Saudi Arabia, the biggest oil producer, and Exxon Mobil, the largest oil company, yesterday declared that the world had decades’ worth of oil to come, in an attempt to calm fears about the record prices experienced in recent weeks.
Forming a powerful alliance, the Saudi oil minister Ali al-Naimi said, at an industry conference in Johannesburg, that the country would soon almost double its “proven” reserve base, while Exxon’s president, Rex Tillerson, spoke of 3 trillion or more barrels of oil that are yet to be recovered.
Mr Naimi said that Saudi Arabia would “soon” add 200 billion barrels to its current reserves estimate of 264 billion barrels. The level of the kingdom’s reserves and future production capacity are a controversial issue, with sceptics suggesting that it is running out of oil. Muhammed-Ali Zainy, of London’s Centre for Global Energy Studies, said: “Since these Opec countries [like Saudi Arabia] are closed, the only information available is available to themselves alone. So they can come up with a new reserves figure and the rest of the world will just have to take it.”
Mr Naimi also said that there were “no takers” for more oil right now, as a result of constrained refining capacity. Roughly a quarter of US refining capacity is still shut after Hurricanes Katrina and Rita struck the country’s southern coast, but global refining capacity – to turn crude oil into petrol and other products – was struggling to keep up with demand even before that.
“Give us the customers and we will pump more oil,” the Saudi oil minister told reporters at the 18th World Petroleum Congress, adding that more refineries needed to be built. He said that enough global output would be added in the next three to four years to restore “some margin of safety” to oil markets.
The comments did have a soothing impact on the market. Despite early reports that Rita has sunk several rigs and left at least nine others adrift in the Gulf of Mexico, crude oil slipped 75 cents to end at $65.07 in New York yesterday. US petrol prices, however, continued to rise, leading George Bush to call on Americans to conserve fuel.
Saudi Arabia is the world’s key oil power, with more than a third of Middle Eastern reserves – on its existing estimate – and it currently pumps out 9.5 million barrels a day, providing well over 10 per cent of world supply.
Mr Naimi said talk of oil scarcity reminded him of the 1970s, when people also thought the end of the age of oil was at hand. “But in the intervening years, when we were supposedly facing a precipitous decline, world oil reserves more than doubled,” he said.
It is widely accepted that demand for oil will rise over the next decade or two. Most projections of how that demand will be met assume that Saudi Arabia will be able to ramp up production to 15 million barrels a day or more by 2020.
However, sceptics, led by the US banker Matthew Simmons, have argued that production in Saudi Arabia’s known oil fields is already declining and that no major new fields have been discovered. By extension, these critics suggest the world has reached, or is about to reach, the high point of production.
Separately, Exxon’s Mr Tillerson told the convention in South Africa that his company estimated that global energy demand would increase by 50 per cent over the next 25 years. Mr Tillerson said that by some estimates there was as much as 7 trillion barrels of oil yet to be discovered. On a more conservative basis, the world still had more than 3 trillion barrels from conventional fields, oil sands deposits and other sources. “That is more than twice all the oil recovered up to now in all of human history,” Mr Tillerson said.
Craig Pennington, an energy analyst at Schroders in London, said: “The message from these two [Naimi and Tillerson] is that, ‘Don’t worry. We do have enough oil. Just give us time to bring it in’.”