What if the major oil producers in the world have exaggerated their oil reserves, possibly to deter an accelerating trend to find energy alternatives that will take away or reduce their ability to rate prices through the stratosphere at the end of their reign? Scary, huh, and among oil experts – including the U.S. government – that cruel fact has been known for years. Fact is that governments don’t particularly want to sew panic in the minds of their constituents, so cooperating in that mythology has been easy. Oil producers also don’t want to minimize the perception of their power base – controlling significant oil supplies – by admitting that the source of their global muscle is vastly overstated. Hey, they’ve already got too much on their minds watching “regime change by force” all over the region. Problem is, we are run ning out of oil way faster than our planners are telling us, and the consequences for an economy struggling to emerge from a near-depression could be catastrophic.
Saudi Arabia is one of those mega-producers (and they are the biggest exporter) that is the bell cow for the entire oil-producing market. Its story can be repeated across the entire Middle Eastern oil supply chain. And Saudi Arabia may have been overstated its proven oil reserves by as much as 40% (300 billion barrels): “Peak oil, or the point when the maximum rate of global petroleum extraction has been reached and is about to enter terminal decline, is no longer the fringe theory it was just 10 years ago. Even Jeroen van der Veer, the chief executive of Royal Dutch Shell, has admitted that oil supply may no longer keep up with demand by 2015. But the just released cables, which detail a back-and-forth between the U.S. consul general and geologist Sadad al-Husseini, the former head of exploration at Saudi Aramco, confirms that the situation is serious.” FastCompany.com, February 9th.
WikiLeaks released intergovernmental cables, produced by FastCompany.com, point to the extent of the problem. Here’s one such note (between the U.S. Embassy and al-Husseini) and a follow-up: In a presentation, Abdallah al-Saif, current Aramco [Arabian American Oil Co.]senior vice-president for exploration, reported that Aramco has 716bn barrels of total reserves, of which 51% are recoverable, and that in 20 years Aramco will have 900bn barrels of reserves.
Al-Husseini disagrees with this analysis, believing Aramco's reserves are overstated by as much as 300bn barrels. In his view once 50% of original proven reserves has been reached…a steady output in decline will ensue and no amount of effort will be able to stop it. He believes that what will result is a plateau in total output that will last approximately 15 years followed by decreasing output.
“Other cables from the U.S. embassy in Riyadh go on to express fears that ‘Saudi Aramco is having to run harder to stay in place--to replace the decline in existing production, and that Clearly they can drive prices up, but we question whether they any longer have the power to drive prices down for a prolonged period.’”
As China gobbles up long-term output from countries like Nigeria, the Sudan, Angola and even Iran, furthering tightening the supply, new automobiles coming online in places like India and China (the latter sells more new cars every year than does the U.S.) suggest that by 2025 demand could increase by 50% unless severe efficiencies are created and implemented. Oil pricing has nowhere to go but “up” even with an occasional fall due to momentary oversupply. So when we read that so many nations in the Middle East have overstated their petroleum reserves, and when there have been very few “new” oil finds in the entire region over the past decade plus… listen… it is the sound of pockets emptying and lifestyles plunging.
I’m Peter Dekom, and this is just one more reason that affordable homes too far from urban work-centers are simply not going to appreciate anytime soon.
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