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Saudi Arabia reacts to ASPO

The Oil and Gas Journal published on May 17th an article by Mr Sadad al-Husseini, who was until recently an Executive Vice-President of Saudi Aramco. He refers to the doubts raised by ASPO regarding the validity of the 260 Gb (billion barrels) claimed by the country as remaining reserves, admitting that a policy of withholding technical information has given grounds for uncertainty. He also mentions the somewhat implausible sudden increase of 100 Gb in the later 1980s as also pointed out by ASPO.

It is a long and elegantly written article mentioning the full spectrum of factors affecting oil production, including the growing costs and problems of maintaining mature fields. He hints that the challenges mount when onshore carbonate reservoirs are 35-40% depleted, and come earlier at 20-25% in the case of older clastic reservoirs, presumably referring to the Palaeozoic fields of Hawtah in western Arabia. He refers also to massive water injection being applied to some onshore fields. Reading between the lines, this may mean that it becomes difficult to lift the recovery factor beyond 35-40% as water cut rises to extreme levels.

He states that production is running at 3 Gb/a which he says represents a 2.3% depletion rate of Proved Developed Reserves of 130 Gb, adding somewhat implausibly that there is an exactly equal amount of Undeveloped Reserves, which are evidently a good deal less than Proved. We may question exactly what is meant by the latter category. It may refer to unconfirmed new discoveries with extreme assumed recovery factors, or even oil-in-place. ASPO’s current estimate of 144 Gb sounds a more reliable one for the purposes of modelling production over the next few decades. He also confirms ASPO’s conclusion that operations are being conducted efficiently with cutting-edge technology, where necessary supported by foreign experts. He adds that upstream operations have not been in any way constrained by lack of funding.

While he claims that the country has a huge undeveloped potential, sufficient in certain circumstances to support production of 15 Mb/d, he stresses the growing costs and uncertainties. He justifies a hesitancy to commit the colossal funding required on the grounds of the wide range of anticipated world demand as forecasted by Western institutions. He is certainly right to doubt the validity of such forecasts, which in some cases are politically motivated.

While the article is far from explicit, it does give the impression of a certain mindset that sees the country as being endowed with a large amount of oil-in-place, with the challenge being to extract it. This echoes the “Reserve Pyramid” of the USGS, which imagines that ever more difficult oil can be accessed with higher prices and unspecified technological progress. No one disputes that the country is well endowed or that production could indeed be lifted temporarily with supreme effort. There is a hint of a suggestion that this mindset might equate reserves with oil-in-place in known fields.

The particular conditions of the Ghawar Field, holding most of the country’s oil may have contributed to the mindset. It has required massive water injection, partly because the natural water drive has been partly blocked by a tar deposit. The amount of water produced by the wells has risen sharply to stand at about 60%, according other Saudi releases. It is set to continue to rise, probably to pass 80% within ten years, but oil can still be produced for many years after that in ever-falling proportions and rates. Perhaps at the end of the day a high proportion of the oil-in-place will prove to be recoverable because the reservoirs are onshore and shallow, meaning that the economic cutoff is exceptionally low.

On balance, the article does little to undermine ASPO’s evaluation, which considers only what will be produced prior to a cutoff in 2075 to avoid having to worry about the largely irrelevant tail end of production. Its current assessment is that 97 Gb have been produced so far; that 144 Gb will come from known fields and 18 Gb from new discovery, giving a total of 260 Gb, the number claimed as remaining reserves. The article does little to counter ASPO’s current forecast that production will be flat to at least the midpoint of depletion in 2013. The depletion rate at that point would be about 2.3%, which is still relatively low, meaning that plateau production could be extended for some years longer before terminal decline need set in. Such a profile would be consistent with Saudi Arabia’s own best national interest to conserve its resources for its growing population, which is heavily dependent on oil revenue. If anything, higher oil prices would encourage such a sensible policy by yielding sufficient revenue without eating into the inheritance.

The country and its OPEC partners have tried hard to manage depletion sensibly. They have received little help from the oil industry that produced flat out wherever it could and still less from the obese consumers who did nothing to staunch their voracious appetite for this very precious resource. If criticism be due anywhere, better to direct it at the International Energy Agency and the Energy Information Agency of the United States, which issue implausible estimates and forecasts, misleading governments into dangerous policies. The reservoirs of Saudi Arabia are subject to the same immutable physics that control production elsewhere. It is not just a case of opening the valve, and it certainly is not a case of holding the world to ransom. Mr Husseini calls for better co-operation between producers and consumers. It sounds as if he is ready to support the Depletion Protocol proposed by ASPO whereby consumption is reined in to match world depletion rate as imposed by Nature, which would remove much of the cause of current world tension, especially in the Middle East.

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