WikiLeaks: Saudi Arabia Drastically Overstated Oil Reserves

The latest unauthorized revelation from diplomatic cables released by the online site WikiLeaks may have major implications for the price of oil. According to diplomatic cables released Tuesday, the United States fears that Saudi Arabia -- the world's largest crude oil exporter -- may not have enough oil reserves to prevent oil prices from escalating, the UK's Guardian reports.

The leaked cables originated in America's embassy in Riyadh and reveal that a senior Saudi government oil executive estimates that the Kingdom's crude oil market reserves may have been overstated by as much as 40 percent -- the equivalent of 300 billion barrels.

The startling revelation comes as the price of oil has soared to more than $100 a barrel in recent weeks due to rising global demand and tensions in the Middle East which threaten to disrupt supply lines.

Sadad al-Husseini, a geologist and former head of exploration at the Saudi oil monopoly Aramco, met the US consul general in Riyadh in November 2007 and told the US diplomat that Aramco's 12.5m barrel-a-day capacity needed to keep a lid on prices could not be reached.  According to the cables, which date between 2007-09, Husseini said Saudi Arabia might reach an output of 12m barrels a day in 10 years but before then – possibly as early as 2012 – global oil production would have hit its highest point. This crunch point is known as "peak oil".

Husseini said that at that point Aramco would not be able to stop the rise of global oil prices because the Saudi energy industry had overstated its recoverable reserves to spur foreign investment. He argued that Aramco had badly underestimated the time needed to bring new oil on tap.

One cable said: "According to al-Husseini, the crux of the issue is twofold. First, it is possible that Saudi reserves are not as bountiful as sometimes described, and the timeline for their production not as unrestrained as Aramco and energy optimists would like to portray."

It went on: "In a presentation, Abdallah al-Saif, current Aramco senior vice-president for exploration, reported that Aramco has 716bn barrels of total reserves, of which 51% are recoverable, and that in 20 years Aramco will have 900bn barrels of reserves.

"Al-Husseini disagrees with this analysis, believing Aramco's reserves are overstated by as much as 300bn barrels. In his view once 50% of original proven reserves has been reached … a steady output in decline will ensue and no amount of effort will be able to stop it. He believes that what will result is a plateau in total output that will last approximately 15 years followed by decreasing output."

The US consul then told Washington: "While al-Husseini fundamentally contradicts the Aramco company line, he is no doomsday theorist. His pedigree, experience and outlook demand that his predictions be thoughtfully considered."

Later cables also suggest the fears of "peak oil" were very real threats.  "Our mission now questions how much the Saudis can now substantively influence the crude markets over the long term," one U.S. cable out of Riyadh said.  "Clearly they can drive prices up, but we question whether they any longer have the power to drive prices down for a prolonged period."

Another note, from October 2009, claimed that rising demand in Saudi Arabia could further complicate supply to meet the American demand for oil:

"Demand [for electricity] is expected to grow 10% a year over the next decade as a result of population and economic growth. As a result it will need to double its generation capacity to 68,000MW in 2018," it said.

It also reported major project delays and accidents as "evidence that the Saudi Aramco is having to run harder to stay in place – to replace the decline in existing production." While fears of premature "peak oil" and Saudi production problems had been expressed before, no US official has come close to saying this in public.