Saudi Arabia's resource wealth 'vastly overstated'

Saudi Arabia's resource wealth 'vastly overstated'
The confidential cables from US diplomats appear to contradict Aramco's own statements.
Published: 10 February 2011 - 5:59 a.m.
By: Daniel Canty

According to the latest WikiLeaks revelations published by the UK’s Guardian newspaper, the US fears that Saudi Arabia, the world's largest crude oil exporter, may not have enough reserves to prevent oil prices escalating.

“Cables from the Riyadh embassy appear to 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%,” reports the Guardian.

The report seems inflammatory when put side by side with Aramco’s own figures. In its last annual review, the company’s stated recoverable crude oil and condensate reserves were pegged at 260.1 billion barrels in total. The company had, for an average figure across 2009, a daily production of 7.9 million barrels, with a total output at 2.9 billion barrels.

To therefore “overstate” recoverable reserves by 300 billion barrels seems impossible. The "revelations" had little impact on the oil price, with prices retreating from the $100 range down to $86 at the close of New York trading yesterday.

The contents of the confidential documents came at an explosive time for oil driven economies. The oil price had soared on the back of regional unrest coupled with strong Asian demand to more than $100 a barrel. Received wisdom is that the Saudis, along with their eleven other OPEC cartel partners would, or at least could, pump more oil if rising prices threatened to choke off demand.

The dispatches to the US refer to an occasion where Sadad al-Husseini, a geologist and former head of exploration at the Saudi Aramco, met the US consul general in Riyadh in November 2007. “He 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 documents.

The Guardian’s WikiLeaks report describes how Husseini had said, in conversations which took place between 2007 and 2009, 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.

The British newspaper details how Husseini had said, in conversations which took place between 2007 and 2009, “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."

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.

Aramco Says…

However, the world’s largest oil company (by stated reserves), paints a very different picture in its most recent annual review.

In 2009, Saudi Aramco completed major work on the largest capital program in the oil giant’s history. The program, with a total investment of more than US$100 billion, spanned the company’s energy portfolio and included multiple mega-projects in oil, gas, natural gas liquids (NGL), refining and petrochemicals.

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