Sadad al-Huseini - World's Oil Reserves Overstated By 300 Billion Barrels

[hatrack]

The world’s proved reserves have been have been falsely puffed up by the inclusion of 300 billion barrels of speculative resources, according to the former head of exploration and production at Saudi Aramco, and this explains the industry’s inability to raise output despite soaring prices. Sadad al-Huseini’s presentation to the Oil and Money conference in London went substantially as previewed by lastoilshock.com, but the analysis he delivered may also throw light on the infamous OPEC reserve additions of the 1980s.

Mr al-Huseini began by noting the obvious inconvenient truth of the oil market of recent years: that production has barely increased despite a soaring crude price and massive investment by the industry. “It’s telling us something. We should be listening to what the numbers are telling us, not what the politicians say… It’s not about economics alone, you can increase prices, but you will not necessarily drive production up”

He also noted that 400 billion barrels of reserve replacement has been reported over the last decade, and asked why this had not been translated into new capacity. The answer, he suggested, was that a quarter of the world’s claimed proved reserves are no such thing: not production-ready oil, but speculative sources. “Reserves are confused and in fact inflated. Many of the so called reserves are in fact resources. They’re not delineated, they’re not acessible, they’re not available for production”. By his estimate 300 billion of the world’s 1200 barrels of proved reserves should be recategorized as speculative resources.

Mr al-Huseini did not specify which countries had inflated their reserves in this fashion, but the number is strikingly similar to the size of reserve additions recorded by OPEC members in the mid-1980s when countries were vying for quota share, although no new discoveries had been made.

EDIT

http://www.energybulletin.net/36458.html

[GliderGuider]

1. He's a busy little tattle-tale, isn't he?

First he says we've hit the peak, and now this! I'm having a hard time getting my mind around the idea of a Saudi oil-man telling the truth, but there you go. I wonder if he's the the message-carrier for the House of Saud? "Hey guys, it's time to start thinking about what you're going to do when Ghawar crashes... Like, next year..."

[opihimoimoi]

2. I suspect they are UNDER REPORTING...for Greed Purps....

Why turn on the spigot if the customers demand more at even higher prices??? Of course you don't turn it up...

Ya squeeze it for all ya got...dats the Pub way....

[OKIsItJustMe]

5. I believe you're fooling yourself

When companies like Chevron start running ads, warning that we may have already reached peak oil, you can assume that we have.

[terisan]

9. I don't think so. It is in their financial interest to promote the appearance of a shortage.

[NickB79]

11. Actually, the appearance of a shortage would be very bad business

If you ran a business that was dependent on, say, cogs, and your main supplier said "hey, we can only supply you with half the cogs you need", you would start looking for something to replace those cogs. To maintain a steady business, you need to maintain a steady supply line. In the end, if that cog supplier was only pretending to have a cog shortage, he just screwed himself out of sales. Worse, if you can't find a substitute for those cogs and your sales fall off, the cog manufacturer also loses business.

If OPEC is just pretending to have oil shortage problems, they are playing a very dangerous game. At current prices, economies around the globe will eventually start to slow down and enter recessions as the price of energy increases the costs of everything we consumers purchase. In a recession, demand for oil drops, and ultimately OPEC loses business. It also makes people look towards renewable energy, nuclear power, more fuel efficient cars, coal-to-oil, and oil sand/oil shale extraction as more reliable sources of energy to increase energy independence.

[terisan]

12. Opec has done this before-in the 1970s. They succeeded in limiting supply in the short run,

raising prices and profits (also for oil companies) , and then --as the alternative energy industry began to take wing, the price of oil plummeted and they retained their market while alternative energy was abandoned.

I think there will be a global market for oil, even with great advances coming up in alternatives. Opec and oil companies can push the market to pay them until the pain becomes unbearable for consumers and consumer nations--then the price will fall in order to try to stave off the development of alternatives.

People and markets are easily manipulated.

I don't think your cog analogy is apt--the oil industry is more of a monopoly and the alternatives are deveoping but they can't replace oil as yet.

I think dangerous game argument is well taken. I do think they are willing to take a chance because in an increasingly industrialized world they see the energy pie as getting bigger --they think they will get a more by receiving a smaller slice, but of a bigger pie.

[GliderGuider]

6. There isn't a chance they are under-reporting their reserves.

Not given the reserve inflation happened in the '80s and Kuwait's recent Come to Allah where they cut their reserve statement in half.

People have the sovereign right to do whatever they want with their own resources. If they do decide to keep some oil underground we'll thank them later. Kind of like the junkie on Monday who looks at the dealer he thought was tapped out on Saturday night but turns out to still be holding...

[terisan]

3. Beware of Arab Oil Men Telling Their Version of the Truth. nt

[GliderGuider]

4. I actually do trust this one.

Because he's telling the same story Matt Simmons has been telling for the last couple of years. OPEC reserves are bogus, and the peak is happening now. The only way his story doesn't jibe with the Revealed Peak Oil Canon is he thinks we'll have a production plateau for a decade or more. I think he's flying a very legitimate warning flag.

[Strelnikov_]

7. And question the motive of American Oil Men holding political power

From the standpoint of the oil industry obviously - and I'll talk a little later on about gas - for over a hundred years we as an industry have had to deal with the pesky problem that once you find oil and pump it out of the ground you've got to turn around and find more or go out of business. Producing oil is obviously a self-depleting activity. Every year you've got to find and develop reserves equal to your output just to stand still, just to stay even. This is as true for companies as well in the broader economic sense it is for the world. A new merged company like Exxon-Mobil will have to secure over a billion and a half barrels of new oil equivalent reserves every year just to replace existing production. It's like making one hundred per cent interest; discovering another major field of some five hundred million barrels equivalent every four months or finding two Hibernias a year. For the world as a whole, oil companies are expected to keep finding and developing enough oil to offset our seventy one million plus barrel a day of oil depletion, but also to meet new demand. By some estimates there will be an average of two per cent annual growth in global oil demand over the years ahead along with conservatively a three per cent natural decline in production from existing reserves. That means by 2010 we will need on the order of an additional fifty million barrels a day. So where is the oil going to come from? Governments and the national oil companies are obviously in control of about ninety per cent of the assets. Oil remains fundamentally a government business. While many regions of the world often greet oil opportunities, the Middle East with two thirds of the world's oil and the lowest cost, is still where the prize ultimately lies, even though companies are anxious for greater access there, progress continues to be slow..

- Cheney At London Institute of Petroleum, 1999

[Strelnikov_]

8. "unfair . . to expect Saudi to “pull everybody’s chestnuts out of the fire”

http://www.davidstrahan.com/blog/?p=67

Al-Huseini said that Saudi Arabia’s plans to raise production capacity to 12 million barrels per day by 2012 represented “an achievable number”, as the country had announced oil investments of $55 billion between 2003 and 2011. But he cautioned that since some of the new production will come from entirely new fields “how the reservoirs will respond will be determined as they start producing”.

However, al-Huseini disparaged Western expectations that the Kingdom would produce significantly more than 12 mb/d. It was unfair, he said, to expect Saudi to “pull everybody’s chestnuts out of the fire”.

Sadad al-Huseini - Former head of exploration and production, Saudi Aramco

This is starting to sound like the Saudi version of "Goodnight Ladies" with regard to the oil age.

[terisan]

10. Sounds as if best to forget about oil and jump into alternatives. May save our lives & planet.

[losthills]

13. We're going to run out of oil, and everybody knows it.

But we're not running out now. We're being played for suckers.

Gasoline in my town just shot up to 3.19 a gallon. But, you know what? There is no shortage of it. You can get all you want. I heard on the radio last week that Conoco/Phillips profits went up 40% last year. That is called profiteering, and it is related to the war in Iraq.

The war in Iraq is disrupting the flow of oil, and the US military is sucking up billions of barrells to fight that war and cares nothing about the price. Everyone who deals in oil sees this as their time to party. If there is a shortage of oil, I don't see any rationing, I don't see any oil companies going out of business, and I don't see any Sheiks committing suicide.

But I know what the Sheiks know: that Iraq is sitting on untapped reserves larger than everything in Saudi Land. When that oil hits the market the price will plummet. That's why we're there. Because Saddam was about to be released from UN sanctions and he was not going to sell any of that oil to US or British countries.

The situation in Iraq has degenerated to the point that it's going to be a long time before that oil hits the market. And in that time these games will be played, and we brought it on ourselves.

Oil is not a necessity, and we can get off this roller-coaster any time we muster up the will to.

But who wants to get off when so many are profiting so hugely from this manufactured so-called shortage?