Comment by Dr Mamdouh G Salameh, International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London is also interesting. No way of verifying accuracy.
'Having done a lot of research and analysis for years about Saudi proven oil reserves, I reached the final conclusion that Saudi reserves couldn’t be more than 55 billion barrels (bb) rather than the 266 bb the Saudi have been claiming for years.
Moreover, the Saudis haven’t been transparent enough about their production capacity. Their oil production peaked in 2005 at 9.65 million barrels a day (mbd) and has been in decline since. In my estimate, their production capacity doesn’t exceed 8.5 mbd. Moreover, they never had a spare capacity of 2 mbd as they have been claiming because to have such a spare capacity would mean that their production capacity is 12 mbd and this figure has never been tested. When they say they are producing 10 mbd, at least 1.5 mbd come from their stored crude.
With estimated stored crude oil of 130 million barrels , the Saudis could continue to meet their customer needs for less than a month after which their stored oil would have been totally exhausted. The proof they aren’t telling the truth about the timetable for repairs is that they have been telling their customers that some lighter grades would likely be replaced with heavier crude grades.
The truth about Saudi oil potential and reserves will eventually come out. And when it does, the global oil market will get the shock of its life with a horrendous global oil crisis to match.'
>the global oil market will get the shock of its life with a horrendous global oil crisis to match.
It won't.
There is a very large amount of oil production on hold or at low capacity in North America because the prices are currently too low and very much expected to go higher in the future.
Prices will rise up to 50% but that isn't much of a crisis or unprecedented.
Renewables will become more attractive and their growth will accelerate a little.
This is interesting. I read a book back in 2009 called
"The Coming Economic Collapse: How You Can Thrive When Oil Costs $200 a Barrel" by Stephen Leeb, Ph.D (2007) [1]
The title is total trash, and it seemed alarmist but IIRC the premise of the entire book is basically what you describe, at least in my very pedestrian understanding of energy / petroleum markets.
Are you familiar with this title, or the author? Your post makes me want to pull it out for a re-read.
OPEC has generaly set country targets based on peak capacity and reserves. Everyone has assumed the numbers have been part bullshit for 50 years because there is a huge incentive to lie to have higher OPEC allowances. Frankly, they'd make more total revenue over the long term if they didn't lie.
Why does it matter what their potential production capacity is? That sounds like asking how many money printing machines they have; it seems they could build as many of those as they want, but of course you only do that according to market needs.
And of course oil reserves have had the unfortunate tendency to significantly increase whenever the oil price is high.
> The truth about Saudi oil potential and reserves will eventually come out. And when it does, the global oil market will get the shock of its life with a horrendous global oil crisis to match.
I'm skeptical. Maybe the Saudis don't have the capacity they say they do. They have the capacity that they're delivering, though, and that capacity is enough for the needs of the market...
... until some other supplier has a problem. But while the results may be a shock and a crisis, I suspect it won't quite add up to the apocalyptic terms of the quote.
Clickbait title, bad article (completely unsubstantiated/unsourced, openly hostile, ...), and a pretty horrible website in general.
SA inflating their production and capacity numbers is perfectly possible (and probably likely), but that kind of writing is not exactly trustworthy.
But some things to think about:
* With modern drone/missle capabilities, it seems quite easy to severely compromise global oil and gas production with just a few targeted strikes; mainly on the big refineries. Quite scary.
* Is Iran, after years of fighting proxy wars, now moving towards more direct conflict with Saudi Arabia?
> Is Iran, after years of fighting proxy wars, now moving towards more direct conflict with Saudi Arabia?
I mean the Saudis have been commuting war crimes in Yemen, Iran may've supplied some equipment, but I certainly think the Yemenis would be motivated enough themselves.
Just to say: people have known this for absolutely years and OPEC nations have been lying about production/reserves/everything since the cartel was formed.
And yes, it is unsourced...because the point is very much that OPEC is using this data to determine things like production share, so there is a massive incentive to fabricate data which no-one can prove.
Guarding a refinery is at least doable in principle, but most oil is transported there by way of a pipeline. Guarding miles and miles of pipes in the middle of nowhere is going to be prohibitively expensive.
The Trans-Arabian pipeline for example is a whopping 1214 km (754 mi) long[0]!
I think this will prompt other countries on the ME who haven’t yet embraced unconventional warfare, uavs in particular, to begin familiarization and adoption and then use it strategically. SA are overinvested in conventional defense and offense. I imagine they’re looking to ramp up quickly.
A truism at the commodities hedge fund I used to work at was the "the Saudis are always lying" along with "never be long a country's currency if they have their own word for afternoon nap"
I thought it was common for everyone to lie about their oil production for all sorts of reasons and everyone knows it.
Half the battle within OPEC was over who lies how much and everyone coming to the table to figure that out and come to guidelines about production that are largely general guidelines in practice. Sort of "Ok everyone we're all way off the agreed numbers way too much let's dial it back for a bit." agreements.
I want to say that I've heard representatives in OPEC have openly say such things plenty of times.
The recent attacks are said to have cut Saudi production by 50%.
The Saudis claim production capacity of ca. 12 mbd. 6 mbd lost to attack. Their estimated stores are at ca. 180 million barrels.
To keep a happy face, the Saudis could sell from their stores to offset for the loss of Abqaiq and Khurais, but this can only be kept up a limited time, as the store is empty in roughly 30 days.
The time to fix the damage has been estimated at 8 months.
Does this mean the Saudis face losing 50% of their oil income in about 30 days?
question - what do Saudis gain from inflating their production capacity and oil reserves? Do they want to come across as some sort of superpower / critical country based on their reserves -- to continue getting preferential treatment from rich countries?
When OPEC sets production targets they all haggle with each other over what they'll each produce. This is based on things like percentages of reserves, percentages of capacity, percentages of historical rates, percentages of historical revenues, etc. Over the course of decades and dozens of iterations of negotiations the underlying numbers have become, lets just say, very very loosely coupled with reality. They are mostly produced by literal monarchies (I'll never get over this) or military dictatorships with no third party verification. So in addition to being part of an economic/revenue negotiation, they are also part of a regime-stability bluff.
That is why, as a general rule, every year they "discover" approximately the same amount of oil they produced/delivered that year.
Large reserves and production capacity means market control, i. e. they can control, or at least set an upper limit, on price. This allows them, among other things, to scare potential competitors away from trying to compete. It also strengthens their position in OPEC. And, IIRC, there may even be some provisions in international agreements that tie quotas to reserves.
Counterintuitively, a high price may actually be scarier for SA than a low price. It may cause competitors to invest in exploration. And where fixed, initial cost make up a large part of costs, some competitors may continue to produce even if prices fall, and even if the investment was based on wrong estimates and may never actually reach break-even.
SA running out of oil would also hasten efforts to replace oil with renewables.
Showing weakness internally and abroad welcomes threats and change. Perhaps their external investments (and IPO of aramco) are being driven by more immediate needs than they admit.
"This is despite the all-out oil price war that Saudi started in 2014 against U.S. shale producers to try to destroy the industry through low prices caused by flooding the markets with oil. “If the Saudis had anything near 12 million barrels per day capacity, that would have been the time to pump it but all it managed was just under 10 [million bpd] with 10.5 [million bpd] managed for just one month over that two-year period [2014-2016 before Saudi reversed it strategy],”
Would it have been the time to pump it? If the goal was just to impact US shale producers, why also undercut your own sales? The best strategy factoring in shale-targeting AND profits would be to pump just as much as to impact shale producers, but no more.
Also, another angle as hinted at from conclusions, but not included:
"Saudi Arabia ends up boosting the bank accounts of the very people that it thinks was behind the attacks on its own oil infrastructure, the Islamic Revolutionary Guards Corps "
but, counterpoint, if they pumped too much at that time, dropping prices against US interests, when the political climate was more favorable to Iran, trade talks could have further favored Iran as a counterbalance, if for no other reason than to 'keep the saudis in line'.
i have no direct knowledge, but the analysis is quick to highlight some angles and not others.
It's nonsense. This website, and this author in particular, are very low quality. A couple weeks ago spun a meeting between China FM and Iran FM as some massive 25 year oil development/marketing deal with China. All unsourced. And almost all of it unsubstantiated by anyone except vague anonymous sources. Wrapped around a kernel of truth (the Iranian and Chinese FM did meet the preceeding week).
Regarding his accusations that hedge funds knew Iran would attack Saudi that weekend.... zzzz 1st there are few commod-specific hedge funds left, 2nd macro funds currently hate oil if anything, and don't have big positioning in either case (see CFTC data), 3rd any oil specialist that is long was/is long because our markets are very tight currently -- crude oil markets are strongly backwardated (implying urgency to acquire spot barrels) and refining margins are large globally. The Iran attacks were a (fleeting) side benefit and are very nearly lower than they were before the attacks now.
Reading this sort of garbage on oil markets always reminds me the Gell-Mann effect must be real and I should quit reading news in other domains, because it's probably as crap.
Ok. So let's say I believe in this, with the implication that oil prices in the future are likely to go up. Any investment advice? How can one - say a UK taxpayer - profit off of this investment thesis?
Peak Oil as a concept for production in a conventional reservior makes sense. It's on a time frame/size that makes sense. Reserves are not explicity capacity based, reserves are heavilly economically based. As price increases you get more reserves despite having produced oil. This, in addition to technological changes, allows for increased reserves and is why global peak oil as a concept is a bad predictor. Global peak oil was originally predicted to be 1970's.
I thought some time ago that the Saudis would likely try to exhaust all their production without telling anyone, then try to sell of Aramco under the pretext there was still a lot of oil in the ground. Did not expect them to sell it so soon.
I remember reading something years ago about how the Saudi's have always over reported the amount of oil reserves they have and the quality of the crude oil.
That will explain recent bold moves by the crown prince in attempts to modernize and diversify their economy like UAE did. Will it work out? We will see.
[+] [-] olivermarks|6 years ago|reply
'Having done a lot of research and analysis for years about Saudi proven oil reserves, I reached the final conclusion that Saudi reserves couldn’t be more than 55 billion barrels (bb) rather than the 266 bb the Saudi have been claiming for years.
Moreover, the Saudis haven’t been transparent enough about their production capacity. Their oil production peaked in 2005 at 9.65 million barrels a day (mbd) and has been in decline since. In my estimate, their production capacity doesn’t exceed 8.5 mbd. Moreover, they never had a spare capacity of 2 mbd as they have been claiming because to have such a spare capacity would mean that their production capacity is 12 mbd and this figure has never been tested. When they say they are producing 10 mbd, at least 1.5 mbd come from their stored crude.
With estimated stored crude oil of 130 million barrels , the Saudis could continue to meet their customer needs for less than a month after which their stored oil would have been totally exhausted. The proof they aren’t telling the truth about the timetable for repairs is that they have been telling their customers that some lighter grades would likely be replaced with heavier crude grades.
The truth about Saudi oil potential and reserves will eventually come out. And when it does, the global oil market will get the shock of its life with a horrendous global oil crisis to match.'
[+] [-] colechristensen|6 years ago|reply
It won't.
There is a very large amount of oil production on hold or at low capacity in North America because the prices are currently too low and very much expected to go higher in the future.
Prices will rise up to 50% but that isn't much of a crisis or unprecedented.
Renewables will become more attractive and their growth will accelerate a little.
[+] [-] magashna|6 years ago|reply
[+] [-] dfsegoat|6 years ago|reply
The title is total trash, and it seemed alarmist but IIRC the premise of the entire book is basically what you describe, at least in my very pedestrian understanding of energy / petroleum markets.
Are you familiar with this title, or the author? Your post makes me want to pull it out for a re-read.
edit: maybe not. really spotty reviews. [2]
[1] - https://www.amazon.com/Coming-Economic-Collapse-Thrive-Barre...
[2] - https://www.goodreads.com/review/show/13711731
[+] [-] jcampbell1|6 years ago|reply
[+] [-] stefan_|6 years ago|reply
And of course oil reserves have had the unfortunate tendency to significantly increase whenever the oil price is high.
[+] [-] Audoenus|6 years ago|reply
https://oilprice.com/Energy/Crude-Oil/Does-Saudi-Arabia-Real...
[+] [-] AnimalMuppet|6 years ago|reply
I'm skeptical. Maybe the Saudis don't have the capacity they say they do. They have the capacity that they're delivering, though, and that capacity is enough for the needs of the market...
... until some other supplier has a problem. But while the results may be a shock and a crisis, I suspect it won't quite add up to the apocalyptic terms of the quote.
[+] [-] the_duke|6 years ago|reply
SA inflating their production and capacity numbers is perfectly possible (and probably likely), but that kind of writing is not exactly trustworthy.
But some things to think about:
* With modern drone/missle capabilities, it seems quite easy to severely compromise global oil and gas production with just a few targeted strikes; mainly on the big refineries. Quite scary.
* Is Iran, after years of fighting proxy wars, now moving towards more direct conflict with Saudi Arabia?
[+] [-] AsyncAwait|6 years ago|reply
I mean the Saudis have been commuting war crimes in Yemen, Iran may've supplied some equipment, but I certainly think the Yemenis would be motivated enough themselves.
[+] [-] hogFeast|6 years ago|reply
And yes, it is unsourced...because the point is very much that OPEC is using this data to determine things like production share, so there is a massive incentive to fabricate data which no-one can prove.
[+] [-] Expez|6 years ago|reply
The Trans-Arabian pipeline for example is a whopping 1214 km (754 mi) long[0]!
[0]https://en.wikipedia.org/wiki/Trans-Arabian_Pipeline
[+] [-] mc32|6 years ago|reply
[+] [-] cascom|6 years ago|reply
[+] [-] Jweb_Guru|6 years ago|reply
[+] [-] duxup|6 years ago|reply
Half the battle within OPEC was over who lies how much and everyone coming to the table to figure that out and come to guidelines about production that are largely general guidelines in practice. Sort of "Ok everyone we're all way off the agreed numbers way too much let's dial it back for a bit." agreements.
I want to say that I've heard representatives in OPEC have openly say such things plenty of times.
[+] [-] secfirstmd|6 years ago|reply
[+] [-] unknown|6 years ago|reply
[deleted]
[+] [-] jnurmine|6 years ago|reply
The recent attacks are said to have cut Saudi production by 50%.
The Saudis claim production capacity of ca. 12 mbd. 6 mbd lost to attack. Their estimated stores are at ca. 180 million barrels.
To keep a happy face, the Saudis could sell from their stores to offset for the loss of Abqaiq and Khurais, but this can only be kept up a limited time, as the store is empty in roughly 30 days.
The time to fix the damage has been estimated at 8 months.
Does this mean the Saudis face losing 50% of their oil income in about 30 days?
[+] [-] onlyrealcuzzo|6 years ago|reply
[+] [-] eisa01|6 years ago|reply
I see articles linked quite often on EV forums I follow
I only remember Upstream [1] from when I was briefly in the oil industry ten years ago
[1] https://www.upstreamonline.com/
[+] [-] sambroner|6 years ago|reply
[+] [-] SanchoPanda|6 years ago|reply
This implication is so far beyond the pale it borders on satire.
[+] [-] quattrofan|6 years ago|reply
[+] [-] m23khan|6 years ago|reply
[+] [-] cagenut|6 years ago|reply
That is why, as a general rule, every year they "discover" approximately the same amount of oil they produced/delivered that year.
[+] [-] audiometry|6 years ago|reply
[+] [-] IfOnlyYouKnew|6 years ago|reply
Counterintuitively, a high price may actually be scarier for SA than a low price. It may cause competitors to invest in exploration. And where fixed, initial cost make up a large part of costs, some competitors may continue to produce even if prices fall, and even if the investment was based on wrong estimates and may never actually reach break-even.
SA running out of oil would also hasten efforts to replace oil with renewables.
[+] [-] yasp|6 years ago|reply
[+] [-] colechristensen|6 years ago|reply
[+] [-] cat199|6 years ago|reply
Would it have been the time to pump it? If the goal was just to impact US shale producers, why also undercut your own sales? The best strategy factoring in shale-targeting AND profits would be to pump just as much as to impact shale producers, but no more.
Also, another angle as hinted at from conclusions, but not included:
"Saudi Arabia ends up boosting the bank accounts of the very people that it thinks was behind the attacks on its own oil infrastructure, the Islamic Revolutionary Guards Corps "
but, counterpoint, if they pumped too much at that time, dropping prices against US interests, when the political climate was more favorable to Iran, trade talks could have further favored Iran as a counterbalance, if for no other reason than to 'keep the saudis in line'.
i have no direct knowledge, but the analysis is quick to highlight some angles and not others.
[+] [-] DSingularity|6 years ago|reply
Wow, really? Would love to see numbers. Sheer luck or conspiracy?
[+] [-] audiometry|6 years ago|reply
Regarding his accusations that hedge funds knew Iran would attack Saudi that weekend.... zzzz 1st there are few commod-specific hedge funds left, 2nd macro funds currently hate oil if anything, and don't have big positioning in either case (see CFTC data), 3rd any oil specialist that is long was/is long because our markets are very tight currently -- crude oil markets are strongly backwardated (implying urgency to acquire spot barrels) and refining margins are large globally. The Iran attacks were a (fleeting) side benefit and are very nearly lower than they were before the attacks now.
Reading this sort of garbage on oil markets always reminds me the Gell-Mann effect must be real and I should quit reading news in other domains, because it's probably as crap.
[+] [-] neoplatonian|6 years ago|reply
[+] [-] PetroOption|6 years ago|reply
Edit: grammer/spelling
[+] [-] BlueTemplar|6 years ago|reply
[+] [-] voisin|6 years ago|reply
https://en.m.wikipedia.org/wiki/Twilight_in_the_Desert
[+] [-] Scapeghost|6 years ago|reply
[+] [-] SuoDuanDao|6 years ago|reply
[+] [-] vondur|6 years ago|reply
[+] [-] xvilka|6 years ago|reply
[+] [-] Merrill|6 years ago|reply
[+] [-] dehrmann|6 years ago|reply
Or tech. Softbank's vision fund is dumb money.