Global economic networks, like today's oil networks, are typically sparse (few nodes), hierarchical (an inverted pyramid of distribution), concentrated (big hubs), and vulnerable (not built with security in mind). When we look at the global oil network we find that the biggest network hub is Saudi Arabia. Within Saudi Arabia, production is highly concentrated with few major hubs --a handful of fields produce the vast majority of its oil. This pattern of field concentration follows the King (the supergiant), Queen (giants), and Lords (large) rule, which is true for all major oil basins. Let's sort the Saudi fields according to this rule:
- The King. Ghawar. The world's King of Kings. Discovered 1948/49. Ghawar has produced 60-65% of all Saudi oil between 1948-2000. It produces over 5 m barrels a day (~6.25% of global production). There is even zonal concentration within Ghawar -- Arab D.
- The Queens. Abqaiq (1940) and Safaniya (1951).
- The Lords. Berri, Zuluf, Marjan, Abu Sa'fah, Shaybah, and Qatif (1945-1967)
The strategic risks
This pattern of concentration indicates that the global focal point of the world's oil system is Ghawar. It's the mega-hub of the global oil network. Let's therefore examine the risks to Ghawar. There are three main categories of risk:
- Data risk. There is very little reliable data on oil production/reserves in OPEC nations (for example: reserve estimates are often inflated). The recent Royal Dutch/Shell experience (they downgraded reserve estimates by 20%, twice due to optimistic estimates) demonstrates the dire financial consequenses of this behavior. There is reason to believe that ARAMCO may be following a similar policy given the fuzzy data on Ghawar's reserves.
- Technology risk. Technological improvements may not be sufficient to radically extend the lives of large fields. The rapid decline of Oman's Yibal field, despite its use of advanced technology, is an example this. Recent indicators imply that Ghawar is running into the same problems as Yibal did.
- Global guerrilla risk (terrorism). As seen in the recent attacks on oil facilities/personnel in Iraq and Saudi Arabia. An attack on Ghawar, particularly Arab D, could radically impact world oil supply.
The global oil network is tightly coupled to global economic activity (via inflation). There is robust historical data on the economic costs of previous disruptions. Further, the global oil market is very inelastic in the short-term (this means that even minor decreases in supply result in large price increases). The reason for this is that it takes a significant amount of time for customers to switch to alternative fuels or implement conservation measures. Here's how oil network disruptions would cascade into global economic activity if the risks detailed above are realized:
- Fear of attack or disclosure of error. Current oil prices (over $40) are the result of a fear of terrorism and increased demand. A similar price could be expected if data or technological risk are proven to be real. A sustained price of $40 will reduce global growth by 1% (-$500 billion in the first year).
- Moderate attack. If global guerrillas attack Ghawar successfully, the price of oil will likely spike to $75 a barrel. This would slow global economic growth by 2.5% (a -$1.25 trillion loss).
- Large attack. A successful attack on Ghawar and Basra would result in a price of $160 a barrel. Global economic growth would slow by 4.55% (a -$2.25 trillon loss) -- essentially a global depression.
Our response should be
Given this analysis, global guerrilla risk to Ghawar, as the global mega-hub of oil production, is the most dangerous of the risks we face. In 4GW terms, the miracle of Ghawar's production is a great strength but it can be turned against us. To mitigate this we should undertake the following:
- A push for better data. Transparency is a must for data an technological risk reduction.
- Conservation and alternative energy sources. This is a long-term solution but is necessary to reduce the our exposure to oil concentration.
- Increased protection of Ghawar and Basra. Protection of Ghawar is extremely important. Unfortunately, this is not as simple as it seems. There are lots of targets. Ghawar is vulnerable to attacks on: wells, personnel, management systems, pipelines, water facilities (water is injected into the field to push out oil), power facilities, power transmission, and more. A creative global guerrilla could have a field day given the number of potential targets that would directly impact production at Ghawar.