My conclusion from that exercise was that this method could not be used to argue that oil production in Saudi Arabia was about to peak. In other words, there was no conclusive evidence at that time that Saudi Arabia’s oil production was on the cusp of peaking (and we now know it wasn’t). According to the BP Statistical Review of World Energy, Saudi Arabia’s oil production was 10.9 million barrels per day (BPD) in 2005 and 12.0 million BPD in 2017.
Many of the responses I received to this exercise were venomous. I was insulted and cursed, and a couple of people even began to send me hate mail on a daily basis (until I blocked them). I was amazed that some people were so emotionally invested in the idea that Saudi production was about to crash, that they lashed out angrily at me for challenging that notion.
It’s nearly 15 years later, and while many (but not all) of the names have changed, the reactions have not. In response to my previous article, I have been cursed, insulted, and aspersions have been cast on my motives.
Tying Up Loose Ends
So let me address some comments arising from the previous article.
One person suggested I must have been paid by the Saudis to write the article. I wish. No, I didn’t write that article because anyone paid me to do it. However, if they want to send me a million dollar check, I will gladly put a disclaimer in the article indicating such payment. I will also have to give up my writing for Forbes, as they expressly forbid such arrangements.
Another suggested that I wrote it because I have a lot to lose if Saudi Arabia’s reserves are low. Actually, the opposite is true. If Saudi reserves are running low, and we are near a global oil crisis, the public will suddenly be interested in the energy sector. A decade ago when oil prices went above $100/bbl, I was inundated with inquiries. I was asked to do interviews, write articles and books, and I was offered jobs in oilfields around the world. I can safely say from experience that if Saudi reserves are low, it would benefit me far more than if they have 270 billion barrels. In fact, I would love to prove their reserves are low.
One person asked where I came up with some of the reserves numbers I used. They are all courtesy of the 2018 BP Statistical Review of World Energy. So they are all official country reserves, some of which are subject to stringent audit and some of which aren’t.
Some suggested that the conclusions from audits Saudi Arabia allowed of their reserves weren’t independent, or that they were shaped by conflicts of interest. No actual evidence has been provided, but there is a supposition that 1). Saudi wouldn’t allow anyone to publish a low estimate of their reserves; and 2). Saudi can’t possibly have 270 billion barrels of proved reserves. That’s the “proof” that the audits weren’t independent, not because anyone has made a credible case that somehow the methodology is tainted.
This is the kind of logic sometimes used by anti-vaccine advocates. They will argue that you can’t listen to a doctor’s advice about vaccines, because they have a vested financial interest in vaccinating children. While it’s technically true that they get paid to vaccinate kids, such logic isn’t evidence that their recommendations on vaccines are suspect. It’s an attempted rationalization for disregarding their expert opinions.
To reiterate, in preparation for an IPO of Aramco, Saudi Arabia commissioned an outside audit of its oil reserves by Dallas-based consultant DeGolyer and MacNaughton. Their business is auditing reserves around the world, and hence the integrity of these audits is important. The study took two-and-a-half-years, and also involved Gaffney, Cline and Associates, part of Baker Hughes. Sources told Reuters that “the independent external audit has found the proven oil reserves to be at least 270 billion barrels.”
Multiple people suggested that for various reasons it is invalid to compare the U.S. experience to Saudi Arabia. Some said the U.S. experience is distorted by shale oil, but I addressed that by showing that the answer is the same if we only look at data leading up to the shale boom.
I also mentioned that I looked at a number of countries, but most chose to ignore that qualifier. I will address this in depth in the next article, as this article is getting long.
In no way does this exercise prove that Saudi reserves are 270 billion barrels. But if we are to accept that they are not, and particularly if we are to believe they are less than 100 billion barrels, we have to believe:
- Saudi Arabia has been lying to OPEC and the rest of the world about its reserves for decades.
- Saudi Arabia would not have experienced the kinds of reserves growth we have seen in many other countries as a result of new discoveries, better extraction technologies, and much higher oil prices.
- Two different consulting agencies, involved in a two-and-a-half-year study of Saudi’s reserves, are lying about the results — risking their credibility and future business for the sake of this study.
- Institutional investors, which Saudi Aramco will be counting on to buy shares in its IPO, would be unconcerned about the supposed deception or conflicts of interest in the audits.
- Unconventional methods for estimating Saudi reserves — methods which don’t give correct answers when looking at other countries — are better guides to determining their reserves.
In summary, while I have not proven that Saudi has 270 billion barrels of proved oil reserves, I think the evidence points in that direction. And if you accept a much lower number, you essentially accept that there is a vast conspiracy involved in hiding the real numbers.