After the UK Guardian broke the story last week that, according to a US diplomat, Saudi Arabia really has less oil to sell on the world market than they officially claim, the predictable rebuttals came in fast and furious.
Saudis overreported reserves by 40%
Sadad al-Husseini, a geologist and former head of exploration at the Saudi oil monopoly Aramco, met the US consul general in Riyadh in November 2007 and told the US diplomat that Aramco’s 12.5m barrel-a-day capacity needed to keep a lid on prices could not be reached. According to the cables, which date between 2007-09, Husseini said Saudi Arabia might reach an output of 12m barrels a day in 10 years but before then – possibly as early as 2012 – global oil production would have hit its highest point. This crunch point is known as “peak oil.”
That the Saudis had overstated their reserves came as no surprise to anyone who’s been following the peak oil story for the last few years.
Frankly, it’s well known that in the 1980s most OPEC producers doubled their figures of reserves, possibly to spur foreign investment as the Wikileaks cable claims, but more likely to game OPEC sales quotas, which allow each member nation to sell a maximum amount of oil on the world market based on each country’s claimed reserves. The higher the reserves, the more oil OPEC allows each member to sell.
Faith in technology
But oil cornucopians and peak oil skeptics weren’t buying that the Wikileaks cable meant Saudi Arabia had reached peak production.
Angus Mcdowell at the Wall Street Journal, perhaps the house organ of global economic growth, called al-Husseini after the Wikileaks story broke and appears to have gotten the Saudi oil analyst to re-cant and admit that he has no problem with Saudi Aramco’s official figures on current proven reserves.
“By that reckoning, the world of energy looks pretty much how it looked yesterday, with Saudi Arabia set to remain the world’s biggest producer for some time yet,” writes Mcdowell.
But it should be no surprise that an official such as al-Husseini would be willing to show a higher level of frankness in a private discussion than in an interview with a reporter for the world’s top financial paper for a story to run the next day.
Then, the Huffington Post published a piece by Raymond J. Learsy, “WikiLeaks Brings Misguided Joy to Preachers of Oil’s Peak.” A friend who is more alert to media-ownership issues than I, suggested that it was significant that this story questioning peak oil came only three days after Arianna Huffington announced that AOL would be the new boss of Huffpo. (If you think Arianna sold out to AOL, you’ll like Adbusters’ “Huff & Puff It Down” campaign).
Learsy, who has also written for National Review Online and The Pipeline and Gas Journal, cites a New York Times piece from 2007 to say that, according to trustworthy authorities, technology has come so far that the Saudis will surely be able to pump out much more oil than Matt Simmons or other oil analysts of Saudi oil had claim. Accordingly, Learsy concludes that al-Husseini was lying to the US official in the Wikileaks cable:
The article further cites Nansen G. Saleri, the head of reservoir management at the state owned Saudi Aramco, who advised that new techniques are significantly boosting Saudi Arabia’s reserves, techniques such as real-time imaging software and the ability to drill horizontal wells. Saleri stated, “Saudi Arabia’s total reserves were almost three times higher than the kingdom’s officially published figure of 260 billion barrels.” He further estimated the kingdom’s resources at “716 billion barrels, including oil that had already been produced,” continuing that he “wouldn’t be surprised” if ultimate reserves in Saudi Arabia eventually reached 1 trillion barrels.
In an industry where proven reserves — a problematic concept in itself, since OPEC producers report their own numbers without outside audit — are as good as gold, why would the Saudis intentionally underestimate their oil reserves?
“The perception of shortage and inability to meet demand,” concludes Learsy, “is one of the bedrocks of the oil producer’s pricing propaganda, thereby rationalizing ever-steepening prices and massive profits to the OPEC cartel and their oil industry allies.”
So that’s what the whole theory of imminent peak oil comes down to — a plot by OPEC and the oil industry to artificially jack up prices?
In that case, why would the Saudis come out in public again and again to claim that they have adequate supply reserve to function as a swing producer that can help keep world crude prices under control should they ever get too high?
— Erik Curren