13 July, 2008

The Saudis can't save us

Thanks, Fabius Maximus, for a pointer to a recent Business Week article on Saudi Oil production. The relevant excerpt:
It appears that for at least the next five years, and possibly longer, the Saudis are likely to produce less crude than promised, according to fresh data on the kingdom’s oil fields obtained July 9 by BusinessWeek. Saudi officials have said they
would increase production capacity to 12.5 million barrels a day next year, from the current 10 million barrels a day, and could even ramp up to as much as 15 million barrels a day if the market demanded it.

… But the detailed document, obtained from a person with access to Saudi oil officials, suggests that Saudi Aramco will be limited to sustained production of just 12 million barrels a day in 2010, and will be able to maintain that volume
only for short, temporary periods such as emergencies. Then it will scale back to a sustainable production level of about 10.4 million barrels a day, according to the data.

BusinessWeek obtained a field-by-field breakdown of estimated Saudi oil production from 2009 through 2013. It was provided by an oil industry executive who said he had confirmed it with a ranking Saudi energy official who has access to the field data. The executive, who has proven reliable over several years of reporting interaction, provided the data on condition of anonymity to protect his access to the kingdom and the identity of the inside contact who confirmed the information.
For several years now, it's seemed to me that there are no reasons for the Saudis (or anyone else in OPEC, for that matter) to provide a reliable estimate of their known or probable reserves. In OPEC--and in the world at large--what people believe your reserves to be are a source of power. Whether you actually have the oil is less important (in the short run, at least). So now we see people begging for increased production from people who, in all likelihood, couldn't deliver it even they wanted to.

Is this "peak oil"? It depends on what you mean by the term. If this knowledge (or perception) is getting around, however, it would make it even more sensible to engage in "speculation" in the oil markets. What do those "speculators" know (or think they know) that we don't?

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