Paper Saudi Oil Reserves Confirmed by Wikileaks

As I posted three years ago justbefore oil went on a tear to $140, Saudi reserves in excess of originalmeasures are unbelievable and are likely to present us with a calamitouscollapse situation sooner or later.

This pretty well confirms thatthe sharp increase in reserves made by the Saudis some years ago, as well asother OPEC players were paper reserves. The SEC usually calls this fraud. The fact is no one knowledgeable really believed those numbers.

To date the bluff has not beencalled but present demand expansion is now nipping at the upper limits ofpresent production capacity.  A singlemajor field collapse could cause huge damage and dislocation in the oil marketthrough a sharp price rise.

The good news is that $90 oil isnow driving an explosion of drilling in the USAand Canadausing the new horizontal multi pack completion protocol and we will also seepropane based fracking take off.  It isas if we have found another trillion barrels of conventional crude that we canaccess with present infrastructure and can do it quickly.

I think that North America willbe able to exit completely the oil import market and leave the Middle East to China and India who will need the oil tocomplete their economic expansion.  Twoyears ago I thought that was possible using a range of strategies.   Today we know it is possible by just byreopening every old field and going after the oil left behind and by openingthe huge tight oil fields we have never touched.

Did WikiLeaks Confirm "Peak Oil"? Saudi Said To HaveOverstated Crude Oil Reserves By 300 Billion Barrels (40%)

Submitted by TylerDurden on 02/08/2011 20:41 -0500

In what can be the "Holy Grail" moment for the peak oilmovement, Wikileaks has just released 4 cables that may confirm that as broadlyspeculated by the peak oil "fringe", the theories about an imminentcrude crunch may be in fact true. As the Guardian reports on 4 justdeclassified cables, "The USfears that Saudi Arabia, theworld's largest crude oil exporter, may not have enough reserves to prevent oilprices escalating, confidential cables from its embassy in Riyadh show. The cables, released byWikiLeaks, urge Washington to take seriously a warning from a senior Saudigovernment oil executive that the kingdom's crude oil reserves may have beenoverstated by as much as 300bn barrels – nearly 40%." Could the OPECcartel's capacity for virtually unlimited supply expansion to keep up withdemand have been nothing but a bluff? That is the case according to Sadadal-Husseini, a geologist and former head of exploration at the Saudi oilmonopoly Aramco, who met with the USconsul general in Riyadh in November 2007 and"told the USdiplomat that Aramco's 12.5m barrel-a-day capacity needed to keep a lid onprices could not be reached." And yes, that conspiracy concept of peak oilis specifically referenced: "According to the cables, which date between2007-09, Husseini said Saudi Arabia might reach an output of 12m barrels a dayin 10 years but before then – possibly as early as 2012 – global oil productionwould have hit its highest point. This crunch point is known as "peakoil"." And it gets worse: "Husseini said that at that pointAramco would not be able to stop the rise of global oil prices because theSaudi energy industry had overstated its recoverable reserves to spur foreigninvestment. He argued that Aramco had badly underestimated the time needed tobring new oil on tap." Look for Saudi Arabia to go into full damagecontrol mode, alleging that these cables reference nothing but lies. In themeantime, look for Chinato continue quietly stockpiling the one asset which as was just pointed out isthe key one to hold, for both bulls and bears, according to MarcFaber.

More from the Guardian:

One cable said: "According to al-Husseini, the crux of the issueis twofold. First, it is possible that Saudi reserves are not as bountiful assometimes described, and the timeline for their production not as unrestrainedas Aramco and energy optimists would like to portray."

It went on: "In a presentation, Abdallah al-Saif, current Aramco seniorvice-president for exploration, reported that Aramco has 716bn barrels of totalreserves, of which 51% are recoverable, and that in 20 years Aramco will have900bn barrels of reserves.

"Al-Husseini disagrees with this analysis, believing Aramco's reserves areoverstated by as much as 300bn barrels. In his view once 50% of original provenreserves has been reached … a steady output in decline will ensue and no amountof effort will be able to stop it. He believes that what will result is aplateau in total output that will last approximately 15 years followed bydecreasing output."

The US consul then told Washington: "Whileal-Husseini fundamentally contradicts the Aramco company line, he is nodoomsday theorist. His pedigree, experience and outlook demand that hispredictions be thoughtfully considered."

Seven months later, the USembassy in Riyadhwent further in two more cables. "Our mission now questions how much theSaudis can now substantively influence the crude markets over the long term.Clearly they can drive prices up, but we question whether they any longer havethe power to drive prices down for a prolonged period."

A fourth cable, in October 2009, claimed that escalating electricity demand by Saudi Arabiamay further constrain Saudi oil exports. "Demand [for electricity] isexpected to grow 10% a year over the next decade as a result of population andeconomic growth. As a result it will need to double its generation capacity to68,000MW in 2018," it said.

It also reported major project delays and accidents as "evidence that theSaudi Aramco is having to run harder to stay in place – to replace the declinein existing production." While fears of premature "peak oil" andSaudi production problems had been expressed before, no US official has come close tosaying this in public.

The conclusion:

Jeremy Leggett, convenor of the UK Industry Taskforce on Peak Oil andEnergy Security, said: "We are asleep at the wheel here: choosing toignore a threat to the global economy that is quite as bad as the creditcrunch, quite possibly worse."

Obviously, if true, the implications of this discovery are massive, andwill have a huge impact on the price of oil imminently.

The four key cables can be found at the links below.

Saudioil company oversold ability to increase production, embassy told

SaudiArabia tackles western shift towards energy independence

USqueries Saudi Arabia's influence over oil prices

USconcern over Saudi Arabia oil production