Tuesday, February 8, 2011

Wikileaks confirms Saudi Reserve Overstatement

The Guardian has a very interesting piece for us keen Saudi watchers:
The US fears that Saudi Arabia, the world's largest crude oil exporter, may not have enough reserves to prevent oil prices escalating, confidential cables from its embassy in Riyadh show.

The cables, released by WikiLeaks, urge Washington to take seriously a warning from a senior Saudi government oil executive that the kingdom's crude oil reserves may have been overstated by as much as 300bn barrels – nearly 40%.
Emphasis mine.  Also...
However, 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".

Husseini said that at that point Aramco would not be able to stop the rise of global oil prices because the Saudi energy industry had overstated its recoverable reserves to spur foreign investment. He argued that Aramco had badly underestimated the time needed to bring new oil on tap.
and
It went on: "In a presentation, Abdallah al-Saif, current Aramco senior vice-president for exploration, reported that Aramco has 716bn barrels of total reserves, of which 51% are recoverable, and that in 20 years Aramco will have 900bn barrels of reserves.

"Al-Husseini disagrees with this analysis, believing Aramco's reserves are overstated by as much as 300bn barrels. In his view once 50% of original proven reserves has been reached … a steady output in decline will ensue and no amount of effort will be able to stop it. He believes that what will result is a plateau in total output that will last approximately 15 years followed by decreasing output."
I note that in this independent forensic analysis, in May 2007, I estimated the remaining reserves in Ghawar, and argued that they were overstated by about 40%:


The official figure is the leftmost column, while my estimate is labelled "Staniford".  After much back and forth, Euan Mearns and I had come up with similar numbers (see his "Base" case).

At the time, Euan and I were introduced by email to Sadad al-Husseini by the ASPO-USA guys, and he did not feel comfortable confirming to us that Saudi reserves were overstated.  But apparently, he did feel comfortable confirming that to US diplomats in private.  Also, it appears that I got the degree of overstatement pretty much correct.

Update: see important clarification on the numbers here.  It's not clear to me where the Guardian is getting 40% exactly.

5 comments:

John Callender said...

Wow.

I'm curious what your reaction was to reading Husseini's statement in the leaked cable. Did this feel like an important piece of confirmatory evidence to you? Or was it actually fairly unremarkable, in the sense that the information you already had, and on which you based your earlier estimates, was obvious enough that you really didn't need to hear it coming from Husseini in order to feel vindicated, and found his statement more or less unsurprising?

dimposter said...

Al-Husseini has been saying for years that Saudi Arabia can pump 12.5 mb/d, but warning that that isn't enough to solve the world's problems and SA won't go to 20+ like the EIA and IEA have been projecting. I wonder, if in private, he was concerned about even 12.5?

Interview with Peter Maas 2005:
"Although Matthew Simmons says it is unlikely that the Saudis will be able to produce 12.5 million barrels a day or sustain output at that level for a significant period of time, Husseini says the target is realistic"
(http://www.energybulletin.net/node/8112)

Interview with Dave Bowden 2009:
"Question: In Saudi Arabia, is 12.5 million barrels a day now sustainable and is there a plan to expand capacity beyond that?

Sadad: Saudi Arabia has a very credible and professional record in terms of declaring capacity and meeting its production targets. When the Kingdom announced a target of 12.5 million barrels of capacity, they actually committed funds to develop that capacity and we’ve seen them now commissioning those: 250,000 additional barrels in Shaybah; 1.2 million barrels in Khurais; 500,000 in Khursaniyah; 900,000 coming on stream in a couple of years in Manifa. So these are real projects and real capacities. I don’t think there is an issue that Saudi Arabia can deliver the oil it says it can deliver. The question is, what about the rest of the world? Is the rest of the world able to make up the difference?"
(http://www.aspousa.org/index.php/2009/09/interview-with-sadad-al-husseini/)

Giuseppe B. said...

Has Ghawar actually picked for you?

Northside said...

I recall commenting at the time that what was going on at TOD was the kind and level of analysis they probably get at the CIA. It was impressive work, and it looks like it was pretty much on target.

I also notice that that's about the time my wife and I got serious about investing in a small farm, just in case. I don't know if things will get bad enough for that to be necessary, but it's a nice insurance policy. I had hoped at the time that your results were wrong, but now I hope we wake up before such emergency measures are needed.

Of course, we're only 30 miles or so from Detroit. I think this could become an unusually unstable part of the US if gas prices continue rising.

Stuki said...

Congratulations!

I remember following You and Euan Mearns at TOD. It was one of my goto sites back then. Looks like you were spot on!

There are people making a living off of investment advising and tip sheet authoring, based on less impressive track records than the two of you racked up. Just in case you ever get tired of hunting hackers and the like :)