The increasing global demand for oil and the declining production of mature oilfields elsewhere make Saudi Arabia’s oil production capacity pivotal to the world’s economy in the years to come. The country currently claims 261 billion barrels in proven reserves, which is about 25% of the world’s total. The United States in particular is expecting Saudi production to significantly increase in coming decades. Specifically, the U.S. EIA long-range oil supply forecast foresees Saudi production in the year 2025 to be about 22.5 Mb/d, which is more than double its current production of about 9.5 Mb/d. The Saudis have actively reassured the U.S. and the international financial community that their resources are sufficient to meet growing world demand. In order to address concerns, they have outlined a plan to increase production capacity to 12.5 million barrels a day by 2009. However, not even the Saudis are embracing the long term projections of the EIA, which many experts consider to be wildly unrealistic. In fact, Saudi officials who were interviewed on a not for attribution basis by the New York Times, cautioned that production beyond 12 Mb/d would damage the oil fields. One has to wonder which interests the EIA is really serving with its projections, which seem to substitute wishful thinking for responsible analysis.
Saudi Arabia has long been OPEC’s “swing producer,” meaning that it since the 1970s it has had millions of barrels per day of unused production capacity that could be used to make up for production shortfalls and emergencies elsewhere (such as during the First Gulf War of the early 1990s when Kuwait’s production was temporarily sequestered) or to discipline its fellow OPEC members. By 2004, this spare capacity had vanished. Despite Saudi protestations, the IEA estimated that the country had no more that a million barrels per day in spare production capacity in mid-2004. In response to the tight oil market that year, the Saudis came under heavy international pressure to produce their spare capacity and promised to do so. Despite the promises, Saudi production at the end of 2004 was not much more than it was before the present crisis, and the small amount of additional oil that has been produced has been heavy or sour oil that is difficult to refine.
According to the EIA, around two-thirds of Saudi reserves are considered “light” or “extra light” oil, with the balance classifies as either “medium” or “heavy.” The Saudis have been busy lately reassuring the world that their future ability to produce is practically boundless. Oil Minister Naimi stated at the end of 2004 that the country’s proven reserves could reach as high as 461 billion barrels in the near future. The EIA is even more enthusiastic, representing that the country might contain up to a trillion barrels of ultimately recoverable oil, an amount that is greater than the proven reserves of the rest of the world combined. The EIA identifies no basis for making such projections other than its apparent need to do so in order to justify its projections of future Saudi oil production.
The contrast that exists between experts on the size of Saudi Arabia’s reserves and its ability to produce oil in the future is perhaps greater than on any other current energy-related issue, and the stakes in terms of the future economic health of the industrialized world is enormous. Despite the obvious importance of the issue, the amount of credible information on the Saudi oilfields and reserves that is available for analysis by experts in the west is quite limited. Access to Saudi facilities is limited to those associated with the state-controlled oil monopoly Aramco, and unlike the large multinational oil corporations Aramco is not obliged to and has little incentive to publish specific information on its operations. The Saudi position can be summarized as “We can produce all you will need, but you’ll just have to trust us on that.” This makes a number of oil experts, economists and politicians nervous, and there have been recent calls for the Saudis to provide more disclosure and transparency with regard to their resources and operations.
Matthew Simmons, an adviser to the Bush administration on energy issues, is the most visible sceptic of the Saudi and EIA claims. Simmons has recently argued that Saudi Arabia’s oil fields are already in decline, and that its production capacity will not climb much higher than its current sustainable capacity of about 10 Mb/d. Simmons has authored a soon to be released book Twilight in the Desert that is based on his decades of experience in the oil industry and his detailed analysis of 235 individual SPE (Society of Petroleum Engineers) reports that refer to Saudi Arabia.
As background, more than half of Saudi Arabia’s oil reserves are contained in only eight fields, with more than 90% of all Saudi production over the past several decades coming from four to five key oilfields. All of these super-giint oilfields were discovered prior to 1965; there have been no new discoveries of any major oilfields in Saudi Arabia since then. Saudi Arabia is a large country, but 80% of its production comes from a relatively small area near the Persian Gulf coastline that can roughly be described as a rectangle extending about 400 miles from north to south and about 150 miles from east to west. It is unlikely that significant undiscovered petroleum deposits exist outside of that relatively limited area of Saudi Arabia.
Any analysis of Saudi oil production capabilities must concentrate heavily on the supergiant Ghawar oilfield, which was discovered in 1948 and has been in continuous largescale production for about five decades. Ghawar is sliver-shaped, paralleling the Persian Gulf coastline of far eastern Saudi Arabia and extending 174 miles in length from north to south and 16 miles from east to west. It lies beneath 1.3 million acres, is by far the world’s largest oil field, and it accounts for 50%-60% of all Saudi oil produced. Ghawar currently produces about 5 Mb/d, which is 5.9% of the world’s oil current production.
It is well established that production unfailingly begins to decline in an oilfield after about half of its reserves have been produced, a phenomenon that is known as “peaking.” Ghawar was originally estimated to contain about 115 billion barrels of recoverable reserves. Thus far, the field has produced about 55 billion barrels, which places it close to its peak midpoint. According to the current EIA report on Saudi Arabia, Aramco itself has stated that Ghawar has already produced about 48% of its proven reserves. However, the Saudis, perhaps anticipating the political and economic fallout of a looming decline in production from Ghawar, have recently backtracked on those statements and are now projecting that the field still has 125 billion barrels of oil left to produce. According to Simmons, “If that were true, it means that four companies with the single best people working on this missed Ghawar’s reserves by a factor of three.” …
…The disturbing answer to this question likely lies in the reserve inflation that took place among OPEC members during the oil glut of the past two decades. Because oil production quotas for OPEC members were based on each country’s proven reserves, and because each member wished to be permitted to produce as much as possible, OPEC member countries all substantially inflated their proved reserve figures, even though there were no major discoveries during this period of time.
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