The Devil We Know by Robert Baer

Author:Robert Baer
Language: eng
Format: mobi, epub
Tags: Politics
ISBN: 9780307449788
Publisher: Crown Publishers
Published: 2008-09-01T10:00:00+00:00

Oil reserve estimates are based on data provided by oil-producing countries and oil companies. They’re not independently audited, and the numbers are impossible to corroborate. The higher reserves an OPEC member claims, the higher the OPEC quota it’s allotted, and the more oil it’s allowed to “lift,” or pump out. And of course, the more barrels of oil a company “books,” the higher its stock prices — and the higher the bonuses for its executives.

Not surprisingly, it has been well established that both countries and companies systematically overestimate their reserves. Several years ago, Royal Dutch Shell was caught and fined, and its stock was downgraded. Other major oil companies have been luckier. Still, their data is notoriously unreliable.

The more reliable way to calculate reserves is by looking at production data — how much oil is actually lifted from a particular field. Based on inflated industry and company estimates, the remaining proven reserves worldwide amount to 1.255 trillion barrels. But if we go by actual production, according to the respected, independent Energy Watch Group, oil reserves in fact are closer to 854 billion barrels. Energy Watch Group believes that Middle Eastern reserves are overestimated more than most. Officially they’re put at 677 billion barrels. But calculated on the basis of production, they’re more like 362 billion barrels — a little over half of what is claimed.

The numbers for each country tell the same story. Saudi Arabia, rather than possessing the 286 billion barrels it claims, has only about 181 billion barrels. Iraq claims 99 billion barrels, but in fact has 41 billion. Kuwait claims 51 billion but has closer to 35 billion. As for Iran, it has just 43.5 billion, rather than the 134 billion barrels it claims.

Saudi Arabia’s shortfall in reserves is the most alarming. Its mega oil fields are the world’s reserve tank, and their true capacity will determine whether we bicycle or drive to work in the decades to come. Saudi Arabia produces roughly 11 million barrels a day, accounting for 19 percent of the world’s oil exports. Analysts, going on industry and Saudi calculations, count on Saudi Arabia to boost its production to 15 million barrels a day to meet increasing global demand.

Historically, Saudi Arabia has also been the world’s “swing producer.” When demand spikes or collapses, Saudi production goes up or down accordingly, smoothing market prices. For instance, during the Gulf War, Saudi Arabia boosted its production by 3.1 million barrels a day, at a time when 5.3 million barrels of Iraqi and Kuwaiti production were off the market. Thanks to this Saudi surge production, world oil prices rose only moderately. Add to this the fact that Saudi oil is some of the world’s cheapest to produce — about $1 to $2 a barrel to lift, compared with $11 to $15 a barrel in the Caspian Sea, where the oil lies deeper underground — and there is no doubt that Saudi Arabia and its oil are a pillar of the world’s economy, expected to fuel uninterrupted world growth for the next fifty years.

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