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Article on Saudi Arabian oil reserves [Ian Rutledge | 20/04/2006]
Saudi Oil Production data : an Enigma within an Enigma.
(For a fully referenced version of this article click here)
An earlier version of this article appeared in
In early 2004 two senior officials from Saudi Aramco, the world's largest oil producer flew into Washington on a crucial mission - to convince the world oil market that there was absolutely no truth in the recent 'bombshell' dropped by Matthew Simmons. Chairman of Simmons & Co. International, that Saudi Arabia could soon be approaching its peak production and would never reach the sort of oil production levels previously assumed by organisations like the International Energy Association and the US Energy Information Administration. Whatever President Bush might say a year or so later, far from being in danger of too much 'addiction' to Middle East oil, going forward, the USA is likely to need ever larger supplies from Saudi Arabia and other Persian Gulf oil producers: in other words - and as I argued in the last chapter of my recent book, Addicted to Oil: America's Relentless Drive for Energy Security - having lost its War for Oil in Iraq, America's future energy problem will be not too much Middle East oil dependence but not enough ! Therefore, whatever rhetoric he might use addressing the American people, the last thing Bush needs is a prognosis that future Saudi Arabian oil supplies might decline more rapidly than expected due to geological factors as yet concealed from the World, as alleged by Matthew Simmons.
Fortunately for Bush, at a conference hosted by the Center for Strategic and International Studies, the men from Saudi Aramco presented their audience with a fairly convincing rebuttal of Simmon's claims and demonstrated that Saudi Arabia could ramp its "sustainable capacity" up to 15 million b/d over the next 50 years, if the market called upon it to do so. Given that larger figures for future Saudi production were implicit in some of the prevailing estimates for world oil supplies, this wasn't quite the reassurance some had been looking for, but for the time being it reduced Mr Simmons to complaining rather weakly about "lack of technical proof," and "Trust Me" statements from Saudi Aramco.
However, while controversy may still rage about the levels of Saudi oil production well into the future, surely matters are a lot more certain in the near-term, say over the next five years ? Well, let us see. After then Crown Prince Abdullah and his ministers met President Bush in Washington in April to reassure him of the Kingdom's oil supply reliability, the President's National Security Advisor announced to the world press that "Saudi Arabia planned to be able to produce 12.5 million b/d within two and a half to three years." (Financial Times, 26 April 2005). Similarly, according to the FT's oil correspondent, Carola Hoyos, "Saudi Arabia pumps 9.5 million b/d and has assured consumer countries that it could reach 12.5 million b/d in 2009." (FT, 7 July 2005). Broadly confirming this, four days later, in the pages of the Oil and Gas Journal, Saudi Aramco official, Khalid Al-Falih, was quoted as saying that the Kingdom has a goal of 'increasing production to 12 million b/d by 2009." (OGJ, 11 July 2005). So there we have it: Saudi production at 12 to 12.5 million b/d by 2009.
But let us have another look at that Washington Saudi Aramco presentation of February 2004. According to Nansen Saleri and Mahmoud Abdul Baqi, the two company officials present, the current Saudi Aramco business plan, covering the period 2005 to 2009, is for a "maximum sustainable capacity" of just 10 million b/d, and although this "capacity" could be gradually increased to 12 million b/d this wouldn't happen until 2014 at the earliest. "We never fail our business plan" adds Saleri, Saudi Aramco's senior manager for Reservoir Management. What he clearly does not say is that the company has any intention of exceeding its business plan.
Also note the terminology. We are now talking about "capacity" not "production" and the Kingdom's stated policy is to retain a substantial cushion of shut-in spare capacity. According to Abdallah S. Juma'ah, Saudi Aramco's CEO, speaking at the Saudi Mega Projects Conference on 7 May 2005, the company, has a "production capacity which currently stands at 10.5 Million b/d, including a redundant capacity ranging between 1.5 and 2 million b/d" and a few days later, at the James Baker Institute for Public Policy, Mr Juma'ah stated that "we are working diligently to expand Saudi Aramco's capacity to 12 million b/d …consistent with …the Kingdom's commitment to maintain a surplus production capacity of 1.5 to 2 million b/d." So 12 million b/d by 2009 - even if it were to be achieved (in apparent contradiction to Saudi Aramco's stated 5 year plan) - doesn't actually mean a production of 12 million b /d but one of between 10 and 10.5 million b/d.
And what does this 10 - 10.5 million "oil" production actually consist of ? The question may seem eccentric but the term "oil" is frequently used loosely to include both crude oil and natural gas liquids (NGLs) used to make propane and butane. So, for example, when Cambridge Energy Research Associates (CERA) were recently quoted in the Oil and Gas Journal as forecasting a Saudi "production" level of 12 million b/d by 2010 this was said to include NGLs (OGJ, 4 July 2005). And how much is NGL production ? According to the US Energy Information Administration, 1.3 million b/d. So does the future 12 million b/d of capacity, of which Mr Juma'ah speaks include NGLs as well as spare capacity ? Probably not, but given the opacity of the Kingdom's public domain oil information, we can't be certain.
At least we know how much oil Saudi Arabia is producing right now - or do we ? Compare the following: "roughly 9 million barrels per day at present" (Cambridge Energy Research Associates quoted in OGJ, 4 July 2005), "Saudi Arabia pumps 9.5 million b/d" (Financial Times, 7 July, 2005); and referring explicitly to production "current 10.5 million b/d" (Khalid Al-Falih, Saudi Aramco Senior VP Gas operations quoted in OGJ, 11 July 2005). So there we are: three different figures for current Saudi oil production quoted in two respected press sources, and all of them in the same month.
Perhaps it is the inclusion of that troublesome NGL again. Maybe the 10.5 million b/d cited by the Saudi Aramco official includes NGL and the 9 million b/d referred to by CERA doesn't. In fact, Al-Falih's figure may well include NGLs - but so does the 9 million b/d CERA figure according to the Oil and Gas Journal. So the 1.5 million b/d 'gap' between CERA's figure and that of Al-Falih remains. And let us be clear about one thing: 1.5 million b/d is an awful lot of oil: in fact almost exactly equivalent to the daily production of Brazil and just a little less than the daily production of Libya.
Now one thing must be certain - surely there can be no disagreement about the size of Saudi oil production in the past ? Let us take the year 2003, for example, thereby giving adequate time for any revisions to be incorporated in the published data. That much-used and well-respected source, the BP Statistical Review of World Energy states that in 2003, Saudi Arabia produced on average 10.22 million b/d and according to the notes to the relevant table this includes NGLs. We then turn to the OPEC Statistical Bulletin for 2003 which gives a figure of 8.41 million b/d of Saudi production including the Saudi share of the Neutral Zone (50% of 0.6 million b/d) but excluding NGLs. However the respected Middle East Economic Survey currently informs us that in 2003 Saudi production of crude was 8.79 million b/d, again including the Neutral Zone share. So here we have a difference between OPEC and MEES of 380,000 b/d in crude production for which no apparent explanation is available. Now let us return to the tricky subject of NGLs. From Saudi Aramco's Fact & Figures 2003 publication we learn that NGL production in 2003 averaged 0.945 million b/d. Therefore totalling Saudi Aramco's 'national' crude (8.1 million b/d) plus the Saudi share of the Neutral Zone crude (0.34 million b/d) plus its NGL production (0.945 million b/d) we reach a grand total of 9.39 million b/d. But as we have already seen, according to BP, the equivalent 'grand total' for Saudi Arabia in 2003 was 10.22 million b/d. That's a difference of 830,000 b/d. And again, to put that figure into perspective it is almost exactly equivalent to the daily production of Oman.
Saudi Arabia's production is fundamental to the world oil supply-demand balance and data published about that production enters into critical calculations as to the likely trajectory of world oil prices in both the short, medium and long term. At the very least it would be helpful both to the markets and to consumers, if the Saudi authorities, world oil industry experts and journalists could achieve some consensus and precision as to the size and composition of past and current Saudi oil production. Until at least that basic task is accomplished there is surely little point in engaging in flights of fancy about how big that production might be much farther into the future.
(For a fully referenced version of this article click here)
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