LOS ANGELES, Aug. 13 – As Chief Petroleum Engineer for the Arabian-American Oil Co. in the late 1970s, Lou Powers had unique insight into the inner workings of the world’s greatest oil-producing nation. Saudi Arabia continues to remain the world’s leading oil power, a fact underlined in recent months as the country maintains production of about 10 million b/d. Eric Watkins, Publisher of Watching World Energy, recently touched base with Powers, whose new book, The World Energy Dilemma, is now out.
EW: Your new book The World Energy Dilemma details your personal history as a petroleum engineer working in several key locations around the world, including Saudi Arabia. When were you there and what exactly was your job?
LP: I was assigned the position of Chief Petroleum Engineer for Aramco, or the Arabian American Oil Company, in 1977-79 on a two-year loan from my parent company, Exxon, now known as ExxonMobil. In 1977, Aramco was a beehive of activity. As we arrived, Aramco was targeting 16 million barrels per day (b/d) of capacity by 1982, under the shareholders’ plan — up from 8 million b/d in 1977. The owners of the Saudi concession were Exxon, Mobil, Texaco and Chevron. At that time, Aramco had about 25% of the free world’s reserves and petroleum engineering was primarily responsible for planning the production program and for developing these large reservoirs to maximize ultimate recovery.
EW: Your experience has a lot to tell us about today’s world. What would you say is the most important take-away from the experiences you describe in your book?
LP: The world has found itself in a very critical position with rising demand in portions of the world, that is, developing countries and the many impeding barriers such as political, confusion about how and whether there is a need to mitigate climate change, and wars. Is CO2 produced by man’s economic development really the cause of global climate change? All of which tends to slow down the development of much needed energy capacity programs. The world has abundant resources of primary energy supply, particularly oil and gas. But the surplus capacity needed has shrunk to the point that future energy prices led by oil and gas will be very vulnerable to supply disruptions. These abundant resources have been brought about by great technological advancements in the last few years in seismic, deep-water exploration, and source rock, that is, new shale oil and gas supplies now available and high oil prices.
EW: In your career, you were involved in U.S. presidential politics. When was that and how does that experience bear on the presidential elections now moving forward in the country, the battle between President Barack Obama and Governor Mitt Romney?
LP: In 1992 I was asked to be on the Energy Planning Committee of Ross Perot, one of several people, and provided input to the development to his energy plan, which was never released to the public, in that he withdrew from the race shortly thereafter. I understand that some of my ideas were later incorporated in the Republican energy plan. Thus, the Perot Energy plan of ‘92 is incorporated in The World Energy Dilemma, and all sources of energy are reviewed based on current information.
Energy should be a key issue in the current election cycle but even so, neither candidate has spent a lot of time discussing this topic. Energy development in our own country should be one of the biggest job growers around, let alone making us more energy self-sufficient. One of the reasons America became the world’s biggest economy was because we had the oil to fuel the World War II war machine.
Saying “Elect me and we will become energy self-sufficient in so many years” is not being truthful with the American public. Green energy based on spending our grandchildren’s tax dollars is not the way to becoming energy self-sufficient. We will need all forms of energy development in this country, including oil, gas, coal, and nuclear — along with green energy that competes on an economic basis.
EW: What would you say is the single most important thing for Americans to learn about energy? Do you believe in the theory of peak oil?
LP: We need to work on both sides of the energy equation, as the Perot plan specified: production and consumption. We need to free America of increasing regulatory burdens, accelerate the development of our offshore deep-water resources, free up the industry to develop the ANWR, and at the same time reduce our dependence on gasoline and diesel, oil-based fuels. Let’s accelerate the development of our natural gas grid and emphasize the need for alternative fuel supply vehicles, but without spending our grandchildren’s tax dollars. Cut out all tax subsidies unless the current generation has the money to spend. Research by private industry is the way to go, not wasteful government grants such as Solyndra
In regard to peak oil, yes, some day we will reach an oil production peak. I think conventional black oil, that is, cheap oil may have already peaked. I question forecasts made by ExxonMobil and Daniel Yergin that say we will be producing 108-110 million b/d of petroleum liquids including condensate by 2030 some 18 years from now. I am sure they have put a lot of study and manpower into their studies, but I remember the EIA U.S. Energy forecasts of Saudi production capacity of 20+ million b/d done in the 1990s. So, I heed the words of E.F. Schumacher in his book Small is Beautiful where he says: “Man will appreciate the men who say ‘stop, look and listen,’ rather than those who say ‘look It up in the forecast ‘.”
I even saw one report recently in the in the Journal of Petroleum Technology, which reported on a study by Belfort Center for Science and International Affairs at Harvard University that reported the world would reach 110 million b/d by year 2020 – only eight years away. I say: “I wish so.” But with all the dilemmas I see for the world and the energy industry, I say: ”Lots of luck.”
EW: At the moment, we are seeing world oil prices rising due to the stepped up sanctions against Iran. Saudi Arabia has been the main supplier making up for the market’s lost supplies from Iran. The Saudis are producing about 10 million b/d of oil. How long can they continue to do that?
LP: In my book I have made my own independent assessment and have concluded they could continue at that rate for several more decades, just from their proven reserves, assuming peace and stability in the region, including free access to ship their oil. Certainly they have done a lot better than some of the pessimists a few years ago were predicting. Based on technology when I was there, I would have never predicted the Saudis would be producing 10 million b/d today based on technology we knew at that time. The Saudis will have to spend a few hundred billion dollars – and that assumes no severe price fall due to worldwide recession – to maintain their current capacity for the decades ahead.
The Saudis’ future oil development may be just like the development of oil in the U.S. Application of new technology to unlock difficult-to-produce oil is extremely price-sensitive. The days of cheap oil, that is $60.00-per-barrel oil, are over unless the world economy is in a severe economic slowdown
EW: The Saudis recently announced that they have nearly 260 billion barrels of oil reserves. Do you think that is a conservative figure? Or do you think that new technology could come along to justify even greater reserves than at present?
LP: I came up with somewhat less than the official proved reserve number. But even with a lower number, the Saudis have plenty of reserves to keep supplying oil for decades to come, again assuming peace and stability in the region. But it will require huge capital expenditures to keep their oil production levels. What is more important will be their level of exports. With a rapidly growing population and internal consumption increasing 7% per year, there may be a day where production is still 10 million b/d but there is none left for export.
EW: As an independent consultant you were involved in selling oil and gas properties, were you not? How did that work out?
LP: Over the years, the two companies I was involved with participated in the sale of $250 million worth of oil and gas properties, some for independents and the other large royalty or mineral owners. The trades involved some 30 different transactions. For most of our clients we were able to get satisfactory prices. Generally, we made most of our sales in a rising price environment. A couple of these where we did the reserves, put the data set together and managed the sale are chronicled in my book.
EW: I understand through your career you also included additional trips to the Middle East, Europe and the former Soviet Union – including Kazakhstan. Did you visit Tengiz when the Soviets were developing the field?
LP: Yes we made those trips to many oil-producing regions. We traveled to Tengiz on the Caspian Sea as part of a People-to-People tour in 1989. At that time, the local technical people were very open and talked about the difficulty in Tengiz development. At that time, there were some 30 rigs running on this 4,500-foot thick reef. But production never really started until Chevron took over some four years later in 1992 due to the high H2S content of the produced gas.
At the time, I wondered whether this field would ever be developed because of the high environmental risk. I asked the question: Will it be another Chernobyl or a successful oil development? Today, under Chevron’s operatorship the field is producing some 700,000 b/d and, according to Chevron, is the tenth-largest producing field in the world. Their agreement only lasts another 30 years, so they have a strong incentive to fully develop this field as fast as possible. To date, transportation has been a limitation.
EW: I take it as a petroleum expert from time to time you were asked to testify in lawsuits or help in preparing for trial.
LP: Yes, I testified in deposition and or trials, over 30 times. Some of these cases are chronicled in The World Energy Dilemma, and I end up with some suggestions for overhauling the Texas Judicial system, in particular, the civil court system.
EW: As a petroleum engineer and private consultant, you have spent a lot of time in this country helping royalty owners receive proper compensation. How long did you undertake such work? Do you have any idea how much money you earned for people in potentially lost revenues?
LP: Starting in the early 1990s, my firm along with lawyers and other consultants started doing audits for major royalty owners, principally in Texas. We continued that work through when I sold my company in 1995. But I continued as a consultant for several more years. I was involved in over 30 audits that involved both major and independent oil companies. I prefer not to say the amount but it was in the millions of dollars that was returned to the royalty owners. I discuss some of the things we found in The World Energy Dilemma. Some lawsuits were filed, but seldom ever went to trial. Most were settled when the facts were presented, but always without the admission of wrong- doing.
EW: You started to study aeronautical engineering, but decided to study petroleum engineering instead. What brought about that change?
LP: I worked a couple of summers in college when the aerospace industry had cost-plus contracts. One summer, I worked at one of the major aerospace company. We as summer engineers got paid eight hours per week overtime, but we did very little constructive work. The next summer that same company fired all of their summer engineers six weeks into the summer when they lost their cost-plus contract.
EW: If you had your life to live all over again, would you still choose to be a petroleum engineer? If so, why? If not, why not?
LP: I had what you called on-the-job training. I want to thank the supervisors who started me on my career path where I practiced petroleum engineering, which enabled me to move into management positions.
EW: In The World Energy Dilemma, you have written a book that is bound to influence how people think about energy. Do you have any plans to go on the lecture circuit and talk more about this? Will we see you throwing your support to one candidate or another in the election? Do you plan to write any further books?
LP: No. In regards to writing other books, at age 77 I have had my turn. I am willing to give lectures and discuss subjects in my book The World Energy Dilemma.
EW: One more question, I believe you told me you moved eight times, including Venezuela and Saudi Arabia. How did that impact your family life and your marriage?
LP: It made my 54-year marriage to my wife Ruth Nell stronger as we had to depend on each other more. I have three wonderful kids, all married, and my eighth grandchild on the way. While there were some disadvantages to moving so mch, there was more good than harm.
© Glamma Productions Inc. 2012