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ROLL OUT THE BARRELS FOR ANOTHER CENTURY
Despite rising oil prices and fears of a shortage, Saudi Arabia has enough reserves to supply the world for another 80 to 100 years, says its oil minister, who blames speculators for forcing up energy costs to the consumer.
 Doomsayers frequently predict that Saudi Arabia is rapidly using up its oil deposits, setting the world on course for a catastrophic energy shortage. But the Kingdom's top oil specialists have facts at their fingertips that effectively refute the scaremongers.
Ali Al-Naimi, the minister of petroleum and mineral resources, says that, at the country's current production rate of about 9.5 million barrels per day (bpd), its reserves-to-production ratio is about 80 years based on proved reserves alone.
"The reserves could last more than 100 years," he says, "if the probable and possible reserves are also considered, without even considering the vast undiscovered resource potential." With 27.62 percent of the world's proven oil reserves, Saudi Arabia dominates the oil supply chain and plays a primary role in maintaining its stability.
Abdallah S. Jumah, the president and chief executive of Saudi Aramco, the world's largest oil producing company, says that the Kingdom's oil-production capacity could increase from its current 11 million bpd to more than 23 million to meet world demand. The company is currently expanding its production, processing and transport infrastructure to allow for a 12-million bpd capacity, which includes a commitment to maintain 1.5 million to 2 million bpd spare production capacity.
In the ongoing hunt for more oil reserves to feed the world's ever-increasing need, Saudi Arabia uses the most sophisticated technology to locate and quantify its resources. The Kingdom's computers process four times more data than the space agency NASA and its database is three times as large as Google, the internet search engine. "We are industry leaders when it comes to understanding the reservoirs we manage," says Mr. Al-Naimi. " Worldwide, there were just about 550 billion barrels of reserves in 1970, but they have increased to more than 1.2 trillion barrels today. This increase comes even after almost 1 trillion barrels were consumed in that period."
In addition to these proven reserves, he says a further 1.3 trillion barrels are expected to become available from undiscovered deposits and growth in reserves located in existing fields.
Saudi Arabia's proven oil reserves stand at 261 billion barrels. This figure excludes probable and possible reserves which, says Mr. Al-Naimi, are conservatively estimated at about 100 billion barrels. "Additionally," he says, "we believe more intensive exploration along with enhanced oil recovery techniques will increase reserve estimates in already explored areas."
The oil minister argues cogently that, in today's world, oil supplies and prices are distorted by a host of peripheral dynamics, particularly energy futures markets and hedge funds involving annual transactions amounting to trillions of dollars.
Twenty years ago only five million bpd of petroleum products traded internationally. Today there are more than twice as many product barrels being traded inter-regionally.
"Oil is attracting vast sums of money from hedge funds and institutional investors seeking to maximize returns and diversify their portfolios," says Mr. Al-Naimi. "There is a widespread feeling in the industry that this activity will continue to push the market higher, despite Opec and Saudi Arabia's strong efforts to stabilize the prices."
Consumers and producers will have to come to grips with these new market conditions and will need to work together to address these common problems, says Mr. Al-Naimi. "We are keenly aware that when prices become too high, the world's economy is negatively affected. And when the world economy slows, we producers suffer." So very high or unstable prices, he says, are not in the interests of producers.
One critical issue is the spare capacity. This is a cornerstone of world oil market stability. In 1986 it reached a high of about 12 million bpd. Since then it has gradually eroded to the current level of about 2 million bpd, the vast majority of which exists in Saudi Arabia.
On a few occasions, such as when Iraq invaded Kuwait in 1990, surplus capacity has fallen to zero, but this has not lasted for more than a couple of months.
At the present time the Kingdom has sustainable crude production capacity of about 11 million bpd, which represents a spare capacity cushion of about 1.5 million bpd. Its goal is to maintain between 1.5 and 2 million bpd of spare capacity.
Last year Saudi Aramco brought on stream two crude oil increments in its Abu Safah and Qatif fields, with a combined capacity of 800,000 bpd. By the middle of next year it will bring another increment of 300,000 bpd in its Haradh field. It is planning to add a further 300,000 bpd during 2008 and a massive increment of 1.2 million bpd in 2009.
"These projects represent a combined production capacity of more than 3 million bpd, part of which will be utilized to offset natural decline and the rest to expand our production capacity to 12.5 million bpd," says Mr. Al-Naimi.
If needs be, he says, Saudi Arabia is ready to continue its capacity expansion to 15 million bpd and to sustain such capacity for more than 50 years.
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