldn't uncover the type of super-giant fields that made the kingdom the center of the petroleum universe.

"Usually, the largest fields are the easiest ones to discover," he said. "Whenever you go someplace, when you go offshore or anything, you discover the biggest fields because they're the easiest ones to catch. It doesn't mean that there aren't other ones, but they will be smaller and not as long-lasting. With the exception of the Red Sea, Saudi Arabia is pretty well explored."

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Some of the biggest obstacles to getting more oil out of the ground are not geological but political. In the United States, oil companies are trying to persuade Congress and state governments to remove prohibitions on drilling in Alaska's wilderness preserves and on the Outer Continental Shelf off the Atlantic, Pacific and eastern Gulf of Mexico coasts. Environmental groups and leading Democrats in Congress counter that the wilderness and offshore prospects aren't big enough to fundamentally alter the U.S. or world market.

Mexico's constitution forbids alliances with foreign oil companies, which often have the technology and expertise required for exploration and production. In Nigeria, insurgents from the oil-rich Niger River delta, eager for a greater share of petroleum revenue and unhappy about environmental degradation blamed on production, have blown up oil facilities and trimmed 20 to 30 percent of the country's output. Venezuela has been bickering with foreign companies and employees of its state-owned oil company, and production has never returned to the level that preceded a labor strike that ended in 2002.

And in Iraq, where the world's biggest untapped prospects lie, violence and the absence of a national petroleum law have kept major oil firms from investing. If these problems could be resolved, experts say, Iraq's production could nearly triple.

These foreign impediments are part of the reason so many U.S. companies keep drilling holes in the United States. California, which has accounted for about one-third of the oil produced in the United States, is like a pin cushion. At the Kern River field, Jeff Hatlen and other Chevron engineers and technical experts are trying to wring the last oil from the earth there. One well drilled in 1902 is still producing.

"When I came here 30 years ago, people thought this would be shut down in 15 years," said Hatlen, a senior technical adviser at Chevron, as he paused beneath the brutal sun at the spot where the original prospectors drilled.

This area of California is the setting for the fictional story told in the film "There Will Be Blood." But the region has lost any frontier feel it once had. Drive down Interstate 5, steer through the suburban tracts and malls of Bakersfield, and the road leads to Chevron's strange landscape.

Silver steam pipes wind their way along the dusty roads and up and down the hills here. Small collection tanks dot the area. Crews tug and push drilling equipment into place for new wells.

Even in the parking lot of the main office, small derricks are busy sucking oil from the ground. Inside, workers scan an electronic topographical map mounted on the wall displaying daily production and maintenance orders. Elsewhere in the building, geologists study three-dimensional seismic maps of the rock below in search of the last oily pockets.

When he worked in Saudi Arabia, Hatlen recalled, some wells produced 25,000 barrels a day. By comparison, extracting oil from the Kern River field is like filling the world's gas tank with an eye dropper. Still, he added, "This is important for Chevron and the country because if we do it economically, it can be useful to our company and country."

Standing beside the river bank where oil first seeped to the surface, Hatlen reflected on nature's legacy. "The river has flooded here for 5 million years and laid down these sediments," he said.

After the discovery of oil, it took 85 years to produce the first billion barrels from the field. It took 24 more years for the next billion. And Hatlen and Chevron hope to milk out 650 million barrels or so more over the next couple of decades.

If they succeed in retrieving those final drops, it would be an achievement of modern technology. But then all the oil that can be recovered here -- the inheritance of a natural confluence of events lasting millions of years -- will be gone.

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