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Raymond J. Learsy

Raymond J. Learsy

Posted: February 10, 2011 08:17 AM

The pleasure was surely visceral. If it's in WikiLeaks, it's got to be true. Certainly it was a moment of triumphal satisfaction for the Peak Oil Pranksters. There it was in digital 'black and white,' embedded in cables released by WikiLeaks and headlined by the the Guardian: "Saudi Arabia cannot pump enough oil to keep a lid on prices." The story reports that in November 2007 the U.S. Consulate General, subsequent to a meeting in Riyadh with a former Saudi Aramco "oil executive," cabled Washington that reserves of the world's biggest oil exporter were being overstated by nearly 40%. Really?!

Firstly, how competent was this Saudi informant, Sadad al-Husseini, and on what basis was he authorized to speak? His credentials seem legitimate enough, but his message was curious to say the least.

Second, the Saudis have been stubbornly opaque about the extent and size of their reserves. They have steadfastly refused to disclose their reserve estimates, nor have they permitted any independent agency to audit their oil reserves. This, in spite of the vital role Saudi Arabia plays in supplying world markets.

Thirdly, the 300 million barrels of Saudi oil reserves that, according to the Embassy cable had been overstated, are highly suspect to begin with. Without specific confirmation, the Saudis have let the world believe that their reserves range in the area of 260 billion barrels, a figure generally accepted by the field and held as maximalist gospel by the peak oil crusaders, such as the late Matt Simmons. Yet, deducting 300 million from 260 million doesn't make much sense.

Fourth, the source of this information was conveyed to the embassy personnel in 2007. It infers only 51 percent of Saudi reserves as being recoverable. That was then, this is now. In the more than three years since, there has been a time warp in the application of new oil drilling technology. Extraordinary strides have been made in drilling for oil and gas. In the United States alone, because of new drilling techniques, shale gas has been accessed, and the gas reserves of the United States have increased five fold over the past five years alone, enough to cover our domestic needs, and making the United States a potential exporter of natural gas. A further example is the growing oil production from shale oil drilling techniques in the Bakken formation of North Dakota and Montana that will be producing millions of barrels/day in the years ahead.

Most significantly however was a report that same year, 2007, the year the WikiLeaks intercept was written, that was published in the New York Times, "Oil Innovations Pump new Life Into Old Wells." From the article:

Within the last decade, technology advances have made it possible to unlock more oil from old fields, and at the same time, higher oil prices have made it economical for companies to go after reserves that are harder to reach. With plenty of oil still left in familiar locations, forecasts that the world's reserves are drying out have given way to predictions that more oil can be found than ever before.


The article, presciently, goes on to comment:

Increased projections for how much oil is extractable may become a political topic on many different fronts and in unpredictable ways... Many oil executives say these so called peak-oil theorists fail to take into account the way that sophisticated technology, combined with higher prices that make searches for new oil more affordable, are opening opportunities to develop supplies. As the industry improves its ability to draw new life from old wells and expands its foray into ever-deeper corners of the globe, it is providing rebuttal in the long-running debate over when the world might run out of oil.


The article further cites Nansen G. Saleri, the head of reservoir management at the state owned Saudi Aramco, who advised that new techniques are significantly boosting Saudi Arabia's reserves, techniques such as real-time imaging software and the ability to drill horizontal wells. Saleri stated, "Saudi Arabia's total reserves were almost three times higher than the kingdom's officially published figure of 260 billion barrels." He further estimated the kingdom's resources at "716 billion barrels, including oil that had already been produced," continuing that he "wouldn't be surprised" if ultimate reserves in Saudi Arabia eventually reached 1 trillion barrels.

The question needs be asked, what was the purpose behind Sadad al-Husseini passing along his information to the American Embassy in Saudi Arabia in November of 2007? The perception of shortage and inability to meet demand is one of the bedrocks of the oil producer's pricing propaganda, thereby rationalizing ever-steepening prices and massive profits to the OPEC cartel and their oil industry allies. Passing on self-serving information about oil production constraints to U.S. State Department channels of the oil-addled Bush administration, the Saudis could be confident it would not be analyzed with a critical eye and would serve as an underpinning of what lay ahead. Six months later, oil was to hit $147 a barrel, and we were paying $4/$5 per gallon at the pump, helping crash the economy a few months thereafter.

The Guardian article, to buttress the WikiLeaks revelations, seeks out comment from Faith Birol, chief economist of the International Energy Agency. They quote Birol as saying "conventional crude output could plateau in 2020, a development that was 'not good news,'" without telling us that Mr. Birol's previous employer was OPEC. And then to bring the argumentation home, they cite Jeremy Leggett, "convenor" of the UK Industry Taskforce on Peak Oil and Energy Security, as saying, "We are asleep at the wheel here: choosing to ignore a threat to the global economy." Perhaps Mr. Leggett would be better identified as as choirmaster of the Peak Oil Choir.

Such is the oil information we are fed by the oil industry, a somnolent press and passive government agencies, all trying to make us feel better while we pay exorbitant rent for what we have foolishly let become a basic economic necessity.