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Book: Saudi Arabia's Oil Production May Soon Decline


The price of oil has risen dramatically in the past couple of years, driven in part by increasing demand in China and India. But what if production from the world's largest known oil reserves in Saudi Arabia were to suddenly go into decline? According to a new book by an oil sector expert, that scenario could become a reality in the not-too-distant future.

One-quarter of the world's proven oil reserves are in one country, the Kingdom of Saudi Arabia. Most energy forecasts assume not only a continuation of Saudi production in the coming decades, but an increase to meet rising demand.

But some analysts fear that the Saudis may be reaching the end of their ability to increase production -- that is, their fields may soon go into decline.

Houston investment banker Matt Simmons, who has spent more than 30 years working in the energy sector, says Saudi secrecy about oil field data makes the situation worse.

"We have to have the data, because we have to have some ability to gauge when the end is likely to come," said Mr. Simmons.

In his recently published book, Twilight in the Dessert, based on extensive research from international sources, Mr. Simmons argues that Saudi estimates of reserve capacity are exaggerated and that most Saudi oil production comes from old, possibly declining fields.

"One field, Ghawar, which was discovered in 1948 and began production in 1951, which ranks by any stretch of the imagination as an old field today, is still producing five million of the eight million barrels-a-day of Saudi production," he noted.

But in a recent visit to Houston's Rice University, Abdullah Jum'ah, the president of Saudi Aramco, the state-owned oil company, dismissed the concerns expressed by Mr. Simmons and others.

"There is absolutely no disagreement between our professionals and other oil and gas professionals pertaining to our reserves, and I think I will leave it at that," he said.

He says Saudi Arabia has around 260 billion barrels of proven reserves and is constantly adding to that

"In fact, by continuing to turn probable reserves into proven barrels, we have been able to replace our production for many years despite being one of the world's largest producers of crude oil," he added.

The president of the Saudi oil company says his country also has an estimated 200 billion barrels of crude sitting beneath the ground in areas yet to be fully explored.

But such assurances do not satisfy Mr. Simmons, who continues to call for transparency in Saudi oil accounting.

"What I am talking about is field-by-field production reports," he explained.

Mr. Simmons says there are various reasons why a country might inflate its reserve estimates and that only an independent third party assessment can provide reliable information.

University of Houston oil expert and editor of World Energy Monthly Review Michael Economides is among those who disagree with Mr. Simmons' pessimism about Saudi reserves.

"I believe that Saudi Arabia, with proper foreign investment and proper foreign technology, can, in fact, produce anything from 13 to 15 million barrels of oil a day, significantly higher than what they do today," Mr. Economides said.

Professor Economides says lack of investment in production facilities is a problem in many other oil-producing countries as well. Many of the world's large oil producers are state-owned companies that limit the involvement of private companies whose technology and investment capital could make a difference.

But professor Economides says he agrees with Mr. Simmons on the need for more transparency from all the members of the Organization of Petroleum Exporting Countries (OPEC).

"I have to give him this much, we don't have independent auditing of reserves on practically any one of the OPEC countries," he added.

Most people with experience in the energy field see little hope that Saudi Arabia or other OPEC nations will provide such transparency. But many argue that, whether the dire prediction of a Saudi production decline proves true or not, it would be wise to start reducing dependence on imported oil.