Posted on Monday, February 21st, 2011
Sadad al-Husseini’s statement distancing himself from the Wikileaked cable written by US diplomats in Riyadh is most interesting for what it leaves out. While robustly denying claims that were not actually made in the original message – always a good tactic when you’re on the back foot – the former VP Exploration & Production for Saudi Aramco pointedly fails to deny the most important passage.
The diplomats wrote:
“[Al-Husseini] instead focuses on original proven reserves, oil that has already been produced or which is available for exploitation based on current technology. All parties estimate this amount to be approximately 360 billion bbls. In al-Husseini’s view, once 50 percent depletion of original proven reserves has been reached and the 180 billion bbls threshold crossed, a slow but steady output decline will ensue and no amount of effort will be able to stop it. By al-Husseini’s calculations, approximately 116 billion barrels of oil have been produced by Saudi Arabia, meaning only 64 billion barrels remain before reaching this crucial point of inflection. At 12 million b/d production, this inflection point will arrive in 14 years.”
As I wrote two weeks ago, these numbers suggest Saudi production will peak in the early-to-mid 2020s, probably at a level scarcely 2 million barrels per day higher than current output. But by then the loss of existing production to depletion means the world will need some 40-60 mb/d of new capacity just to stand still. If that’s right, it simply confirms what many have long believed – that Saudi Arabia is quite incapable of staving off the global peak or even quenching the oil price in the medium term.
I strongly suspect the reason al-Husseini kept mum on this point was that he did say it and still believes it. That would certainly chime with the tone of his interview with me three years ago, in which he said 12 mb/d was “an achievable number” for Saudi production, but in which he was distinctly non-committal about the larger numbers often thrown out by serving Saudi officials.
12 mb/d was also seen as a sensible ceiling for the kingdom’s output by Edward Price, al-Husseini’s predecessor in charge of E&P at Aramco, as I report in The Last Oil Shock. “They could probably get to 15 but it would be a massive stress on the system and they couldn’t hold it very long”, he told me. “Even at 12 they’ll only hold it for 10 or 15 years before it goes into decline”.
Reviewing the 2007 interview today, al-Husseini’s price forecast looks uncannily on track. He said then that the technical floor for the oil price – the basic cost of producing oil excluding factors such as geopolitical risk and hedge fund speculation – would reach $106 in 2010. Brent topped $105 today with only a little help from Libya.
Al-Husseini may have found himself in an embarrassing spot with his former employers, and there are clearly some things he cannot be seen to say in public, but he is still one of the most credible authorities on both Saudi and global oil depletion.