By John Richardson
SAUDI Arabia's crude-oil reserves may have been overstated by as much as 40% or 300bn barrels, according to this article on February 8 in the Guardian, based on cables between Saudi and US diplomats obtained by Wikileaks.
The blog the Oil Drum used the occasion of the article to recap its many posts on the Saudi, and the Middle East in general's, overstatement of crude reserves.
Unreliability of reserve figures dates all the way back to the 1980s when OPEC said it would base quotas on reserve levels and hey presto, many of the members increased their reserve levels. Independent auditing of these new levels hasn't taken place, it is claimed.
The immediate implication of the Wikileaks cables is that Saudi Arabia might well not have enough spare capacity to prevent crude prices from rising in the future.
This is a separate issue from the oil price right now which has been pumped-up by rising political unrest in the Middle East and speculation. As this recent article in the Financial Times points out, supporting the long-held view of the blog, there is plenty of slack all the way along the supply chain to create the substantial change of a sharp price correction. This decline would be exacerbated by the speculative money pouring out of the market.
As far as the long term goes the latest Wikileaks scoop will delight followers of the Peak Oil theory.
We remain unconvinced whether the ancient theory is now at last about to be proved right. There is an awful lot of natural gas oversupply at the moment and the potential for a great deal more thanks to shale gas and growth in liquefied natural gas (LNG) capacity.
This other Oil Drum post points to an example of another technological breakthrough, like shale gas, that could raise US oil production by at least 20%.
But what Wikileaks has re-emphasised is that, surprise, surprise, Middle East reserve figures are not to be trusted. And in the case of Saudi Arabia, it may see a decline in its role as the world's most-important swing producer.
Great uncertainty also surrounds how much natural gas the Kingdom will produce in the future, according to an industry observer who spoke to the blog earlier this week.
This has big implications for availability of gas feedstock for petrochemicals and for the future price of the feedstock.
"Saudi Aramco is making lots of investments in onshore and offshore gas exploration," he said (see the link above for details of these investments).
"We have yet to see any production from these investments. In the Empty Quarter in Saudi Arabia, two of the foreign investors in gas exploration have not renewed their licenses to carry on exploring.
"And even if many of the new wells start producing gas nobody has a firm idea on how wet or dry the resulting output will be."