Monday, July 14, 2008


We have received this note from a reader with extensive experience - both governmental and scholarly - in the field of energy:

Recently and whatever their intentions, the Saudis have been sending mixed messages about their future crude-oil production.

(1] In March, the King said that discoveries of new reservoirs of crude oil must be reserved for future generations.

[2] In June, Oil & Gas Journal tabulated Saudi projects recently completed or close to completion which would add more than four million barrels per day to Saudi capacity. [ No mention of the rates of decline for reservoirs already in production. ]

[3] The same report stated that production from these projects will peak in 2008 or 2010. In other words, production will begin to decline very soon after the projects are completed. This is very strange. Do these projects represent acts of desperation?

[4] In June, Saudi officials announced a national goal of increasing capacity to 12.5 million barrels, with the possibility of 15 million barrels later on, "if necessary" to meet world demand. This is from a current level reported as 9.5 million barrels.

[5] Now comes Business Week and says that Saudi production of crude oil will peak in 2010 at only 12 million barrels per day. Moreover, this level can only be sustained for short periods of time. The sustainable level will peak at 10.4 million barrels. The source of this information is said to be Saudi sources who are both reliable and have access to statistics for individual reservoirs.

Whatever the truth of the matter, the most important news is that which has not been reported. After five decades of official optimism, of portraying Saudi Arabia as the cornucopia of crude oil, there is no longer any certainty nor even a coherent party line about its future capacity. And without Saudi Arabia as the cornucopia, the illusion of oil forever has been shattered forever.

Of the 80 plus countries with significant crude-oil production, 63 admit that theirs is in permanent decline, including Mexico, the North Sea countries and the USA. Meanwhile, expansion of production in Iran, Iraq, Nigeria and Russia is on hold for political reasons, while the Saudis say that Iran and Nigeria cannot expand in any case.

With so many errors, omissions and bald-faced lies in oil statistics, I still doubt that we can pinpoint the year of the peak in world crude-oil production. But more than ever, we can be sure that it is coming and coming sooner than a lot of people think.