From the Guardian

WikiLeaks cables: Saudi Arabia cannot pump enough oil to keep a lid on prices

US diplomat convinced by Saudi expert that reserves of world's biggest oil exporter have been overstated by nearly 40%

John Vidal
environment editor
guardian.co.uk
Tuesday 8 February 2011 22.00 GMT


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%.

The revelation comes as the oil price has soared in recent weeks to more than $100 a barrel on global demand and tensions in the Middle East. Many analysts expect that the Saudis and their Opec cartel partners would pump more oil if rising prices threatened to choke off demand.

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.

One cable said: "According to al-Husseini, the crux of the issue is twofold. First, it is possible that Saudi reserves are not as bountiful as sometimes described, and the timeline for their production not as unrestrained as Aramco and energy optimists would like to portray."

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."

The US consul then told Washington: "While al-Husseini fundamentally contradicts the Aramco company line, he is no doomsday theorist. His pedigree, experience and outlook demand that his predictions be thoughtfully considered."

Seven months later, the US embassy in Riyadh went further in two more cables. "Our mission now questions how much the Saudis can now substantively influence the crude markets over the long term. Clearly they can drive prices up, but we question whether they any longer have the power to drive prices down for a prolonged period."

A fourth cable, in October 2009, claimed that escalating electricity demand by Saudi Arabia may further constrain Saudi oil exports. "Demand [for electricity] is expected to grow 10% a year over the next decade as a result of population and economic growth. As a result it will need to double its generation capacity to 68,000MW in 2018," it said.

It also reported major project delays and accidents as "evidence that the Saudi Aramco is having to run harder to stay in place – to replace the decline in existing production." While fears of premature "peak oil" and Saudi production problems had been expressed before, no US official has come close to saying this in public.

In the last two years, other senior energy analysts have backed Husseini. Fatih Birol, chief economist to the International Energy Agency, told the Guardian last year that conventional crude output could plateau in 2020, a development that was "not good news" for a world still heavily dependent on petroleum.

Jeremy Leggett, convenor of the UK Industry Taskforce on Peak Oil and Energy Security, said: "We are asleep at the wheel here: choosing to ignore a threat to the global economy that is quite as bad as the credit crunch, quite possibly worse."

Saudi Oil Production and Reserves - Reasons Behind Wikileaks Concerns

Posted by Gail the Actuary on February 9, 2011 - 11:54am
Topic: Supply/Production
Tags: peak oil, saudi, saudi arabia, saudi oil reserves, wikileaks [list all tags]
The UK Guardian published an article yesterday titled WikiLeaks cables: Saudi Arabia cannot pump enough oil to keep a lid on prices, talking about the possibility that as soon as 2012, world oil production may begin to decline because of "peak oil". Saudi Arabia may not be able to raise production as much as claimed, and its reserves may be overstated by 40%. Leanan has put together a post with more about the cables. The Wikileak cables can be found here or here. In this post, we provide a few graphs, plus some links to (and excerpts from) prior posts by Oil Drum staff members about Saudi Arabia's true situation.
Saudi Arabia tells us that they have lots of oil, but if we look at graphs of their historical production, there is nothing that looks like an upward trend. In fact, recent production is lower than it was in the late 1970s and early 1980s. This is a graph of Saudi oil production, consumption, and amount of net exports, from Energy Exports Databrowser.


Exports, in green, are down because Saudi Arabia is consuming more and more of its own oil, so there is less available for others. This graph doesn't fit well with what we have been told.


The rest of the Middle East claims huge reserves, too, but looking at the Mideast in total doesn't give a much more favorable picture. While production is a bit higher in total now, exports (in green) are down from the 1970s because of rising consumption.


It is almost certain that the Saudis are overstating their capabilities. The reserves for Saudi Arabia and the rest of the Middle East are not audited, nor are their supposed "spare production capacities." They may have some spare capacity, but not the amount stated. When oil prices spiked to $147 barrel in July 2008, Saudi Arabia and others in the Middle East increased their production a bit, did not really come through with a huge surge in production, the way one would expect from their suppose spare capacity.
World oil supply has been roughly flat since 2005. Many are concerned that oil production will actually begin to fall in the next year or two - what is referred to as "peak oil" in the Wikileaks cable.


Links to a Few Posts Relating to Overstatement of Saudi Reserves and Production Capability

The Oil Drum has published many posts over the years relating to Saudi Arabia and the rest of the Middle East's likely inability to produce as much oil as they claim they can. These are excerpts from (or comments about) a few of them. Click on the titles to access the posts. You can access other posts by the same author by clicking on the person's name.
1. Euan Mearns-- Middle East OPEC Reserves Revisited-- December 3, 2010
Euan explains why Middle East OPEC reserves are likely overstated, and shows this chart of likely reserves at the 2P (that is, expected) level:


Comparison of official ME OPEC reserves with official reserves adjusted for production and pre-nationalistaion reserves figures adjusted for production. The arrow gives the likely range of 2P reserves.
2. ace--Saudi Arabia’s Crude Oil Reserves: Particulars or Propaganda? June 15, 2008
Saudi Aramco has effectively used propaganda methods for at least the last fifteen years to convince many governments, corporations and individuals to believe their statements. However, Aramco’s statement that it is the world’s leading oil producer is now false as it now second after Russia since 2006. Nevertheless, Saudi Aramco’s repeated statement about remaining recoverable oil reserves being 260 billion barrels (Gb) is still generally accepted.
In 2004, Saudi Aramco stated that its oil initially in place (OIIP) has been growing steadily since 1982. There is considerable doubt about the validity of this increase, given the lack of new oil discoveries and the unusual nature of its steady continuous increase. Aramco stated the OIIP was 700 Gb at year end 2003 while a more realistic estimate is 580 Gb.
Aramco may have some high recovery factor fields such as Abqaiq and Shaybah, but an average recovery factor range from 30-37% is assumed for the total OIIP in Saudi Arabia’s fields. The trend of the recovery factor for Saudi Aramco indicates that there has been no effect on the recovery factor by recent technological advances in producing wells. Saudi Aramco has kept remaining recoverable crude oil reserves constant simply by artificially increasing the OIIP each year since 1982, accompanied by an unrealistically high average recovery factor of 52% since 1988.
3. Gail the Actuary -- President Bush Questions Saudi's Ability to Raise Oil Supply--January 17, 2008
Last night, on ABC's Nightline, Terry Moran interviewed President Bush in Riyadh, Saudi Arabia, during his trip to the Middle East. When discussing what President Bush might say to the King of Saudi Arabia to lower oil prices, George Bush said:

If they don't have a lot of additional oil to put on the market, it is hard to ask somebody to do something they may not be able to do.

We published a Press Release about this post, also.
4. Euan Mearns - Saudi Arabia - production forecasts and reserves estimates--August 30, 2007
This forecast for is on a broad basis (Crude and Condensate and Natural Gas Liquids) for Saudi Arabia.


Forecast numbers are production capacity. Actual production may be lower depending upon demand.
5. Stuart Staniford -- Water in the Gas Tank--March 26, 2007
Forensic analysis regarding how the oil/water mix that is extracted seems to be changing to more water, less oil in Saudi Oil fields. The red portions of the bands are oil.



Two cross sections of a reservoir simulation of the northern portion of the 'Ain Dar region of Ghawar at various years. Color represents volumetric water saturation in the rock pores. Source: Figure 9 of Alhuthali et al, Society of Petroleum Engineers Paper #93439, March 2005.
6. Stuart Staniford--Depletion Levels in Ghawar--May 15, 2007
An attempt to understand depletion levels in Ghawar.


Modeled distribution of original reserves in 'Ain Dar/Shedgum area of Ghawar (left), oil water contact offset by 511' vertically upward (center) and the same with the effect of gas caps (right).
7. Joules Burn--IEA World Energy Outlook 2008 - Fuzzy Focus on Saudi Arabia--November 18, 2008
Throughout the 2008 WEO, Saudi Arabia is cast in a leading role -- both figuratively:

On present trends, just to replace the oil reserves that will be exhausted and to meet the growth in demand, between now and 2030 we will need 64 mb/d of new oil-production capacity, six times the size of Saudi Arabia’s capacity today.
(from the Forward and Executive Summary)

and literally:

Saudi Arabia remains the world’s largest producer throughout the projection period, its output climbing from 10.2 mb/d in 2007 to 15.6 mb/d in 2030. (Executive Summary, page 40)

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Many oil experts have seen this coming for a long time. What is hard to understand about "when it is all used up, it has run out"?

Meanwhile corporations in Canada have been mining tar sands, which seem to be an even more evil pollutant of the planet than coal:



When will they ever learn? Actually, they won't.

Originally Posted by roadkill

Meanwhile corporations in Canada have been mining tar sands, which seem to be an even more evil pollutant of the planet than coal.

It is, but it's worse than that. We need to consider the EROEI (energy returned on energy invested).

When oil exploration started, the EROEI of oil was around 100, i.e., you needed to burn one barrel of oil to produce 100 barrels. In the meantime, the low-hanging fruit has already been harvested, i.e., we need to dig deeper and under more difficult conditions to reach layers of conventional oil that have not yet been produced. Consequently, the EROEI of conventional oil has shrunk from about 100 to approximately 15, i.e., we burn one barrel of oil to produce 15 barrels.

Evidently, the EROEI is related to price also, because you can make money only on the difference. As the EROEI shrinks further, the price issue will become more relevant.

At an EROEI of 1, the game is definitely over, because I gain nothing in burning one barrel of oil to produce another. Yet for economic reasons, the game is already over at an EROEI of approximately 5. If the EROEI falls below 5, the price of oil will be so expensive that our economy cannot afford it any longer. Our economy goes into stall mode.

Unfortunately, the EROEI of Canadian tar sands is already now at approximately 5, and the EROEI of all current-generation bio-fuels is even considerably lower ... at values in the vicinity of 1.

As a niche product, tar sands may find a market, but not as a replacement for conventional oil.

What do you think or know about those thorium reactors we've talked about in some previous thread? And the wiki entry is literally glowing (pun intended).

It all seems like 'too good to be true'. Hence, my 'where's the catch, baby?' reaction...

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Originally Posted by Gilles de Rais

What do you think or know about those thorium reactors we've talked about in some previous thread? And the wiki entry is literally glowing (pun intended). It all seems like 'too good to be true'. Hence, my 'where's the catch, baby?' reaction...

The good news about thorium reactors is that there is plenty of thorium in the Earth mantle at decent concentrations. Thus at least in principle, thorium reactors would be much longer sustainable than the traditional nuclear reactors.

The bad news is that we currently don't have a good/stable technology to make them. This can be done, no doubt; the question is how long it will take to develop a class of thorium reactors that are as stable and reliable as current-generation nuclear reactors.

Also, there is no chance in the world to replace the current energy supply from fossil fuels in its entirety by energy generated from thorium reactors. First, even if the technology were already fully developed, which it is not, it still would take at least 10-12 years to build such a reactor. Second, we would need several 10'000 reactors to replace the fossil fuels in their entirety, which is ridiculous. It won't ever happen. Third, we still would have lots of radioactive waste to get rid off.