Is Saudi Arabia Exaggerating Its Oil Production Potential?

For many years now, Saudi Arabia has exaggerated every measure associated with its oil business, from how much crude it can produce to its reserves and everything in between, as analyzed in depth in my first book on the oil sector in 2015 and the newest in 2021† Why are these numbers lied so much and so often? Because without the power it has in the world that is directly related to its crude oil production, spare capacity and reserves, it has no real power at all, so vastly exaggerating any of these numbers aims to inflate itself in terms of its geopolitical importance. However, the problem that Saudi Arabia has at the moment is that the US and all other developed market countries whose economies are suffering from the weight of the continued high oil prices are pressuring Riyadh to meet these demands, to lower these oil prices. . If Saudi Arabia hadn’t lied about the amount of oil it can produce all these years, it wouldn’t have had a problem, but it has.

Then let’s get to the figures themselves and first and foremost the figures for Saudi Arabia’s crude oil reserves. In early 1989, Saudi Arabia claimed proven oil reserves of 170 billion barrels, but just a year later, and without the discovery of major new oil fields, the official estimate of the reserves had somehow jumped 51.2 percent to 257 billion. barrels. Shortly thereafter, it rose again to just over 266 billion barrels, a level that continued until a slight increase in 2017 to just over 268 billion barrels. On the other side of the supply-demand equation, from 1973 to late last week, Saudi Arabia pumped a an average of 8.192 million barrels per day (bpd) crude oil. Therefore, starting from 1989 (with 170 billion crude oil reserves officially claimed that year), over the next 32 years, Saudi Arabia physically pumped out and forever removed its oil fields, totaling 95,682,560,000 barrels of crude oil. No significant new oil fields were discovered during the same period. Despite this, Saudi Arabia’s crude oil reserves have not fallen, but increased. This is a mathematical impossibility.

Second, Saudi Arabia’s spare capacity figures, which are a function of Riyadh, not only lie about the numbers, but involve semantic deceptions where different terms are used interchangeably in the oil market, despite not being at all. mean the same. For the avoidance of doubt, the official definition of the Energy Information Administration (EIA) is: very specific about what ‘spare capacity’ is in global oil markets, and it is quoted as follows, quoted directly from the EIA rules: “Spare capacity is production that can be brought online within 30 days and maintained for at least 90 days.” That is it; that is what reserve capacity is, no more, no less. However, Saudi Arabia, within its own use of the term “reserve capacity,” includes every drop of crude oil it can get hold of: including oil stocks in storage, stocks that can be withheld from contracts and diverted to those stored stocks, and any oil it can hold. can buy through brokers on the spot market and then sell it as its own oil. It is precisely this semantic trickery that has been used to explain actual supply shortages in the wake of the September 2019 attacks by the Iranian-backed Houthis on the Saudi facilities of Khurais and Abqaiq and subsequent attacks.

In reality, as written in the book of 2015“The country has often stated that it has a spare capacity of 2-2.5 million barrels per day (mbpd), with the potential to ramp up its production to around 12.5 mbpd in the event of unexpected disruptions elsewhere. It is highly unlikely, however, that it could pump at these levels for an extended period of time, and this idea has been supported by comments from Gulf officials at OPEC, who amid Iraq’s supply fears that Saudi Arabia could ramp up production by agree 1-1.3 mbpd at best. Officials also said that the 11.5 mbpd production has not been tested and can only be maintained for a very short period of time and that any higher production would be very difficult and require heavy crude production.” Nothing meaningful has changed since then.

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And third, the ridiculously inflated “production” figures that Saudi Arabia has been working on for years and that from the… Hans Christian Andersen School of Oil Economics† As highlighted above and back in the 2015 book, despite all the nonsense and general nonsense from the Saudis about being able to easily “produce” 11 million bpd or 12 million, and plans to “raise” it to 13 million bpd, Saudi Arabia actually produced from 1973 to the end of last week, and an average of 8.192 million barrels per day (bpd) of crude oil; that is it. Moreover, as already analyzed in the 2015 book, it has only managed to produce 11 million bpd in the history of the world, through the end of last week, and keep it up twice a month† Even when Saudi was with almost existential points in its recent history — such as the 2014-2016 all-or-nothing oil price war that prompted it to destroy or disable the then-nascent U.S. shale oil sector, or when former U.S. President Donald Trump threatened to withdraw military support for it if he didn’t. would increase oil production – Saudi was still unable to increase oil production above just 10.5 million bpd for long.

It is therefore not surprising that OPEC+ decided last week not to increase its production beyond what was previously agreed – because it simply cannot. Perhaps this was why neither Saudi Crown Prince Mohammed bin Salman (MbS) nor Abu Dhabi Crown Prince Mohammed bin Zayed Al Nahyan (MbZ) agreed to take calls from US President Joe Biden anyway: not because they tried to marginalize him (although that’s probably true too), but because they couldn’t offer him anything and were caught in a lie. This latter inference can be drawn from later comments – relayed to the world by French President Emmanuel Macron last week – that he had a phone call with MbZ: “He told me two things. I’m at a maximum, maximum [oil production capacity]”This is what he claims,” ​​said the French president. “And then he said… [the] Saudis can increase by [only] 150 [thousand barrels per day]maybe a little more, but they won’t have huge capabilities for six months,” Macron concluded.

By Simon Watkins for Oilprice.com

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