Saudi Arabia's Oil Reserves are a Big Bluff: WikiLeaks
There are some eerie parallels to be drawn between Saudi Arabia today and the US near its oil production peak in 1971.
-- Elliott Gue, The Energy Strategist
The price of crude oil as is true of any economic good is based on supply and demand. If youve read The Rise of the State or are a subscriber to The Energy Strategist, you already know that global energy demand is experiencing strong growth in conjunction with the relentless economic growth and industrialization of emerging markets like China, India and Brazil. By 2035, the Energy Information Administration (EIA) projects global oil demand of 110.6 million barrels per day (bpd), up from approximately 86 million bpd today. Thats almost a 30 percent jump in demand!
In a world of exploding demand, sufficient oil supplies are critical to maintaining oil prices at reasonable levels. Any slowdown in oil production will cause oil prices to skyrocket. Even now, Brent Sea crude oil is selling for more than $101 per barrel and energy expert Elliott Gue, lead advisor of The Energy Strategist, has recently gone on record predicting that oil will hit $120 per barrel later this year.
Increased Oil Production Depends Upon the Middle East
But even $120 could be a low-ball figure if supplies are less than expected. Crude oil supplies in developed countries are way past peak and are running out. More and more, the world is looking to the Middle East (and Venezuela) to keep the oil party going. The key Middle East player in global oil supplies is Saudi Arabia. As Elliott Gue has written:
Whats clear is that US oil production is well past peak and some other key oil-producing basins such as the North Sea have also seen peak production levels. The real lynchpin is assumptions made about Middle East production and, in particular, production from Saudi Arabia.
In this era of booming global demand, the importance of Saudi production cant be overstated. The world is already depending on another turbocharged spurt of production growth from Saudi Arabia to meet future needs.
Why Saudi Arabia is So Important to Global Oil Supplies
According to the Oil & Gas Journal, Saudi Arabia has the largest proven reserves of crude in the world and is the second-largest producer of oil based on daily production:
Proven Reserves of Crude Oil
Country
Proven Reserves (barrels)
Percentage of World Total
Saudi Arabia
260.1 billion
17.7%
Venezuela
211.2 billion
14.4%
Canada
175.2 billion
11.9%
Iran
137.0 billion
9.3%
Iraq
115.0 billion
7.8%
Kuwait
101.5 billion
6.9%
United Arab Emirates
97.8 billion
6.7%
Russia
60.0 billion
4.1%
Libya
46.4 billion
3.2%
Nigeria
37.2 billion
2.5%
Daily Production of Crude Oil
Country
Daily Production (barrels)
Percentage of World Total
Russia
10.2 million
14.1%
Saudi Arabia
8.0 million
11.1%
United States
5.5 million
7.6%
China
4.1 million
5.6%
Iran
3.7 million
5.1%
Canada
2.7 million
3.8%
Mexico
2.6 million
3.6%
Iraq
2.4 million
3.3%
United Arab Emirates
2.3 million
3.2%
Venezuela
2.2 million
2.2%
The problem is that Saudi Arabias oil reserves may not be as large as commonly thought. Elliott Gue recognized this risk more than five years ago in November 2005:
The Saudis have repeatedly insisted theyll be able to increase their production capacity over the next few years to meet all new demand. But several cracks have recently appeared in the Saudi miracle.
Most of the Saudis large onshore reservoirs are aging rapidly and have been in continuous high-level production for at least half a century. It's clear the Saudis are also experiencing problems related to rising water cuts from their largest reservoirs. Wells that once prolifically produced oil are now spitting more water than oil.
Saudi Arabias entire oil industry is veiled in secrecy, and there are plenty of signs its oil reserve and production potential have been massively overstated.
In May 2006, Elliott again rang alarm bells about Saudi Arabia, telling anyone who would listen that Saudi Arabia is closer to a peak than most suppose.
WikiLeaks Embassy Cables Show that Saudi Arabia is Full of Hot Air, Not Oil
Ive always been amazed at Elliotts ability to predict the future, and thanks to WikiLeaks, Elliott has been proven right once again. Just a week ago, WikiLeaks released classified cables from the U.S. embassy in Riyadh, Saudi Arabia with sensationalistic allegations that Saudi oil reserves are overstated by 40% or more.
As I wrote in Massey Energy is Reborn, Im not a fan of WikiLeaks founder Julian Assange because he has jeopardized the safety of American spies working undercover in dangerous foreign lands. But I must admit that many of the documents he releases are fascinating and provide unique information you cant find anywhere else. The U.S. website of WikiLeaks has been shut down, but there are several mirror versions of the website that are still working. The U.S. embassy cables from Saudi Arabia can be found by clicking here.
The most explosive of the embassy cables from Saudi Arabia is dated December 10, 2007 and talks about a November 20th meeting with Dr. Sadad al-Husseini, former Executive Vice President for Exploration and Production at Saudi Aramco. According to al-Husseini, the official Saudi line was that the country had 716 billion barrels of oil, of which 50% was recoverable (i.e., 358 billion barrels). He said that this 716 billion barrel number was overstated by 300 billion barrels (i.e., 41%) and Saudi Arabias recoverable reserves were actually only 244 billion (remember, he said this more than three years ago). Furthermore, he said that production would slow markedly after the country produced its next 64 billion barrels, which would occur around 2020:
Approximately 116 billion barrels of oil have been produced by Saudi Arabia, meaning only 64 billion barrels remain before a slow but steady output decline will ensue and no amount of effort will be able to stop it. At 12 million b/d production, this inflection point will arrive in 14 years. Thus, while Aramco will likely be able to surpass 12 million b/d in the next decade, soon after reaching that threshold the company will have to expend maximum effort to simply fend off impending output declines. Al-Husseini believes that what will result is a plateau in total output that will last approximately 15 years, followed by decreasing output.
Mr. al-Husseini also said that Saudi Arabias production problems are compounded by a lack of available skilled engineers, a shortage of experienced construction companies, insufficient refining capacity, and underdeveloped industrial infrastructure.
Other interesting embassy cables:
June 3, 2008: Saudi Arabia earns $1 billion per day from oil sales and refining is a horrible business.
February 12, 2010: Saudi Arabia is terrified that global efforts to combat global warming will reduce oil sales and damage the country's economic stability.
February 11, 2010: Saudi Arabia is terrified of Iran and using oil to pressure China to stop supplying Iran's nuclear program. There are now more than 22,000 Saudi students studying in the US, exceeding pre-9/11 levels.
November 23, 2009: Saudi Arabia's population is growing at more than 2% per year and domestic electricity demand is growing at 8%-10% per year. Half of the country's GDP is directly tied to oil. Saudi Arabia wants to develop solar and nuclear energy to supply domestic energy needs, which will free up more crude oil for export.
September 19, 2007: Explorations by Chinese, Russian, Italian and British-Dutch drilling firms in the "Empty Quarter" of Saudi Arabia to date have not discovered any commercially viable quantities of natural gas.
January 11, 2010: Private citizens of Saudi Arabia continue to be a source of terrorist funding for the Taliban.
My top investment conclusion from the WikiLeaks embassy cables: get ready for much higher oil prices.
Invest in Energy Stocks with the Help of The Energy Strategist
Now that the world has called Saudi Arabia's bluff, oil prices are destined to go much higher. Elliott Gue, editor of market-beating Energy Strategist investment service, is a big bull on oil prices and stocks leveraged to oil. Specifically, Elliott recommends buying:
a) Oil services and equipment firms that have the advanced technologies required to produce more complex fields in regions such as the deepwater Gulf.
b) Oil producers with the capacity to increase oil production meaningfully in coming years.
To find out the specific names of the stocks he likes best in these two oil-related categories, give The Energy Strategist a try today!
Saudi Arabia's Oil Reserves are a Big Bluff: WikiLeaks
There are some eerie parallels to be drawn between Saudi Arabia today and the US near its oil production peak in 1971.
-- Elliott Gue, The Energy Strategist
The price of crude oil as is true of any economic good is based on supply and demand. If youve read The Rise of the State or are a subscriber to The Energy Strategist, you already know that global energy demand is experiencing strong growth in conjunction with the relentless economic growth and industrialization of emerging markets like China, India and Brazil. By 2035, the Energy Information Administration (EIA) projects global oil demand of 110.6 million barrels per day (bpd), up from approximately 86 million bpd today. Thats almost a 30 percent jump in demand!
In a world of exploding demand, sufficient oil supplies are critical to maintaining oil prices at reasonable levels. Any slowdown in oil production will cause oil prices to skyrocket. Even now, Brent Sea crude oil is selling for more than $101 per barrel and energy expert Elliott Gue, lead advisor of The Energy Strategist, has recently gone on record predicting that oil will hit $120 per barrel later this year.
Increased Oil Production Depends Upon the Middle East
But even $120 could be a low-ball figure if supplies are less than expected. Crude oil supplies in developed countries are way past peak and are running out. More and more, the world is looking to the Middle East (and Venezuela) to keep the oil party going. The key Middle East player in global oil supplies is Saudi Arabia. As Elliott Gue has written:
Whats clear is that US oil production is well past peak and some other key oil-producing basins such as the North Sea have also seen peak production levels. The real lynchpin is assumptions made about Middle East production and, in particular, production from Saudi Arabia.
In this era of booming global demand, the importance of Saudi production cant be overstated. The world is already depending on another turbocharged spurt of production growth from Saudi Arabia to meet future needs.
Why Saudi Arabia is So Important to Global Oil Supplies
According to the Oil & Gas Journal, Saudi Arabia has the largest proven reserves of crude in the world and is the second-largest producer of oil based on daily production:
Proven Reserves of Crude Oil
Country
Proven Reserves (barrels)
Percentage of World Total
Saudi Arabia
260.1 billion
17.7%
Venezuela
211.2 billion
14.4%
Canada
175.2 billion
11.9%
Iran
137.0 billion
9.3%
Iraq
115.0 billion
7.8%
Kuwait
101.5 billion
6.9%
United Arab Emirates
97.8 billion
6.7%
Russia
60.0 billion
4.1%
Libya
46.4 billion
3.2%
Nigeria
37.2 billion
2.5%
Daily Production of Crude Oil
Country
Daily Production (barrels)
Percentage of World Total
Russia
10.2 million
14.1%
Saudi Arabia
8.0 million
11.1%
United States
5.5 million
7.6%
China
4.1 million
5.6%
Iran
3.7 million
5.1%
Canada
2.7 million
3.8%
Mexico
2.6 million
3.6%
Iraq
2.4 million
3.3%
United Arab Emirates
2.3 million
3.2%
Venezuela
2.2 million
2.2%
The problem is that Saudi Arabias oil reserves may not be as large as commonly thought. Elliott Gue recognized this risk more than five years ago in November 2005:
The Saudis have repeatedly insisted theyll be able to increase their production capacity over the next few years to meet all new demand. But several cracks have recently appeared in the Saudi miracle.
Most of the Saudis large onshore reservoirs are aging rapidly and have been in continuous high-level production for at least half a century. It's clear the Saudis are also experiencing problems related to rising water cuts from their largest reservoirs. Wells that once prolifically produced oil are now spitting more water than oil.
Saudi Arabias entire oil industry is veiled in secrecy, and there are plenty of signs its oil reserve and production potential have been massively overstated.
In May 2006, Elliott again rang alarm bells about Saudi Arabia, telling anyone who would listen that Saudi Arabia is closer to a peak than most suppose.
WikiLeaks Embassy Cables Show that Saudi Arabia is Full of Hot Air, Not Oil
Ive always been amazed at Elliotts ability to predict the future, and thanks to WikiLeaks, Elliott has been proven right once again. Just a week ago, WikiLeaks released classified cables from the U.S. embassy in Riyadh, Saudi Arabia with sensationalistic allegations that Saudi oil reserves are overstated by 40% or more.
As I wrote in Massey Energy is Reborn, Im not a fan of WikiLeaks founder Julian Assange because he has jeopardized the safety of American spies working undercover in dangerous foreign lands. But I must admit that many of the documents he releases are fascinating and provide unique information you cant find anywhere else. The U.S. website of WikiLeaks has been shut down, but there are several mirror versions of the website that are still working. The U.S. embassy cables from Saudi Arabia can be found by clicking here.
The most explosive of the embassy cables from Saudi Arabia is dated December 10, 2007 and talks about a November 20th meeting with Dr. Sadad al-Husseini, former Executive Vice President for Exploration and Production at Saudi Aramco. According to al-Husseini, the official Saudi line was that the country had 716 billion barrels of oil, of which 50% was recoverable (i.e., 358 billion barrels). He said that this 716 billion barrel number was overstated by 300 billion barrels (i.e., 41%) and Saudi Arabias recoverable reserves were actually only 244 billion (remember, he said this more than three years ago). Furthermore, he said that production would slow markedly after the country produced its next 64 billion barrels, which would occur around 2020:
Approximately 116 billion barrels of oil have been produced by Saudi Arabia, meaning only 64 billion barrels remain before a slow but steady output decline will ensue and no amount of effort will be able to stop it. At 12 million b/d production, this inflection point will arrive in 14 years. Thus, while Aramco will likely be able to surpass 12 million b/d in the next decade, soon after reaching that threshold the company will have to expend maximum effort to simply fend off impending output declines. Al-Husseini believes that what will result is a plateau in total output that will last approximately 15 years, followed by decreasing output.
Mr. al-Husseini also said that Saudi Arabias production problems are compounded by a lack of available skilled engineers, a shortage of experienced construction companies, insufficient refining capacity, and underdeveloped industrial infrastructure.
Other interesting embassy cables:
June 3, 2008: Saudi Arabia earns $1 billion per day from oil sales and refining is a horrible business.
February 12, 2010: Saudi Arabia is terrified that global efforts to combat global warming will reduce oil sales and damage the country's economic stability.
February 11, 2010: Saudi Arabia is terrified of Iran and using oil to pressure China to stop supplying Iran's nuclear program. There are now more than 22,000 Saudi students studying in the US, exceeding pre-9/11 levels.
November 23, 2009: Saudi Arabia's population is growing at more than 2% per year and domestic electricity demand is growing at 8%-10% per year. Half of the country's GDP is directly tied to oil. Saudi Arabia wants to develop solar and nuclear energy to supply domestic energy needs, which will free up more crude oil for export.
September 19, 2007: Explorations by Chinese, Russian, Italian and British-Dutch drilling firms in the "Empty Quarter" of Saudi Arabia to date have not discovered any commercially viable quantities of natural gas.
January 11, 2010: Private citizens of Saudi Arabia continue to be a source of terrorist funding for the Taliban.
My top investment conclusion from the WikiLeaks embassy cables: get ready for much higher oil prices.
Invest in Energy Stocks with the Help of The Energy Strategist
Now that the world has called Saudi Arabia's bluff, oil prices are destined to go much higher. Elliott Gue, editor of market-beating Energy Strategist investment service, is a big bull on oil prices and stocks leveraged to oil. Specifically, Elliott recommends buying:
a) Oil services and equipment firms that have the advanced technologies required to produce more complex fields in regions such as the deepwater Gulf.
b) Oil producers with the capacity to increase oil production meaningfully in coming years.
To find out the specific names of the stocks he likes best in these two oil-related categories, give The Energy Strategist a try today!
Saudi Arabia's Oil Reserves are a Big Bluff: WikiLeaks
