Planning for future oil supplies

Guy Caruso, Chief of U.S. Energy Information Agency (EIA) published an article in Forbes on 4—14—2004 making the case that Saudi Arabia could double their oil production capacity by 2025. Mr. Caruso believes that Saudi Aramco could increase production rates from a maximum capacity of 10.5 MM bbls/day to 22 MM bbls/day based on proven oil reserves of 264 billion barrels.

I respect Guy Caruso and the EIA for the great job they do in maintaining our nation's energy statistics database. I am also happy to see someone challenge the notion that Saudi Arabia is running out of oil. Based on the success of Aramco's exploration program over the last 15 years, it is a safe bet that more reserves will be found to replace current production. I fully expect we will be importing crude oil from the Arabian Peninsula for decades to come.

However, there are real problems with the concept that we should expect Saudi Arabia to more than double their output to accommodate our growth in consumption. Putting aside the issue of the foreign investment that may or may not be required, I see a few issues that are significant obstacles.

First of all, it should be clear that no one should expect Saudi Arabia to ever produce more oil than can be replaced by reserve additions. This principle was made clear by King Fahd 15 years ago, so that their grandchildren will have a high standard of living.

Second, the Saudi official reserves figures suggest a 99—year supply based on current production rates. These reserves numbers have not changed much year to year, indicating that produced oil has been replaced with new reserves. However, the numbers do not show much growth. We do not know what the figures are for possible or probable reserves. However, to maintain the same long—term supply figure of 99 years, the new conversion rate would have to increase from about 3 billion bbls/year average to perhaps 8 billion bbls/ year. The Saudi Aramco Exploration department has the best technology available, but this could be a stretch. Hopefully, they have a few more oil fields like Shaybah in their list of probable and possible reserves.

Third... and this is key. What makes one believe that the Saudis or anyone else will strain their own national resources to match growth in world consumption? I, for one, do not expect any nation to essentially over—produce, just to accommodate consumption elsewhere. On the one hand, we should all hope that OPEC producers would continue to increase production to match our future needs. However, on the other hand, this mere hope should not be relied—upoon as our planning basis. It is just too risky a strategy for the US. We need a better contingency plan than this.

On the positive side, we should be able to assist the Iraqis to build their production rates. The current output of 2.5 to 3.0 million bbls/ day only restores pre—war production levels. Once the security situation is controlled, the Iraqis will be able to start anew with modern exploration and development technologies and begin to fully develop their industry.

Finally, another positive element is that the Saudis have adopted a plan to use their natural gas reserves to provide fuel for power plants, thereby saving the crude oil for export. I hope our natural own domestic natural gas production can someday increase to perform the same function, releasing oil for other uses.

Dan Berard is our energy correspondent

 

Guy Caruso, Chief of U.S. Energy Information Agency (EIA) published an article in Forbes on 4—14—2004 making the case that Saudi Arabia could double their oil production capacity by 2025. Mr. Caruso believes that Saudi Aramco could increase production rates from a maximum capacity of 10.5 MM bbls/day to 22 MM bbls/day based on proven oil reserves of 264 billion barrels.

I respect Guy Caruso and the EIA for the great job they do in maintaining our nation's energy statistics database. I am also happy to see someone challenge the notion that Saudi Arabia is running out of oil. Based on the success of Aramco's exploration program over the last 15 years, it is a safe bet that more reserves will be found to replace current production. I fully expect we will be importing crude oil from the Arabian Peninsula for decades to come.

However, there are real problems with the concept that we should expect Saudi Arabia to more than double their output to accommodate our growth in consumption. Putting aside the issue of the foreign investment that may or may not be required, I see a few issues that are significant obstacles.

First of all, it should be clear that no one should expect Saudi Arabia to ever produce more oil than can be replaced by reserve additions. This principle was made clear by King Fahd 15 years ago, so that their grandchildren will have a high standard of living.

Second, the Saudi official reserves figures suggest a 99—year supply based on current production rates. These reserves numbers have not changed much year to year, indicating that produced oil has been replaced with new reserves. However, the numbers do not show much growth. We do not know what the figures are for possible or probable reserves. However, to maintain the same long—term supply figure of 99 years, the new conversion rate would have to increase from about 3 billion bbls/year average to perhaps 8 billion bbls/ year. The Saudi Aramco Exploration department has the best technology available, but this could be a stretch. Hopefully, they have a few more oil fields like Shaybah in their list of probable and possible reserves.

Third... and this is key. What makes one believe that the Saudis or anyone else will strain their own national resources to match growth in world consumption? I, for one, do not expect any nation to essentially over—produce, just to accommodate consumption elsewhere. On the one hand, we should all hope that OPEC producers would continue to increase production to match our future needs. However, on the other hand, this mere hope should not be relied—upoon as our planning basis. It is just too risky a strategy for the US. We need a better contingency plan than this.

On the positive side, we should be able to assist the Iraqis to build their production rates. The current output of 2.5 to 3.0 million bbls/ day only restores pre—war production levels. Once the security situation is controlled, the Iraqis will be able to start anew with modern exploration and development technologies and begin to fully develop their industry.

Finally, another positive element is that the Saudis have adopted a plan to use their natural gas reserves to provide fuel for power plants, thereby saving the crude oil for export. I hope our natural own domestic natural gas production can someday increase to perform the same function, releasing oil for other uses.

Dan Berard is our energy correspondent