Are the Saudis running out of oil?
There’s an interesting post over at The Oil Drum from Stuart Staniford about decreasing Saudi oil production (hat tip: Mary Madigan). Lots of graphs if you’re interested in such things. Here are his conclusions:
- Saudi Arabian oil production is now in decline.
- The decline rate during the first year is very high (8%), akin to decline rates in other places developed with modern horizontal drilling techniques such as the North Sea.
- Declines are rather unlikely to be arrested, and may well accelerate.
- Matt Simmons appears to be right in Twilight in the Desert, but the warning did not come until after declines had actually begun.
Oil economist James Hamilton had made similar observations a couple of weeks ago at his blog, Econbrowser:
This is a potentially huge story that is not being adequately investigated by the financial press.
The future of world oil depends critically on what happens in Saudi Arabia. The country’s importance comes not just because it accounts for more than 10% of global production, but moreover from the fact that it produces almost a quarter of the oil globally available for export. Furthermore, nearly a third of the increase in global production by 2010 that is assumed in the EIA’s reference case forecast is supposed to come from Saudi Arabia.
I think we should avoid too much schadenfreude at this news. The Saud family doesn’t have anything to worry about nor do other wealthy families in the KSA. They’ve used the oil money to buy a lot of other assets. And wealthy Saudis who are inclined to fund terrorism will continue to have plenty of money to do it with.
Most people in the KSA don’t belong to those families and, if growth slows, they may be in very dire straits indeed. IMO that will produce more radical Islamism not less.
Second, the pressure that the Saudis have been able to put on Iran by modulating the world’s total oil supply has been an important weapon against the regime. If the Saudis’ oil is decreasing faster than the Iranians’, it may render that less effective.
Also, this may tend to make Russian and Central Asian oil that much more important in the future. I’m not sure that’s particularly good news.