The oil reserves of Saudi Arabia are important to the health of the world economy. As the 'swing producer' within OPEC, Saudi Arabia's ability to increase or decrease production plays an enormous role in setting world oil prices.
 
The Saudis just have spoken—out strongly in rebuttal to the stream of recent accusations concerning their oil reserves, reservoir practices and future production capacity. US newspapers and energy forums have claimed that reserves have been overstated and poor reservoir practices have damaged oil fields. Sadad al—Husseini, retired Executive Vice President of Saudi Aramco Oil & Gas Business Line, published a detailed response in the Oil & Gas Journal  to the many recent allegations that the Saudi oil fields were about to fall into steep decline and production rates were uncertain.
 
What is new about this statement is that for the first time technical detail and analysis is offered that explains the Saudi reservoir practices, oil reserves breakdown, and future production capacity. The retired oil executive, now a Saudi Aramco board member, writes in a very candid manner, noting that the old policy of withholding technical information allowed misconceptions to develop about Saudi oil reserves. A similar manner of more open presentation was also evident in the technical analysis presented in the article, which understandable by any oilfield professional or analyst.
 
Saudi Arabia and other OPEC members have been accused of overstating their reserves with large increases published in the 1970's and early 1980's. This current article states the obvious —— that oil reserves have an economic standard as well as a technical standard. The sharp increases in crude oil prices during this period allowed many producers around the world to reclassify undeveloped reserves as economic, with higher oil prices. This is the same US standard that requires that oil & gas must be economic using current methods. In other words, oil which was too expensive to produce at lower prices became available to add to reserves when prices rose above the cost of extracting it.
 
In terms of crude oil reserves, the article stated that Saudi Arabia has 260 billion barrels of reserves, with 50% of the total as undeveloped reserves. At current production rates depleting reserves at 3 Billion bbls/year, the future issue of replacement of reserves will not be a problem until 2020. In fact, the 130 Billion Bbls of undeveloped reserves would allow an even higher production rate than the 8 Bbls/ day produced today.
 
The reservoir practices in Saudi Arabia have been heavily criticized without merit. Sadad Husseini makes the case that Saudi Aramco follows conventional petroleum engineering practices, performs intensive reservoir simulation, and uses conservative economics. A regular program of well testing, logging and coring of key wells, and reservoir simulation models that are updated annually, all support reserves estimates. In addition, extensive 3—D seismic surveys have been conducted over the major reservoirs. This work has all been performed using US company support and traditional technologies available to all in the oil business.
 
The article summarizes the Saudi position by stating that the real issues are not technical questions of Saudi reserves and production capacity. The key issue is 'whether there is a real willingness and commitment on the part of the producers and consumers to achieve political and economic cooperation in addressing the unyielding economic imperatives imposed by the global the global energy markets.' In other words, it's going to take co—operation between consumers and producers, and not conflict, to address the global, long—term energy needs in an orderly and secure manner.
 
It seems clear that the Saudi government has taken a giant step to settle the major technical questions that concern consumers who depend on Saudi crude oil imports. The technical content and candor of this article both certify willingness on the part of the Saudis to work with consumers and address the instability in the market. We can only hope that this will be a watershed event so we can start to work on real problems.

Posted by Den Berard  05 20 04