The world’s proved reserves have been have been falsely puffed up by the inclusion of 300 billion barrels of speculative resources, according to the former head of exploration and production at Saudi Aramco, and this explains the industry’s inability to raise output despite soaring prices.

Sadad al-Huseini’s presentation to the Oil and Money conference in London went substantially as previewed by lastoilshock.com, but the analysis he delivered may also throw light on the infamous OPEC reserve additions of the 1980s.

Mr al-Huseini began by noting the obvious inconvenient truth of the oil market of recent years: that production has barely increased despite a soaring crude price and massive investment by the industry. “It’s telling us something. We should be listening to what the numbers are telling us, not what the politicians say… It’s not about economics alone, you can increase prices, but you will not necessarily drive production up”

He also noted that 400 billion barrels of reserve replacement has been reported over the last decade, and asked why this had not been translated into new capacity. The answer, he suggested, was that a quarter of the world’s claimed proved reserves are no such thing: not production-ready oil, but speculative resources. “Reserves are confused and in fact inflated. Many of the so called reserves are in fact resources. They’re not delineated, they’re not acessible, they’re not available for production”. By his estimate 300 billion of the world’s 1200 barrels of proved reserves should be recategorized as speculative resources.

Mr al-Huseini did not specify which countries had inflated their reserves in this fashion, but the number is strikingly similar to the size of reserve additions recorded by OPEC members in the mid-1980s when countries were vying for quota share, although no new discoveries had been made.

However he did go on to question the production potential of some Gulf states, pointing out that 75% of Iranian production comes from mature fields that are more than 50% depleted. “That is not sustainable. When you hear officials saying production is going back up to up to over 5 million barrels [per day], that is not do-able”. He also noted that the 38 giant fields in the Arabian Gulf with reserves of over billion barrels each are on average 41% depleted. “These are the fields that in many forecasts are supposed to crank up and double production from the Gulf – again, very questionable”.

Al-Huseini’s world production forecast showed output on a plateau that will last no more than 15 years before starting to decline. In a world where spare capacity has evaporated, he concluded, the technical floor for oil prices would continue to rise at about $12 per year. “Prices can only go up”.

8 Comments

  • Mikey B

    This vital piece of information now confirmed by Huseini – that in the 80’s the reserve estimates were hugely inflated, has been one of the most frustrating parts of the peak oil puzzle. There can now be no doubt that Peak Oil is here. Many thanks for your website Mr Strahan.

  • A DeWit

    Indeed, congratulations to Mr Strahan. I do research on Japan, which gets just under half its primary energy from oil. The political and bureaucratic elite over here dismissed peak oil a few years ago, and were very slow to respond to the new petropolitics (eg, the rise of the “new seven sisters”). There also seems to have been some confidence that the Bushies would prevail in Iraq and open those reserves to the global market. Now they’re betting heavily on nuclear power, in spite of several accidents. If any country ought to be wary of what’s unfolding, it’s Japan, which initiated the Pacific War largely to secure oil supplies. That Japan is so slow to react is an indication of how out of touch virtually all governments are.

  • Dave D.

    I suggest we all need further clarification on Mr. al-Huseini’s statements regarding proven reserves…couldnt he have been refering to Canada/Venezuela oil sands reserves and not middle east reserves?

  • Mikey B

    Dave D: Clarification would be manna from heaven but lets face it – anyone, whether it be individual or government who openly admitted to having been involved with or possessing intimate, withheld, knowledge of reserve estimate inflation would become an instant world-wide pariah. Mr Huseini’s convoluted statements maybe the closest we ever get to the truth.

  • Saad Al-Ghamdi

    Mr. Saddad Huseini’s statements imply that the Gulf oil production reached the peak point although he did not say it clearly. I wish he could clearly and directly address the issue of the peakoil in the Gulf states. It’s more appropriate that experts speak frankly in this global issue to safe the future of the coming generations.
    We still need more clarification from Mr. Al-Huseini.

  • Richard Miller

    I was coming to exactly the same shape of forecast as Huseini, for a forthcoming paper at the Energy Institute, and now people will think I’m cribbing off him!

    It is probably going to be a plateau, not an obvious peak, because there will be no discontinuity in either the decline rate of old fields, or in the new production from new ones. A 15 year plateau looks too long if we are to keep the ultimate recoverable within bounds (under 2600 billion barrels) and the production decline rate at no more than 4% p.a.. 10 years looks better. There will be room for occasional bumps on that plateau when something truly big gets going, much as Buzzard has temporarily reversed the UK production decline all by itself.

    Al-Huseini states that Arabian giant fields are on average 41% depleted. In general, big and/or old fields are of course depleted more slowly than small and/or new fields. Brent and Forties production peaked at just 33% and 30% depletion respectively. OK, they’re smaller than the Gulf fields, and were produced comparatively fast, but it’s food for thought.

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