When Saudi King Fahd died the Kingdom's officials were quick to say there would be no change in Saudi oil policy. Part of that policy has been to increase production as needed to keep oil prices from reaching heights that might damage Western economies or make alternative fuels more attractive.
But what if production from the world's largest known oil reserves were to suddenly go into decline? According to a book by an oil sector expert, that scenario could be true.
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 says Saudi secrecy about oil field data makes the situation worse. He says, "We have to have the data, because we have to have some ability to gauge when the end is likely to come."
In his recently published book, based on extensive research from international sources, Simmons argues that Saudi estimates of reserve capacity are exaggerated and that most Saudi oil production comes from old, possibly declining fields. He cites one instance. "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."
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. He says, "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 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 said.
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 Matt Simmons, who continues to call for transparency in Saudi oil accounting. "What I am talking about is field-by-field production reports."
University of Houston oil expert and editor of World Energy Monthly Review Michael Economides disagrees 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."
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, known as OPEC. He also states, "I have to give him this much: we don't have independent auditing of reserves on practically any one of the OPEC countries."
Most people with experience in the energy field see little hope that OPEC nations will provide such transparency. But many argue that, whether the dire prediction of Saudi production decline proves true or not, it would be wise for the United States to start reducing dependence on Saudi oil.