The missing context on Saudi oil reserves

One reason that I created Power Hour, my monthly Internet radio show where I interview today’s top energy experts on today’s top energy issues, is that it is too much discussion of energy issues consists of sound-bites or out-of-context statistics, without the full context. On the February Power Hour, guest Michael Lynch stressed this point in connection with Peak Oil theory, where many “experts” lack a solid foundation in the economics and history of the petroleum industry. And this week in the New York Times, Lynch made the same point about the recent hubbub over Saudi oil reserves. I strongly recommend reading the whole thing, but I want to highlight a couple of passages:

AS WikiLeaks’s trove of diplomatic dispatches continues to trickle out, one recent release has caused quite a stir: a cable from an American diplomat who said he was told by a Saudi oil executive that both official estimates of Saudi oil reserves and their ability to meet global demand in the long run have been vastly exaggerated. In turn, many proponents of “peak oil” theory, the idea that the global rate of oil production has entered a terminal decline, have insisted that the cable confirms their view on resource scarcity.

Actually, it does nothing of the sort. The Saudi executive, Sadad al-Husseini, a former head of exploration for the Saudi oil monopoly Aramco, has been making such claims for years. Finding them repeated in a confidential cable is news only to those unfamiliar with the field.

In other words, the cable is “news” in the same way that a cable from Al Gore warning of catastrophic global warming would be news.

More important, his claims don’t stand up to scrutiny. For one thing, according to the cable, Dr. Husseini said that estimates of Saudi “reserves” were exaggerated by some 300 billion barrels. But this is impossible, as the Saudi government’s estimate of proven reserves is actually less than that amount–roughly 267 billion barrels.

More likely, Dr. Husseini was referring to claims by some Saudi oil executives that, over the long term, they expect to find 900 billion barrels in the ground, and that 51 percent of it will be recoverable. So the dispute has nothing to do with current reserves, but with projections that are speculative by definition. Aramco’s numbers may be an educated guess, but experts in the field know they are just a guess.

In other words, many discussing the story don’t know the meaning of the term “reserves,” nor Saudi Arabia’s declared reserves. And yet, they are willing to go around and proclaim that oil production is terminally declining, and that this will inevitably lead to some sort of apocalypse.

For a serious, in-depth examination of Peak Oil and the fallacies behind it, listen to my hour-long interview with Lynch on February’s show. And to keep up with future shows, subscribe to my monthly newsletter “Life, Liberty, and the Pursuit of Energy.”

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