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Page added on February 5, 2017
Peak Oil, fudged figures and the Saudi audit
Hardly a decade ago, Peak Oil debate was holding the global centre-stage. Pundits were concerned. Questions were being raised, about the world’s largest oil field, Ghawar and its capacity and potential to keep on producing crude at the current levels.
Measuring 280 by 30 km (174 by 19 miles), Ghawar has been producing crude for more than a half a century now. And even in current times too, despite all the talks of water being flooded into Ghawar, as per some estimates the field continues to produce somewhere around five million barrels a day.
According to American geologist and geophysicist M King Hubbert’s theory, peak oil is the point in time when the maximum rate of extraction of petroleum is reached and after which it is expected to enter terminal decline.
With people like Matthew Simmons, and his ‘Twilight in the Desert’ still on the global centre-stage then, the argument was that Ghawar will peak in the near future if it has not done so already. Simmons and his co-Peak Oil theorists were out to prove that the data being presented by Saudi Aramco and the likes were fabricated. They claimed to have reached this conclusion after having had the privilege of seeing hundreds of internal Saudi Aramco documents, besides indeed professional journals and other authoritative sources. Simmons & Co hence clamored for an independent audit of the reserves data of Saudi Arabia. The issue was could Saudi Arabia continue to quench the global crude thirst in the coming years?
While this debate was on, I had the privilege of getting acquainted with Fatih Birol, the current Executive Director at the Paris-based International Energy Agency (IEA).
Many say the IEA was created by the likes of Henry Kissinger in the immediate aftermath of the 1973 Arab Oil embargo, basically to counter the Organisation of the Petroleum Exporting Countries (Opec).
Birol was and is an OECD man. Then too, he was there representing the IEA. Hence, I asked him of his opinion about Ghawar continuing to be able to meet the growing global crude demand?
Birol was apparently in a tight spot. Yet, the professional in him was straight, underlining that Saudi Aramco is a professional organisation and that he believed in what they were saying and asserting.
His statement basically meant that despite being an IEA man, Birol was not giving in to the claims of the Peak Oil theorists who were hell bent on proving that twilight has descended on the desert.
But all these years, despite all the confidence in the professionalism of Saudi Aramco, murmurs could still be heard. Lack of independent audit remained an issue. And thus when it was announced that Saudi Aramco could be up for privatisation, pundits underlined that the move could require Saudi Aramco to open up its books. Investors would need to know the asset base – from authentic, independent sources.
People at the helm of affairs in Riyadh knew of it. And thus from the very beginning, it was said: Saudi Aramco would open up and fulfill the needs and requirements of the potential investors.
These assurances were coming from none else than Prince Mohammad Bin Salman, the Saudi Deputy Crown Prince who also heads the Council for Economic and Development Affairs.
Now it is being revealed that Saudi Aramco has already undertaken an external audit of its reserves base. And the audit has confirmed that Saudi Arabia has more than 261 billion barrels of oil reserves, Reuters reported on January 27.
Saudi Aramco had tasked Baker Hughes’ energy consulting services unit Gaffney, Cline & Associates, as well as Dallas-based DeGolyer and MacNaughton, to perform the reserves auditing, various sources told Reuters. Sources quoted by the agency now say that the audit by both the companies was completed late last year.
The independent audit of the Saudi reserves base takes care of the existing gap in the global energy database. According to Aramco’s own estimates, the Saudi Arabia has 261.1bn barrels of crude oil and condensate reserves. According to the BP Statistical Review of World Energy, Saudi Arabia’s total proved reserves were 266.6bn barrels at the end of 2015. And now the independent audit has confirmed that.
According to two sources, the audit has found that the reserves were “definitely not below” Aramco’s own estimates. “Aramco’s reserves have always been reported internally in line with international practice,” another Reuters source familiar with the issue insisted.
And this brings to mind, what my good, old, friend Fatih Birol told me almost a decade ago. Saudi Aramco was not presenting fudged figures — as many do.
14 Comments on "Peak Oil, fudged figures and the Saudi audit"
Midnight Oil on Sun, 5th Feb 2017 8:31 am
I watch the film, “The Big Short” and when it comes to big money, there are audits and the pressure to confirm by independent panels is made out of rubber. If then did not do so, someone else would be more than willing!
When the SHTF it won’t matter…
Oh, Like how the Trump is up for dismantling Dodd Frank and investor protection…
Making America Great Again!
Anything goes to keep the hamster running.
Apneaman on Sun, 5th Feb 2017 9:16 am
Author
Syed Rashid Husain
https://ca.linkedin.com/in/syed-rashid-husain-85478a16
Davy on Sun, 5th Feb 2017 10:45 am
Lefties, just be patient Trump’s economic policies will drive the global economy into a depression. That is when you need to pounce that is unless you are homeless and hungry.
“Carlson Capital: Border Adjustment Tax Would Lead To “Global Depression”
http://tinyurl.com/hda94q8
“If the economy slows down against expectations it will have little effect on the upward direction of inflation. The rationale of inflation was cost-push and supply side constraints not demand side stimulus. Thus, we may be looking at the grisly spectacle of stagflation with the equity market on the highest cyclically adjusted valuations ever.”
“Based on rising commodity prices and the more than one hundred percent year-on-year increase in crude oil, also an (OPEC) supply issue, we expect inflation to rise quite sharply perhaps as high as five percent over the next year. Anytime over the last thirty years that oil has risen one hundred percent year-on-year and long end interest rates are up one hundred percent year-on-year with a strong dollar, the US economy has slowed down often into recession. It squeezes consumer real purchasing power, slows real consumer spending at a time when export growth could slow given uncertainty over new, undecided policies and a less competitive currency. This is a global phenomenon; Japan has an extremely low unemployment rate too. The Eurozone and UK CPIs are destined to accelerate also.”
“We cannot overstate the impact of a declining US trade deficit and this is why we spent a large part of the letter discussing it. If the border adjustment mechanism is implemented as proposed we think it will cause a global depression and a major equity market decline. It is still unclear whether it will happen but at the very least we expect that US trade policy will put downward pressure on global growth.”
rockman on Sun, 5th Feb 2017 11:11 am
First, “According to the BP Statistical Review of World Energy, Saudi Arabia’s total proved reserves were 266.6bn barrels at the end of 2015”. BP has no Saudi data TO SUPPORT their estimate. (and let’s not ignore the assinine use of that one decimal place. LOL) None at all given that the KSA holds that data as a state secret. As far as the new auditor numbers they had only what data the KSA made available to them. Data which they had little to no ability to verify IMHO. And I can only offer that as an opinion because neither the auditors or the KSA will disclose the data made available because it is still held as a state secret.
With respect to any production peak (as per Hubbert) there’s a critical aspect that is rarely pointed out: in Hubbert’s analysis US fields are produced at their MER…Maximuim Efficient Rate. IOW that rate that maximizes ultimate recovery. In the case of Texas that has been determined by the state regulators for many decades…not the producers. In fact the governor declared martial law and used troops to shutin the giant Easst Texas Field to stop rates greatly exceeding the MER. It was that situation that lead to the “allowable law” that gave the TRRC authority to set the MER for all future fields in the state. Fields Hubbert used to build his US PO model. But it set the max rate…not the min rate. And since production was owned by for-profit companies the incentive was typically to produce at the MER.
So here’s the question: since the day Ghawar went on line has it ever produced at its MER? Or even close to it? IOW when OPEC production dropped from 35 mm bopd in 1980 to less the 15 mm bopd in 1983 were any of those ME fields, including those in the KSA, producing at their MER? Obviously not.
And I can assure you nearly every US company was producing at their MER in 1983…and some cheating producing a little bit more. Bottom line: trying to look at the production history of the KSA (as well as the rest of OPEC) thru a Hubbert PO lens is pointless. Way too much of an apple to orange comparison. Given that recent low oil prices may have driven the KSA to produce above the MER of its fields the recent peak in global oil production might not be consider a “natural” rate and also shouldn’t be compared to a Hubbertized view of PO.
shortonoil on Sun, 5th Feb 2017 2:09 pm
“Lefties, just be patient Trump’s economic policies will drive the global economy into a depression.”
Faster than it was already going? With $200 trillion in debt how much more damage can he do? The only thing he can do is add a little icing to this already baked cake.
joe on Sun, 5th Feb 2017 2:17 pm
Ok, a Pakistani news outlet says Saudi is honest. Okay, I accept THAT as gospel truth. (Eh, not)
Davy on Sun, 5th Feb 2017 2:21 pm
Right short, but with lefties if it has a cheetos flavor they are satisfied. Imagine if I told them the truth and that they are as responsible as anyone for the malaise that we call a global economy. They would be mean and nasty calling me mean and nasty. Lolhoo.
Nony on Sun, 5th Feb 2017 2:54 pm
Saudi PRODUCTION has held up for the last 10+ years. Simmons, Staniford, and Hamilton all expressed concerns it would drop soon. It DID NOT.
In addition, it is reported that reserves were audited by two top notch external auditors. And they validated the Saudi estimate (slightly higher).
Part of being a scientist, or just a logical thinker, is to use new facts to adjust your opinions. But peakers don’t.
Do we know to a Euclidean certainty that Saudi is not about to run dry? No. Of course not. But we have two new strong pieces of information. And instead of reflecting on them, peakers are still living in Matt Simmons conspiracy land.
Keith McClary on Sun, 5th Feb 2017 5:54 pm
Why the career change?:
“Rashid Husain Syed is a Toronto-based journalist, consultant and energy analyst. For almost 25 years, he served as vice-president of a leading Saudi trading and consulting house.”
Tom on Sun, 5th Feb 2017 9:11 pm
If I am not mistaken, Saudi crude oil reserves have been 266 billion barrels for decades even though billions of barrels have been produced in that time. Their fields seem to be the very only ones that never deplete.
Nony on Mon, 6th Feb 2017 12:12 am
I am willing to stake my reputation on the impeccable reputation of KSA leadership and Wall Street auditing firms. KSA shows no sign of slowing down so the only logical conclusion is that it will never slow down. My ass can fit 2 cocks at once. The other day I got three in there. Triple penetration. I can probably get every cock in China in there the way I’m going. I just filled a 5 pound bag with 6 pounds of shit. Obviously 7 pounds will not be a problem. You peak oil morons don’t understand science or gay gang bangs. Idiots.
GregT on Mon, 6th Feb 2017 1:08 am
Still haven’t resolved those underlying issues yet Nony? Three years in a row now. Get some professional help.
Antius on Mon, 6th Feb 2017 1:54 pm
Good news if true. It buys us a little more time getting those Gen 4 reactors up and running. Lets hope idiots don’t blow that time forcing us to build pissy little windmills instead of investing in something that really can be scaled to provide the energy humanity needs.
Roger on Mon, 6th Feb 2017 8:39 pm
It’s a fantasy. If SA has 266 Bbbls, why have they been trying so hard to do 12 MM bbl/d? If those reserves were real would be simple (R/P – 70 yrs). Why is SA spending $ billions on high cost offshore oil?
This “piece” OS quotes Reuters (propaganda rag) “reliable sources.” Who believes this garbage?
If Degloyer & Maughton’s reserves report is released to the public, I’ll reconsider. Won’t happen…just Aramco’s version for ignorant reporters…and stock brokers, that’s what you’ll get.