Hydrocarbon Potential of

1
Hydrocarbon Potential of Middle Eastern Basins
of the Gulf - Geology Geopolitics mix! Spring
2008
A case that demonstrates that Actions Speak
Louder than Words
Professor Christopher G. St. C.
Kendall kendall_at_sc.edu 803-777-2410
2
Outline of Presentation

• Data Sources - Texts
• Who has all the oil? Countries Reserves
• Geological Setting of the Middle East Oil
  Reserves
• Recent Oil History of Middle East
• Conclusions

3
Outline of Presentation

• Data Sources - Texts
• Who has all the oil? Countries Reserves
• Geological Setting of the Middle East Oil
  Reserves
• Recent Oil History of Middle East
• Conclusions

4
Texts on History of Petroleum Exploitation
3 books set Middle East petroleum scene "The
Prize The Epic Quest for Oil, Money Power" by
Daniel Yergin Records history of petroleum
Industry in USA, Baku, Middle East. "Sowing
the Wind The Seeds of Conflict in the Middle"
by John Keay. Chronicles activities of British
their allies... "A Peace to End All Peace The
Fall of the Ottoman Empire and Creation of the
Modern Middle East" by David Fromkin. Records
why British decided to move on Ottoman Empire and
results..... These are well written, easy to
read informative histories!
5
Texts on History of Petroleum Exploitation
3 books set Middle East petroleum scene "The
Prize The Epic Quest for Oil, Money Power" by
Daniel Yergin Records history of petroleum
Industry in USA, Baku, Middle East. "Sowing
the Wind The Seeds of Conflict in the Middle"
by John Keay. Chronicles activities of British
their allies... "A Peace to End All Peace The
Fall of the Ottoman Empire and Creation of the
Modern Middle East" by David Fromkin. Records
why British decided to move on Ottoman Empire and
results..... These are well written, easy to
read informative histories!
6
Texts on History of Petroleum Exploitation
3 books set Middle East petroleum scene "The
Prize The Epic Quest for Oil, Money Power" by
Daniel Yergin Records history of petroleum
Industry in USA, Baku, Middle East. "Sowing
the Wind The Seeds of Conflict in the Middle"
by John Keay. Chronicles activities of British
their allies... "A Peace to End All Peace The
Fall of the Ottoman Empire and Creation of the
Modern Middle East" by David Fromkin. Records
why British decided to move on Ottoman Empire and
results..... These are well written, easy to
read informative histories!
7
Texts on History of Petroleum Exploitation
3 books set Middle East petroleum scene "The
Prize The Epic Quest for Oil, Money Power" by
Daniel Yergin Records history of petroleum
Industry in USA, Baku, Middle East. "Sowing
the Wind The Seeds of Conflict in the Middle"
by John Keay. Chronicles activities of British
their allies... "A Peace to End All Peace The
Fall of the Ottoman Empire and Creation of the
Modern Middle East" by David Fromkin. Records
why British decided to move on Ottoman Empire and
results..... These are well written, easy to
read informative histories!
8
Outline of Presentation

• Data Sources - Texts
• Who has all the oil? Countries Reserves
• Geological Setting of Middle East Oil Reserves
• Recent Oil History of Middle East
• Conclusions

9
Current Middle East Reserves of Cheap Oil
Crude Oil(BB) - Natural Gas (TCF)

• Saudi Arabia 263.5 bbls 204.5 Tcf 8 Years
• Iraq 112 bbls 109 Tcf
• UAE 97.8bbls 212 Tcf
• Kuwait 96.5 bbls 52.7Tcf
• Iran 89.7 bbls 812.3Tcf
• Oman 5.3 bbls 28.4 Tcf
• Yemen 4.0 bbls 16.9 Tcf
• Qatar 3.7 bbls 300.0 Tcf
• Syria 2.5 bbls 8.5 Tcf
• Bahrain 0.1 bbls 3.9 Tcf
• TOTAL 675.1 bbls 1,748.2 Tcf

Most of these countries oil is in carbonates
10
Arabian GulfFields the ageof
theirReservoirs
Tertiary
Cretaceous
Jurassic


Paleozoic
After Al Sharhan
11
Iraq's Role?
Thomas Homer-Dixons Conflict Model Environmental
Scarcity ---gt Social Effects ---gt Violent Conflict

• U.S. War Against Terrorism in a deadly phase
  spreading across Middle East
• Middle East a geopolitical cauldron - Caspian
  States on eastern flank Mediterranean on
  western flank bridge between Europe, Africa
  Asia
• Important current battlefields within region
  include Iraq Iran, West Bank, Somalia, Sudan
  Afghanistan

12
World Petroleum Exploitation

• Non-OPEC countries produced 60 of world's oil in
  2008 with a steady increase since 1993
• Currently only 4 (Saudi Arabia, Iran, UAE,
  Venezuela) of top 10 oil producers are OPEC
• Most prolific producers are Russia 12.6, Saudi
  Arabia 10.6, USA 8.4, Iran 4, Mexico 4, China 4,
  Canada 3, Norway 3, UAE 3, Venezuela 3, Kuwait 3,
  Nigeria 2.4, Algeria 2, Brazil 2
• Non-OPEC countries have most of world's capacity
  for refining crude oil into gasoline heating oil

13
World Petroleum Exploitation

• As of January 2004, OPEC countries hold 77 of
  world's proven oil reserves
• Most major non-OPEC oil producers are very large
  consumers, low exporters
• World 84 - USA consumes 20.73, imports 13.15
  exports 1.048 million bbl/day Todays price91.45
• Persian Gulf OPEC has the world's lowest oil
  finding lifting costs
• Non OPEC oil liable to price collapse e.g. Russia
• Consumption grows 3 annually

14
Commodity Scarcity

• Exploration potential
• Gulf coast West Texas for small US companies
• Oil shales of Western USA Athabaska tar sands
• Employment in exploration builders of
  exploitation models of current oil fields in
  Secondary Tertiary recovery mode!
• At least 1 of you in this room should be
  millionaires before you retire!

15
Outline of Presentation

• Data Sources - Texts
• Who has all the oil? Countries Reserves
• Geological Setting of Middle East Oil Reserves
• Recent Oil History of Middle East
• Conclusions

16
Arabian Basin

• Traces a polyhistory of plate tectonic
  sedimentary fill
• Pre Cambrian to Infra-Cambrian - Continental
  interior
• Silurian and Ordovician clastics Continental
  interior
• Permian clastics carbonates Trailing margin
• Upper Jurassic Carbonates Trailing margin
• Lower Cretaceous Carbonates Trailing margin
• Middle Cretaceous Compression Zagros Mts
  initiated
• Tertiary Carbonates and Clastics - Compressional
  margin

17
Oil Production - Arabian Gulf

• Productive hydrocarbon section older to West
  Paleozoic younger in East in the Zagros Mts
  Upper Tertiary.
• West to East production includes
• Infra-Cambrian Salt
• Silurian and Ordovician clastics Unaizah
• Permian clastics carbonates Khuff
• Upper Jurassic Carbonates - Arab Tuwaik Mt
  Group
• Lower Cretaceous Carbonates Shuaiba Thammama
• Middle Cretaceous Mishrif
• Tertiary - Asmari

18
Zagros Mountain Chain
After Dennis Tassa
19
Structural Provinces - Arabian Gulf
Zagros Fold Mts
Mesozoic to Tertiary Foreland Basin
Pre-Cambrian Shield
Nasa Image
20
Arabian Gulf tracks the Wilson Cycle
The Wilson Cycle records plate motion opening
closing of ocean basins and the Arabian cycle is

• Interior Cratonic sag fracture basins of Arabia
• Plate rift divergence with formation of new
  ocean basin, the Tethys
• Plate motion reverses convergence enables
  collision, mountain building, the Zagros
  Mountain chain

21
Arabian Gulf
Interior Sag
Extensional margin
Extensional margin
22
Evolution of Arabian Gulf
Foreland Basin
Compression Foreland Basin
Extensional margin
Extensional margin
Interior Sag
After Kingston et al, 1983
23
Oil
Gas
24
Pre-Cambrian
Interior Sag
25
Silurian
Interior Sag
26
Extensional margin
Permian
27
Restricted Entrance To Sea
Structural Depositional Barrier over Hercynian
Horst Blocks
Permian Khuff Saudi Arabia Oman UAE
Arid Tropics Air System
Wide Shadow from Adjacent Continents
28
Extensional margin
Jurassic
29
Extensional margin
Jurassic
30
Restricted Entrance To Sea
Depositional Barrier over Hercynian Horst Blocks
Upper Jurrassic Saudi Arabia Kuwait, Iran UAE
Tropical Air System !
Wide Shadow from Adjacent Continents
31
Compression Foreland Basin
Cretaceous to Tertiary
After Dennis Tassa
32
Zagros Fold Mountains - Iran
Compression Foreland Basin
Nasa Image
33
Zagros Fold Mountains Iran
Nasa Image
Compression Foreland Basin
34
Zagros Fold Mountains - Iran
35
After Murris
36
After Murris
37
From International Petroleum Encyclopedia
38
Arabian Gulf Factory producing carbonates
storing products of cyanbacteria since Permian
Nasa Image
39
A big day for a bloom!!
Organics in the Gulf!
Nasa Image
40
Basin
Ramp
Open Shelf
Restricted Shelf
41
Sedimentary Section is Source

• Collister, James, Robert Ehrlich, Frank Mango,
  and Glenn Johnson (2004), Modification of the
  petroleum system concept Origins of alkanes and
  isoprenoids in crude oils AAPG Bulletin, v. 88,
  no. 5 pp. 587611Establish that the source of
  petroleum was once dispersed through much of the
  sedimentary sections and not necessarily from
  classic organic rich source rocks.

42
After Baum, Kendall
43
Geological Setting of Jurassic Oil
Seal
Seal
Reservoir
Reservoir
IntrashelfBasin
IntrashelfBasin
44
The Hanifa Formation Oil Fields
45
Hanifa Formation - Berri Field
46
Lower Cretaceous - Barremian
Barremian Paleogeography in Gulf Region
(Murris1980)
47
Lower Cretaceous
Stratigraphic cross-section of Cretaceous
Eastern Arabia (Alsharhan Nairn 1986)
48
Zakum Field - UAE
Note fining upwards cycles
Pittet et al, 2002
49
Zakum Field - UAE
Anticlinal shape of field
Pittet et al, 2002
50
Geologic Cross-Section - Arabian Gulf
Oil fields become younger from west to east
51
Arabian Basin

• Traces a polyhistory of plate tectonic
  sedimentary fill
• Pre Cambrian to Infra-Cambrian - continental
  interior
• Silurian and Ordovician clastics continental
  interior
• Permian clastics carbonates trailing margin
• Upper Jurassic Carbonates trailing margin
• Lower Cretaceous Carbonates trailing margin
• Middle Cretaceous compression and collision
  starts
• Tertiary Carbonates and Clastics- compressional
  margin

52
Oil Production - Arabian Gulf

• Productive hydrocarbon section older to West
  Paleozoic younger in East in the Zagros Mts
  Upper Tertiary.
• West to East production includes
• Infra-Cambrian Salt
• Silurian and Ordovician clastics Unaizah
• Permian clastics carbonates Khuff
• Upper Jurassic Carbonates - Arab Tuwaik Mt
  Group
• Lower Cretaceous Carbonates Shuaiba Thammama
• Middle Cretaceous Mishrif
• Tertiary - Asmari

53
Outline of Presentation

• Data Sources - Texts
• Who has all the oil? Countries Reserves
• Geological Setting of Middle East Oil Reserves
• Recent Oil History of Middle East
• Conclusions

54
Recent History of Middle East Oil

• "War is the unfolding of miscalculations."
  Barbara W. Tuchman

55
Oil Time Line Important Events

• 1850 - 1910 Kerosene the fuel of choice
• 1869 Suez Canal opens
• 1878 Electric Light
• 1908 Auto Boom starts
• 1912 UK Navy uses Oil
• 1914 1918 WWI
• 1920 9 million vehicles U.S
• 1938 1945 WWII
• 1948 Israel born
• 1948 1st Arab Israeli War

• 1948 US Net Oil Importer
• 1952 Iran Oil Nationalized
• 1956 Suez Nationalized
• 1956 2nd Arab - Israeli War
• 1960 OPEC founded
• 1967 3rd Arab - Israeli War
• 1969 Qaddafi coup
• 1978 Khomeini coup
• 1980 Iraq Iran War
• 1990-91 1st US - Iraq War
• 2003 - 2nd US - Iraq War

56
World Petroleum Exploitation

• "When war is declared, truth is the first
  casualty."
• Arthur Ponsonby

57
Recent History of Middle East Oil

• Paraffin no longer hydrocarbon of choice Baku
  lost as a source of oil
• Western oil exploitation of Middle East driven by
• Loss of Russian Sources
• Demands of naval shipping
• Advent of the motor car
• Iran explored by British before First World War
• After this war break up of Ottoman Empire
  exploration extended to Iraq
• Initially the British and French were involved
  US became equal partner
• Then US, in connivance with Gubenkian, acquired
  the Saudi Arabian oil concessions
• Increased military civilian needs of West
  caused conflict with Middle East countries with
  the immense cheap oil reserves
• Israel - 1948
• Iran - 1952
• OPEC - 1960
• Now the world consumes 85 million barrels (plus)
  of oil a day these confrontations continue today

58
Joseph Stalin
1893
1903

• 1879 December 9 - born in Gori, Georgia.
• 1894 Arrives Tiflis Theological Seminary.
• 1895 Works with Russian Marxists exiled to
  Transcaucasia by Tsarist government.
• 1896-1898 At Tiflis Theological Seminary gathers
  Marxist students to study Marx, Engels, Lenin.
• 1898 January formed workers' Marxist circle in
  Central Railway Workshops of Tiflis.
• 1899 May 29 Stalin expelled from Tiflis
  Theological Seminary for propagating Marxism.
• 1898-1904 Organized, directed revolutionary
  activities, writes leaflets, lead strikes sent
  to Siberia received letter from Lenin escaped
  back to Baku to lead general strike of Baku
  workers.

59
Baku Oil Monopoly Dies

• 1903 1904 Oil worker strikes common against
  Tsar
• 1904 Baku kerosene supplied 47 of needs of UK
  71 of France
• 1905 Oil worker strikes halt Baku production
  Stalin exiled to Siberia
• 1914-18 Baku oilfields refineries control by
  Shell Nobel Brothers, supply Russian Army. UK
  interest in Transcaucasia oil-rich area
• 1917 Armed intervention against Bolsheviks in
  Transcaucasia East for control of Baku's oil,
  discussed in London. Henri Deterding, Shell
  president, buys shares of largest oil producers
  who fled Baku after Oct revolution. Sets up
  military-political mission in Iran with General
  Dunsterville
• 1918 March pogroms against Azerbaijanis by
  Armenians Bolsheviks in Baku. Declaration of
  Baku Commune establishes links with Moscow
  recognizes role of Russian Federation .
• 1920 April 28, Bolsheviks seize power at Baku
  Nobels sell most of Russian holdings to Standard
  Oil (NJ) by 1923 inflow of Western funds help
  Russian oil production back to pre-revolutionary
  levels.
• 1920 Roughly 9 million gas-burning vehicles now
  in U.S

60
Central Asian Middle East Oil
1850-1920
Batum
Baku
1927
Kirkuk
Suez
1908
MIS
1869
Dammam
1938
61
British Navy Petroleum
Fisher
Churchill

• John Arbuthnot Jackie Fisher 1st Baron Fisher
  (Jan 25, 1841 July 10, 1920), joined Navy in
  1854 as 3rd Sea Lord built 1st destroyers, 1902
  2nd Sea Lord, in 1905 1st Sea Lord when Germany
  Britain in naval arms race. Preferred
  battlecruiser with speed not amour, introduced
  submarines converted from coal to oil fueling
• Winston Churchill After career as journalist, in
  army and then parliament, in 1912 became 1st Lord
  of Admiralty ordered conversion from coal to
  oil
• 1901 Spindletop's discovery lead to Shell
  Transport Trading needing sales

62
Oil Fords Automobile

• 1896 Ford constructed his first horseless
  carriage sold in order to finance work on an
  improved model.
• 1908 Ford T in production, price as low as 280.
  Nearly 15,500,000 sold in USA. Model T heralds
  beginning of Motor Age and car evolved from
  luxury item for well-to-do to essential
  transportation for ordinary man.
• 1920 Roughly 9 million gas-burning vehicles in
  the U.S

63
Zagros Mountains

• Abundant Oil Seeps
• Abundant Anticlines

64
Iranian Negotiations Begin

• Jacques de Morgan Archeologist identified oil
  seeps in western SW Persia.
• 1901 Antoine Kitabgi, friend of Persian grand
  vizier, Persian commissioner-general of Paris
  Exposition 1900, wants local oil industry to
  develop. Helped Baron Julius de Reuter with
  Iranian government concessions that failed.
• 1901 Asked Sir Henry Drumond Wolff, once UK
  minister in Tehran, to locate UK investor for oil
  concession.
• 1901 British William Knox D'Arcy (with
  Australian gold mining fortune) acquires 60 year
  oil concession for whole Persian Empire except
  Russian border.

65
Masjid-i-Suleiman
DArcy

• 1905 Burma Oil Comp finances D'Arcy
• 1907 Royal Dutch Shell incorporated (60RD -
  40Sh)
• 1908 Oil struck at Masjid-i-Suleiman
• 1909 Anglo-Persian Oil Company forms to develop
  field
• 1911 138 mile pipe Masjid-I-Suleiman - Abadan
  refinery
• 1912 Anglo-Persian 10-year contract with Royal
  Dutch-Shell as outlet for crude oil products
• 1914 Anglo-Persian contract to supply Navys
  ships UK government invest 2 million becomes
  major shareholder
• 1915 Anglo-Persian forms British Tanker Company
  at end of WW I owns a shipping fleet
• 1917 Anglo-Persian buys British Petroleum
  Company, acquiring a marketing organization for
  products founds a research centre at
  Sunbury-on-Thames in UK

66
Oil British Fleet - Iraq

• 1908 Discovery of giant Masjid-I-Suleiman by
  Anglo-Persian Oil Co
• 1908 Mosul Vilayet now has potential
  Gulbenkian (Mr. 5) organizes Turkish Petroleum
  Co. with UK Dutch Oil Cos
• 1909 Sultan deposed within 24 hours of
  Anglo-Persian signing concession for Mosul
  Vilayet
• 1912-1913 UK Government proposes Royal Navy be
  oil powered so needs own source
• 1914 Government has Anglo-Persian join TPC with
  50 interest while buying controlling interest of
  Anglo-Persian

67
Calouste Sarkis 5 Gulbenkian

• 1869. March 29th Wealthy Armenian family in
  Istanbul, Banker father imported Russian kerosene
  to Ottoman empire. Educated in Turkey, France
• 1897 Engineering degree, London Kings's College
• 1898 Financial oil advisor to Turkish
  embassies Paris London
• 1902 Becomes British Citizen
• 1907 Helped form Royal Dutch Shell (60RD -
  40Sh)
• 1908 Organized UK Dutch Oil Cos as Turkish
  Petroleum Co. Called Mr. 5 from holdings
• 1910 Consultant to Turkish National Bank pushing
  Oil exploration in Iraq opening up Middle East

68
Calouste Sarkis5 Gulbenkian

• 1928 Post WWI architect of Red Line Agreement
  with British (Persian Oil), Anglo-Dutch (Shell),
  French (CFP) US (Exxon Mobil) joint venture
  in former Ottoman empire producing areas except
  Kuwait Iran for 5 of all oil found.
• Oil in Iraq Saudi Arabia made him one of
  world's richest men.
• Avoided taxes by shuttling between Ritz Hotel in
  London Ritz in Paris.
• Diplomatic status as accredited to Iraqi embassy
  of London exempting from taxation
• Formed Gulbenkian Foundation in Portugal and
  supported the Arts

69
Red Line Map of Gulbenkian
70
Iraq Exploration - Events

• 28 June 1914 Grand Vizier sends letter to UK
  German Governments proposing to issue concession
  to TPC
• 1920 Treaty Of Sevres
• German interests in TPC assigned to France
• Government of Iraq promised 20 of TPC
• US Government objects to exclusion of American
  Companies
• 1923 Treaty of Lausanne Iraq becomes British
  Mandate but status of Mosul Vilayet unresolved
• 1923 TPC Starts Negotiations with Government
• March 1925 Signing of Concession with TPC, later
  Iraq Petroleum Company but with no Iraqi direct
  interest

71
Iraq Petroleum Company (IPC) Shareholders
Shell (Anglo-Dutch) 23.75 BP (British)
23.75 (Anglo-Per Anglo-Iranian) CFP (French)
23.75 (now Total Fina Elf) Exxon (US)
11.875 (now Exxon-Mobil) Mobil (US) 11.875
(now Exxon-Mobil) Gulbenkian 5
(Independent) Companies also agreed not to
compete with each other through most of previous
Turkish Empire, including Saudi Arabia Exxon
Mobil reneging on agreement when they formed
Aramco in Saudi Arabia in 1930s.
72
The Way it was!Resultsof1920 TreatyofSevres
73
Iraq First Major Discovery

• 14th Oct 1927 Baba Gurgur 1 (Kirkuk 1)
• The 6th Exploration Well Spudded after Concession
  granted in 1925
• Well blew wild at 90,000 bbls/Day
• Reserves of approx 17 Billion barrels in Tertiary
  Cretaceous
• 13th October 1927, Qaiyarah-1, 4,000 Bpd, 120 API

74
History of Petroleum Exploration

• 1933 Chevron acquire lease to explore in Saudi
  Arabia
• 1938 Steineke found oil at Dammam dome
• 1938 Oil was first discovered in Kuwait
• 1939 Chevron production exported 1st oil
• 1939 Oil is discovered in Qatar

The start of the golden age of US involvement
with exploration for foreign cheap oil
75
History of Middle East Oil Exploration
War does not determine who is rightonly who is
left Bertrand Russell
76
Oil Time Line Important Events

• 1850 - 1910 Kerosene the fuel of choice
• 1869 Suez Canal opens
• 1878 Electric Light
• 1908 Auto Boom starts
• 1912 UK Navy uses Oil
• 1914 1918 WWI
• 1920 9 million vehicles U.S
• 1938 1945 WWII
• 1948 Israel born
• 1948 1st Arab Israeli War

• 1948 US Net Oil Importer
• 1952 Iran Oil Nationalized
• 1956 Suez Nationalized
• 1956 2nd Arab - Israeli War
• 1960 OPEC founded
• 1967 3rd Arab - Israeli War
• 1969 Qaddafi coup
• 1978 Khomeini coup
• 1980 Iraq Iran War
• 1990-91 1st US - Iraq War
• 2003 - 2nd US - Iraq War

77
History of Petroleum Exploration

• Oil became commodity of military success
• In Second World War Germany controlled the oil of
  Romania
• Wanted to acquire Baku (Russian) Persian Gulf
  (British Empire)
• BP active in Middle East controlled Persian
  Gulf until USA acquired exploration concessions
  in Saudi Arabia (5)
• Cheaper oil for all!!!

78
Center of Gravity
1944
De Golyer The center of gravity of world oil
production is shifting to the Middle
East 1945 - Ras Tanura Refinery Saudi Arabia
begins operations to become largest refinery
in World
79
Petroleum What to do in the Middle East?

• US government to acquire direct ownership
• US government to negotiate agreement with
  British
• Allow private companies to conduct the business

80
Yalta

• 1st Option Ruled out
• 2nd Option Before going to Yalta, Roosevelt
  withdrew it
• from Senate
• 3rd Option Won

81
Growing Demand Rising Production
1945 26 million cars 1950 40 million cars
Many new discoveries
USA
1948
Net exporter
Net importer
82
History of the Oil Price
83
March 12th, 1947 Truman Doctrine

• New Aramco Socol, Standard Oil of NJ, Texaco,
  Socony
• Gulf Oil Shell in Kuwait
• Iranian contract between Anglo Iranian Standard
  Oil,
• Socony

84
Europe in crisis Marshall Plan
85
Birth of Israel
1946 June - Oil giant Burgan field discovered
1948 May 14 - First Arab - Israeli war
1951 May - 1st shipment of Kuwait crude oil
86
King Ibn Saud

• Ibn Sauds Dilemmas -
• Birth of Israel
• US guarantee of Saudi Arabian independence
• Soviet threat

87
Advancement in Technology
Post-war petroleum order
Center Middle East Market USA, Western
Europe, Japan Technology Huge
development Problem Large surplus of oil
How to divide profit?
88
Stress on Seven Sisters or Big Oil
50-50 Deal, December 1950 But producing
countries wanted more money and power!
89
Korean War - Iranian Card
Iran 40 of Middle Eastern oil Weak Shah US
interest Korean war British hatred Nationalizat
ion, May 1951, Mossadegh (Mossy)
90
History of the Oil Price
World events, 1947-1973
91
History of Middle East Oil Exploration
"What a country calls its vital economic
interests are not the things which enable its
citizens to live, but the things which enable it
to make war. Petrol is much more likely than
wheat to be a cause of international
conflict." Simone Weil
92
Dr. Mohammad Mossadegh
King Reza Pahlavi

• Expropriation vs. economic warfare, 1952
• No oil export, no money, economic trouble
• Law and order collapsing
• Mossadegh turned to Moscow
• U.S. and British assisted coup
• Shah regains power
• Oil consortium Jersey, Socony, Texaco, Standard
  of California, Gulf Shell Anglo Iranian
• Result USA becomes major player in Middle East,
  1954

93
Suez

• Suez represented post-war petroleum order
• 2/3 of Europes oil passed through Suez
• 2/3 of traffic in Suez was oil

94
Gamal Abdel-Nasser
1952 A coup removed King Farouk 1954 Colonel
Gamal Abdel Nasser became dictator

• Rejected Western involvement
• Pan-Arabism
• Greatest international crime the creation of
  Israel
• Acquired weapons from the Soviet block

95
Aswan
Whether to build the Aswan dam?

• US rejected providing the finance
• Revenge expropriation of Suez Canal, July 26,
  1956

• The French and British wanted military action!
• Eisenhower did not want war!

96
History of Middle East Oil Exploration
"An inglorious peace is better than a
dishonorable war." Mark Twain
97
2nd Arab Israeli War
October 29, 1956

• War plot against Egypt France, UK, Israel
• Eisenhower was furious
• Soviet Union threatened by rocket attacks
• Revolution in Hungary
• Result Nasser became a hero and leader of Arabs
• 1956 - Aramco confirms scale of Ghawar and
  Safaniya
• 1958 - Oil found in Abu Dhabi

98
1948
1972
World oil production
8.7 million barrels
42 million barrels
Middle East
1.1 million barrels
18.2 million barrels
U.S. production share
64
22
U.S. reserves share
34
7
99
Stress on Seven Sisters or Big Oil
50-50 is not enough any more

• Nasser ascendant
• Soviets build Aswan
• Syria joins Egypt United Arab Republic
• Nasser controls oil Suez and pipelines

Producing countries wanted more money and power
100
History of the Oil Price
Middle East and OPEC events, 1947-1973
101
History of Petroleum Exploration

• September 1960, Organization of Petroleum
  Exporting Countries (OPEC) founded in Baghdad,
  Iraq
• OPECs proposed to unify coordinate members'
  petroleum policies
• OPEC members' national oil ministers meet
  regularly to discuss prices
• Since 1982 set crude oil production quotas

102
History of Petroleum Exploration

• Original OPEC members include Iran, Iraq, Kuwait,
  Saudi Arabia, Venezuela
• Between 1960 1975, expanded to include Qatar
  (1961), Indonesia (1962), Libya (1962), United
  Arab Emirates (1967), Algeria (1969), Nigeria
  (1971)
• Ecuador Gabon were members of OPEC, but Ecuador
  withdrew in December 1992, Gabon followed suit
  in January 1995

103
History of Petroleum Exploration

• Current 11 OPEC members are Algeria, Indonesia,
  Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi
  Arabia, United Arab Emirates, Venezuela
• Produce some 40 world's oil
• Have more than 77 world's proven oil reserves
• OPEC also holds most of world's excess oil
  production capacity

104
OPEC
End of 1950s Soviet Union second largest oil
producer
Oil companies cut prices
OPECs aim in 1960

• Build national refineries
• National integrated oil companies
• Stabilize market for themselves, 60-40 share

105
Six Day War
1960s more discoveries in Africa, large oil
surplus
Nassers prestige declining He wanted to gain
recognition liquidation of Israel Blockade
against Israeli shipping, Military buildup with
Syria, Jordan, Iraq
June 5, 1967 3rd Arab-Israeli war, 6 day
war Occupation of Sinai, Gaza, West Bank, East
Jerusalem
106
Oil embargo against Israels friends
Arab oil decreased by 60 No effect oil is
abundant, cheap Embargo lifted in September
107
Richard Nixon
End of 1960s, early 1970s
Recession in US and British power
Vietnam war Anti-Americanism becomes a great
fashion Nixon-doctrine
1971 collapse of Bretton Woods, replaced by
floating exchange rates
Demand in oil was catching up with supply end
of surplus
Huge economic growth fueled by oil
US oil production 11.3 million barrels per day,
the peak More dependency on Middle Eastern oil
108
Muhammar Qaddafi
Occidental Petroleum discovered oil in Libya in
1966
Qaddafi coup, 1969 Increase in oil price All the
countries increased their profit share
109
Anwar Sadat Yom Kippur War
Egypt was bankrupt when Nasserism ended Sadat
wanted to restore order make peace with
Israel Israel disinterested because of its 1967
success
1973 Yom Kippur war
110
Watergate
The Soviet Union supported Egypt and Syria The
USA supported Israel World War conflict was
imminent Oil exporters increased oil prices
100 Arabs cut oil supply and eventually stopped
exporting to USA
A weak president in the Watergate agony
contributed to the oil crisis
111
History of World Petroleum Exploration
"The best way to destroy an enemy is to make him
a friend." Abraham Lincoln
112
Ayatollah Ruhollah Khomeini
Iran too much money corruption, chaos,
political tensions Shah represented
modernization
Shiite fundamentalists hated US as main ally of
Shah Escalating chaos in oil industry By December
1978 no oil exports from Iran Shah
escapes February 1, Khomeini returns to Tehran
113
Jimmy Carter
Second Shock
Panic in the world market price went up from 13
to 34
From March 1979, Iranian export started to come
back
Shortage in oil long lines at gas stations
Peace accord Camp David
114
Hostages
November 4, 1979
Hostage crisis
Shah allowed into USA for medical treatment
West, especially USA seemed very weak
Soviets invaded Afghanistan
Price 45
115
No Stress on Seven Sisters or Big Oil
Boom times Alaska, Mexico discoveries North Sea
the biggest play of all
116
The History of Prices
Oil 100 / barrel
Iraq/Iran War
US Hostages
IEA seaks New reserves With OPEC Failure
Regan Raises US Oil Pices Allocation Controls
Crude Futures Traded NY
Iraq Invades Kuwait
USA UK Invade Iraq
Iran Revolution
Chinese Demand Surges
OPEC Increases Market Share
IEA says China drives Prices
Asian Collapse
US Net Imports Exceed Domestic Production
117
Saddam Hussein of Iraq
September 22, 1980 Iraq attacks Iran
Early 80s Two drastic changes Huge investment
in exploration Decreasing demand Result oil
surplus
June 1982 Lebanon war
Golden age for oil geologists
118
History of the Oil Price
Cheap oil financial crisis in some oil
exporters Mukluk dry hole end of exploration boom
End of pessimism of the 70s Economy is booming,
but not because of oil fuel Oil is not that
dangerous as before
119
Desert Storm
August 2, 1990 Iraqi invasion of Kuwait New oil
shock, supply decreased Loss had been compensated
by December from other sources January 17, 1991
Desert Storm February 28, cease fire
120
History of Petroleum Exploration
OPEC suspended price band after Sept 11 believing
stability of market more important than OPEC
price target. Officially suspended Jan 2002 but
basket price again within band, OPEC members
speak again of keeping prices within
22-28/barrel range
121
History of Petroleum Exploration
Cheap transportation in USA essential to
maintain even the most rural subsistence economy!

122
World Petroleum Reserves
123
Iraq's Role

• "By 2010 we will need a further 50 million
  barrels a day. The Middle East, with two-thirds
  of the oil and the lowest cost, is still where
  the prize lies." - US Vice President Dick Cheney,
  as Halliburton chief executive officer, London,
  fall 1999
• Cynics perspective is that Bush Cheney's Iraq
  war is over its Mission Accomplished
• Costs may reach over trillion dollars, anywhere
  from 50,000 to 500,000 Iraqis 3,941 US military
  dead
• Paid for by the US Treasury printing more
  dollars, or deficit spending 250 Billion in the
  red!

124
Iraq's Role
125
Saddam Hussein of Iraq
March 19, 2003 US UK attack Iraq

• Events of 2000s produce two drastic changes
• Huge increases in oil prices
• Price of dollar falls
• Result Economic recession begins in US

Golden age for oil shale and gas begins
126
Iraq's New Petroleum Laws

• 1972 - 1975 Iraqi resources Nationalized.
• New Law drafted by US consultants hired by US
  administration vetted US Oil, International
  Monetary Fund, former US deputy defense secretary
  Paul Wolfowitz' World Bank, US Agency for
  International Development replacing
  nationalization.
• Production sharing agreements (PSAs) has
  Operating Companies getting up to 75.
• Sixty-five of Iraq's roughly 80 oilfields open
  for bid.
• National revenue distribution Kurds to north,
  Shi'ites to south Sunnis in center. Most of
  reserves in Shi'ite-dominated south, Kurdish
  north holds best exploration prospects
• Iraqi oil controlled by "Federal Oil Gas
  Council", oil experts from inside outside Iraq,
  includes US executives.
• Iraqi public overwhelming majority of
  Parliament members out of loop.
• Original language English, not Arabic.

127
The History of Prices
Oil 100 / barrel
Iraq/Iran War
US Hostages
IEA seaks New reserves With OPEC Failure
Regan Raises US Oil Pices Allocation Controls
Crude Futures Traded NY
Iraq Invades Kuwait
USA UK Invade Iraq
Iran Revolution
Chinese Demand Surges
OPEC Increases Market Share
IEA says China drives Prices
Asian Collapse
US Net Imports Exceed Domestic Production
128
Outline of Presentation

• Data Sources - Texts
• Who has all the oil? Countries Reserves
• Recent Oil History of Middle East
• Geological Setting of the Middle East Oil
  Reserves
• Conclusions

129
A Response To Increased Consumption, Weak Dollar
War
Effect of Iraq?
A Response To Mortgage Collapse Weak Dollar
Misguided, Misconceived Paternalistic
Objectives To Stabilize Oil Prices
130
China Effect
Annual Consumption To Increase
Annual Consumption To Drop
Wall Street Journal Jan 3, 2008
131
Demand for Oil
132
The Global Picture
133
Long-term Conclusions

• Oil is a depleting finite resource
• Political geological factors conspire to
  control fluctuating but increasing prices
• Oil industry unable to control oil price
  speculation influenced by short-term events
  including increasing consumption, weak currency,
  weather, speculator trading tactics, or war
• Though non-OPEC oil producers could maintain
  huge, long-life reserves by reduced production,
  production of cheap oil of West continues to peak
  go into decline
• Small oil companies in USA uniquely positioned to
  make more profit from their assets

134
Conclusions
Burn it in transport or use it
for petrochemicals?
135
Conclusions
Now for a Beer!
136
Lecture Ends!!