The blogosphere is lit up this week by the news that WikiLeaks has revealed that Saudi Arabia may be lying about the amount of oil it has under the sands of Arabia.
You know what? That is an old story. The Daily Green blog had this headline in September 2007: Peak Oil Now? Saudi Arabia’s Dirty Little Secret. It went on to suggest that the reason Saudi Arabia did not push for an increase in OPEC production is not because it did not want to, but because it could not. That its reserves are static and its oil harder to produce. And it went on to question how much oil Saudi Arabia really has.
Flash forward to February 2011. Here’s a headline 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%).
The story cites cables sent to Washington from the US consul general’s office in Saudi Arabia, beginning in 2007, that quotes Sadad al-Husseini, a geologist and former head of exploration at the national oil company Saudi Aramco. Al-Husseini stated that Aramco’s official reports in 2007 of 716 billion barrels of oil reserves was overstated by at least 300 billion barrels, and that in addition, once 50% of the country’s original proved reserves had been depleted the country will face a steady decrease in output.
If instead of holding a quarter of the world’s oil reserves Saudi Arabia holds considerably less, it puts back into play the whole Peak Oil question. Is the world close to reaching the peak of cheap oil production, after which oil production becomes more difficult and much more expensive? Some Peak Oil theorists postulate that the sudden sharp decline of production will create a shortage and drive oil prices to new highs and devastate the global economy.
The Wall Street Journal has a more prosaic, and dare I say, journalistic take. It had someone talk to the source, Al-Husseini. His report to WSJ states that in the information in the cited cables, he merely pointed out that Aramco’s reserve figures in 2007 included both proved (in place) and probable (likely) reserves, and that his words were taken out of context.
The fact that oil futures have not spiked this week on the WikiLeaks’ story makes me believe that either Al-Husseini’s explanation is right or that Saudi Arabia’s oil reserve “inflation” is already accepted in the marketplace.
Saudi Arabia may be fibbing about its oil reserves, but it does not appear to be news.