How much oil does Saudi Arabia really have?
Much less than it claims it seems.
Matthew Simmons, after very extensive research, questioned the numbers that the Saudis were quoting back in 2005 when he published his comprehensive analysis in the seminal book “Twilight in the Desert“.
Simmons extensive documentation showed that Saudi oilfields were being exploited too hastily or vigorously. He explained the risks associated with overproducing and that this meant that oil fields were irreparably damaged which meant that far more oil was being permanently left behind. Overproducing, he showed, brought more immediate returns but reduces the longevity of a field and the amount of oil that can ultimately be recovered.
The inescapable conclusion of his book, based on the evidence,was that Saudi oil production is at,or nearing, its peak sustainable level, and that it is likely to start dropping irreversibly in the quite foreseeable future. He wrote that book in 2005.
And he went on to state that when that decline happened the decline rate would probably be quite steep because the experimental use of water injection to maintain reservoir pressure right at the start of the fields’ development—rather than at the end, as is standard—had depleted the supplies.
That creates a problem for Saudi Arabia since it depends on oil for 90% of its exports and 75% of its government revenues. Oil accounts for 45% of GDP in this sparsely populated country of 25 million people. However, as the price increases it will still do very well.
Of more global significance was that since Saudi Arabia was the only country with any spare oil production capacity, peak oil in Saudi means peak oil for the world.
Simmon’s book caused major ripples.
Now it’s the much simpler and more direct Wikileaks that is causing ripples in the oil world for the same reason. They have released a cable to Washington by US diplomats based in Dhahran says that Saudi Arabia may not have enough oil reserves to prevent the global price of oil rising sharply. Set now against the backgound of massive and demonstrations throughout the Middle East and the concern that these may go viral this has set the oil world on edge.
The cables quote Al-Husseini as saying that the crude oil reserves of Saudi Arabia may have been overstated by up to 40%. That’s a lot of oil. Al –Husseini is the former head of exploration at Saudi Aramco. According to the cables he does not think the current reserves of 716 billion barrels are real figures.
So the price of oil in the world also depends on Saudi Arabia’s ability to control it. Is this coming to an end? And if there is any truth in the WikiLeaks statements, now disclaimed, does that mean Peak Oil is a great deal sooner than thought -around 2012?
As we saw the rise and rise of oil up until 2008 and then the GFC hit the price of everything, the WikiLeaks cables do not have any real element of surprise. And peak oil in 2012 sounds a distinct possibility .
Al –Husseini now claims that he was misquoted. But it is certainly fair to say that there has been a rather large question mark hanging over the oil producing capacity of the biggest oil producer in the world for some time.
Meanwhile it seems that even if you are the world’s top oil producer, you need to save energy. The Saudi Water and Power Minister has announced plans to cut up to 40% of its energy use , mostly through insulation. Power demand is growing at 8 % per annum, and air conditioners make up 70-80% of the energy used, so insulation is predicted to lower energy usage by up to 40%. Without such savings the Saudis could have another 3 million barrels per day of oil less to export.
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