www.oiladdict.com Saudi Oil Production data an Enigma within an by klutzfu58



Saudi Oil Production data : an Enigma within an Enigma.

By Dr Ian Rutledge, www.oiladdict.com

In early 2004 two senior officials from Saudi Aramco, the world’s largest oil producer
flew into Washington on a crucial mission – to convince the world oil market that
there was absolutely no truth in the recent ‘bombshell’ dropped by Matthew
Simmons. Chairman of Simmons & Co. International, that Saudi Arabia could soon
be approaching its peak production and would never reach the sort of oil production
levels previously assumed by organisations like the International Energy Association
and the US Energy Information Administration.1 Whatever President Bush might say
a year or so later, far from being in danger of too much ‘addiction’ to Middle East oil,
going forward, the USA is likely to need ever larger supplies from Saudi Arabia and
other Persian Gulf oil producers: in other words – and as I argued in the last chapter
of my recent book, Addicted to Oil: America’s Relentless Drive for Energy Security2 –
having lost its War for Oil in Iraq, America’s future energy problem will be not too
much Middle East oil dependence but not enough ! Therefore, whatever rhetoric he
might use addressing the American people, the last thing Bush needs is a prognosis
that future Saudi Arabian oil supplies might decline more rapidly than expected due to
geological factors as yet concealed from the World, as alleged by Matthew Simmons.

Fortunately for Bush, at a conference hosted by the Center for Strategic and
International Studies, the men from Saudi Aramco presented their audience with a
fairly convincing rebuttal of Simmon’s claims and demonstrated that Saudi Arabia
could ramp its “sustainable capacity” up to 15 million b/d over the next 50 years, if
the market called upon it to do so. Given that larger figures for future Saudi
production were implicit in some of the prevailing estimates for world oil supplies,
this wasn’t quite the reassurance some had been looking for, but for the time being it
reduced Mr Simmons to complaining rather weakly about “lack of technical proof,”
and “Trust Me” statements from Saudi Aramco.3

However, while controversy may still rage about the levels of Saudi oil production
well into the future, surely matters are a lot more certain in the near-term, say over the
next five years ? Well, let us see. After then Crown Prince Abdullah and his ministers
met President Bush in Washington in April to reassure him of the Kingdom’s oil
supply reliability, the President’s National Security Advisor announced to the world
press that “Saudi Arabia planned to be able to produce 12.5 million b/d within two
and a half to three years.” (Financial Times, 26 April 2005).4 Similarly, according to
the FT’s oil correspondent, Carola Hoyos, “Saudi Arabia pumps 9.5 million b/d and
has assured consumer countries that it could reach 12.5 million b/d in 2009.” (FT, 7
July 2005).5 Broadly confirming this, four days later, in the pages of the Oil and Gas
Journal, Saudi Aramco official, Khalid Al-Falih, was quoted as saying that the
Kingdom has a goal of ‘increasing production to 12 million b/d by 2009.” (OGJ, 11
July 2005).6 So there we have it: Saudi production at 12 to 12.5 million b/d by 2009.

But let us have another look at that Washington Saudi Aramco presentation of
February 2004. According to Nansen Saleri and Mahmoud Abdul Baqi, the two
company officials present, the current Saudi Aramco business plan, covering the
period 2005 to 2009, is for a “maximum sustainable capacity” of just 10 million b/d,
and although this “capacity” could be gradually increased to 12 million b/d this
wouldn’t happen until 2014 at the earliest. “We never fail our business plan” adds
Saleri, Saudi Aramco’s senior manager for Reservoir Management.7 What he clearly
does not say is that the company has any intention of exceeding its business plan.

Also note the terminology. We are now talking about “capacity” not “production” and
the Kingdom’s stated policy is to retain a substantial cushion of shut-in spare
capacity. According to Abdallah S. Juma’ah, Saudi Aramco’s CEO, speaking at the
Saudi Mega Projects Conference on 7 May 2005, the company, has a “production
capacity which currently stands at 10.5 Million b/d, including a redundant capacity
ranging between 1.5 and 2 million b/d”8 and a few days later, at the James Baker
Institute for Public Policy, Mr Juma’ah stated that “we are working diligently to
expand Saudi Aramco’s capacity to 12 million b/d …consistent with …the
Kingdom’s commitment to maintain a surplus production capacity of 1.5 to 2 million
b/d.”9 So 12 million b/d by 2009 – even if it were to be achieved (in apparent
contradiction to Saudi Aramco’s stated 5 year plan) – doesn’t actually mean a
production of 12 million b /d but one of between 10 and 10.5 million b/d.

And what does this 10 - 10.5 million “oil” production actually consist of ? The
question may seem eccentric but the term “oil” is frequently used loosely to include
both crude oil and natural gas liquids (NGLs) used to make propane and butane. So,
for example, when Cambridge Energy Research Associates (CERA) were recently
quoted in the Oil and Gas Journal as forecasting a Saudi “production” level of 12
million b/d by 2010 this was said to include NGLs (OGJ, 4 July 2005).10 And how
much is NGL production ? According to the US Energy Information Administration,
1.3 million b/d. So does the future 12 million b/d of capacity, of which Mr Juma’ah
speaks include NGLs as well as spare capacity ? Probably not, but given the opacity
of the Kingdom’s public domain oil information, we can’t be certain.

At least we know how much oil Saudi Arabia is producing right now –
or do we ? Compare the following: “roughly 9 million barrels per day at present”
(Cambridge Energy Research Associates quoted in OGJ, 4 July 2005),11 “Saudi
Arabia pumps 9.5 million b/d” (Financial Times, 7 July, 2005);12 and referring
explicitly to production “current 10.5 million b/d” (Khalid Al-Falih, Saudi Aramco
Senior VP Gas operations quoted in OGJ, 11 July 2005).13 So there we are: three
different figures for current Saudi oil production quoted in two respected press
sources, and all of them in the same month.

Perhaps it is the inclusion of that troublesome NGL again. Maybe the 10.5 million b/d
cited by the Saudi Aramco official includes NGL and the 9 million b/d referred to by
CERA doesn’t. In fact, Al-Falih’s figure may well include NGLs – but so does the 9
million b/d CERA figure according to the Oil and Gas Journal. So the 1.5 million b/d
‘gap’ between CERA’s figure and that of Al-Falih remains. And let us be clear about

one thing: 1.5 million b/d is an awful lot of oil: in fact almost exactly equivalent to the
daily production of Brazil and just a little less than the daily production of Libya.

Now one thing must be certain – surely there can be no disagreement about the size of
Saudi oil production in the past ? Let us take the year 2003, for example, thereby
giving adequate time for any revisions to be incorporated in the published data. That
much-used and well-respected source, the BP Statistical Review of World Energy
states that in 2003, Saudi Arabia produced on average 10.22 million b/d and
according to the notes to the relevant table this includes NGLs. 14 We then turn to the
OPEC Statistical Bulletin for 2003 which gives a figure of 8.41 million b/d of Saudi
production including the Saudi share of the Neutral Zone (50% of 0.6 million b/d) but
excluding NGLs.15 However the respected Middle East Economic Survey currently
informs us that in 2003 Saudi production of crude was 8.79 million b/d, again
including the Neutral Zone share.16 So here we have a difference between OPEC and
MEES of 380,000 b/d in crude production for which no apparent explanation is
available. Now let us return to the tricky subject of NGLs. From Saudi Aramco’s Fact
& Figures 2003 publication we learn that NGL production in 2003 averaged 0.945
million b/d.17 Therefore totalling Saudi Aramco’s ‘national’ crude (8.1 million b/d)
plus the Saudi share of the Neutral Zone crude (0.34 million b/d) plus its NGL
production (0.945 million b/d) we reach a grand total of 9.39 million b/d. But as we
have already seen, according to BP, the equivalent ‘grand total’ for Saudi Arabia in
2003 was 10.22 million b/d. That’s a difference of 830,000 b/d. And again, to put that
figure into perspective it is almost exactly equivalent to the daily production of Oman.

Saudi Arabia’s production is fundamental to the world oil supply-demand balance and
data published about that production enters into critical calculations as to the likely
trajectory of world oil prices in both the short, medium and long term. At the very
least it would be helpful both to the markets and to consumers, if the Saudi
authorities, world oil industry experts and journalists could achieve some consensus
and precision as to the size and composition of past and current Saudi oil production.
Until at least that basic task is accomplished there is surely little point in engaging in
flights of fancy about how big that production might be much farther into the future.

    An earlier version of this paper was published in Medenergie (Algiers) No.18, January 2006

  Matthew R. Simmons, Twilight in the Desert: the Coming Saudi Oil Shock and the World
Economy, Wiley (London, 2005)
  Ian Rutledge, Addicted to Oil: America’s Relentless Drive for Energy Security, I.B. Tauris,
(London, 2005) See also http://www.oiladdict.com
  See Matthew R. Simmons, ‘Twilight in the Desert. It may be unwise to rely on Saudi Arabia
to fulfil galloping oil demand.’ Global Agenda, 2005. Online, available:
http://www.globalagendamagazine.com/2005/matthewsimons.asp (21/7/05)

  Guy Dinmore, ‘Saudis, US seek to calm oil markets,’ Financial Times, 26 April 2005
  Carola Hoyos, ‘Saudis warn on shortfall in oil output’, Financial Times, 7 July 2005
  Nick Snow, ‘Aramco official outlines plans to boost production’, Oil & Gas Journal, 11
July 2005
  Nansen G. Saleri, ‘Future of Global Oil Supply: Saudi Arabia,’, Saudi-US Relations
Information Service, 24 February 2004. Online, available: http://www.saudi-us-
relations.org/energy/saudi-energy-saleri.html (8/7/05)
  Abdallah S. Jum’ah, ‘New Energy Dynamics and Saudi Aramco’s Strategic Direction’,
saudiaramco.com. 7 May 2005, Online, available: http://www.saudiaramco.com (8/7/05)
  Abdallah S. Jum’ah, ‘Saudi Arabia and the United States: Partners in Prosperity – the
Energy Dimension’, saudiaramco.com. 16 May 2005. Online, available:
http://www.saudiaramco.com (8/7/05)
   Sam Fletcher, ‘CERA: Global oil, NGL production to rise by 2010,’ Oil & Gas Journal, 4
July 2005
   Hoyos, op.cit.
   Khalid al-Falih, quoted in Snow, op.cit.
   BP Statistical Review of World Energy 2005, BP plc, p.6
   OPEC, Annual Statistical Bulletin 2003, Organization of Petroleum Exporting Countries,
Vienna, 2004
   ‘Opec Crude Oil Production (MEES Estimates)’, Middle East Economic Survey, 26
February 2004. Online, available: http://www.mees.com/Energy_Tables/crude-oil.htm
   Saudi Aramco, Facts & Figures 2003, p.35

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