(The opinions expressed here are those of the author, a
columnist for Reuters.)
* Saudi oil reserves: tmsnrt.rs/29fzTm3
By John Kemp
LONDON, July 5 "How much oil lies beneath the
desert sands of Saudi Arabia and how long will it last before
running out?" is a question that has intrigued and confounded
oil experts for five decades.
The kingdom has proven reserves of 266 billion barrels
according to government estimates submitted to the Organization
of the Petroleum Exporting Countries ("Annual Statistical
Bulletin", OPEC, 2015).
If these numbers are correct, Saudi Arabia's reserves will
last for another 70 years at the average production rate of 10.2
million barrels per day reported for 2015.
But there is widespread scepticism about the official
estimates, which were abruptly raised without explanation from
170 billion barrels in 1987 to 260 billion in 1989 (tmsnrt.rs/29fzTm3).
Official reserves have remained constant every year since
then at 260-265 billion barrels, even as the country has
consumed or exported another 94 billion barrels ("Statistical
Review of World Energy", BP, 2016).
If the government data is accurate, the kingdom has managed
the remarkable feat of exactly replacing each produced barrel
with new discoveries or increased estimates of the amount
recoverable from existing fields.
But most of the country's giant and super-giant oil fields
were discovered between 1936 and 1970 and no comparable
discoveries have been made since then.
The implied increase in reserves must therefore come from
enhanced estimates of the amount of oil recoverable from
The problem is that field-by-field production profiles and
reserve estimates are state secrets known by only a small group
of insiders, making it impossible to test or verify them.
Analyzing Saudi reserves and trying to predict when the
kingdom's production will begin to decline has been a graveyard
for the reputation of professional oil analysts.
The kingdom is currently producing more oil than ever
before, defying predictions that its output would peak and then
fall ("Twilight in the desert", Simmons, 2005).
The oil industry employs a number of different ways of
classifying the amount of oil available for future production.
The broadest category is the total amount of original oil in
place (OOIP) in the reservoir formation before production began.
In the 1970s, there was broad agreement that the OOIP of
Saudi Arabia's discovered oil fields was around 530 billion
The estimate for original oil in place was reported to the
U.S. Senate's Subcommittee on International Economic Policy by
executives for Arabian-American Oil Company (Aramco).
Aramco was then jointly owned by four U.S. oil companies
(Exxon, Texaco, Socal and Mobil) as well as the government of
Saudi Arabia so its owners and executives could be required to
The subcommittee report, now nearly 40 years old, contains
some of the last detailed information about Saudi reserves in
the public domain ("The future of Saudi Arabian oil production",
U.S. Senate, 1979).
But not all of the original oil in place can be produced
technically or profitably so most analysts focus on a series of
narrower measures which look at the amount of technically and
economically recoverable reserves.
Proved reserves, the most conservative and prudent measure,
are those which are estimated to exist, and are technically and
economically recoverable, with a probability of at least 90
Probable reserves are those estimated to exist and be
commercially recoverable with a probability of at least 50
Possible reserves, the most speculative and optimistic
measure, are estimated to exist and be commercially recoverable
with a probability of at least 10 percent.
In the late 1970s, Aramco put proven reserves at around 110
billion barrels, while the more speculative categories of
probable and possible reserves were put at 178 billion barrels
and 248 billion barrels respectively.
The question of which measure to use for production and
planning purposes is a matter of judgement and caused
controversy between the Aramco partners and the Saudi government
in the 1970s.
PROVED OR PROBABLE?
Since 1980, the Saudi government has been the sole owner of
Aramco. From 1982, detailed field-by-field information about the
company's reserves and production has been restricted.
Saudi Arabia began reporting to OPEC that its "proved"
reserves stood at around 168-170 billion barrels of crude oil.
The Saudi figure was much higher than the 110 billion
barrels of proved reserves reported by the Aramco partners a few
But it was very close to the figure for possible reserves
that the Aramco partners had reported to the U.S. Senate.
That raised the question if the Saudis had chosen to
increase their reported reserve base by reporting probable
reserves as proved reserves.
In 1988/89, the proved reserve figure jumped again to 260
billion barrels despite no major new discoveries. (tmsnrt.rs/29fzTm3).
This was much higher than the proved figure reported by the
Aramco partners but not far off the figure of 248 billion for
possible reserves they had reported in the 1970s.
Again that posed the question whether the Saudis were
reporting possible reserves as proved to increase the size of
their reserve base.
The Society of Petroleum Engineers and the U.S. Securities
and Exchange Commission have strict definitions for estimating
and reporting reserves ("Guidelines for Application of the
Petroleum Resources Management System", SPE, 2011).
But it is far from clear that the "proven" reserves which
Saudi Aramco has reported to OPEC employ the same definitions;
because the calculations are secret outsiders have no way of
It is not uncommon for countries to produce far more oil
than initial reserve estimates suggested would be possible.
Reserve increases can come from the discovery of new oil and
gas deposits or from an increase in the estimated amount of oil
that is commercially recoverable from an existing field.
Reserve growth from existing fields, also known as field
appreciation, is one of the most important sources of increases
in oil reserves in most countries.
As understanding of the reservoir increases, more
information is known about its extent, and new technology and
techniques become available, the amount of technically
recoverable oil may rise ("Reserve growth of oil and gas
fields", United States Geological Survey, 2013).
Because the calculation of reserves is deliberately
conservative, it is fairly common for reserves initially
reported as "possible" to become "probable" and eventually
But Saudi Arabia seems to have been unusually reliant on
reserve growth within existing fields to revise its reserves up
to 265 billion barrels and keep them there since the late 1980s.
Saudi leaders have announced plans to seek a stock market
listing for Saudi Aramco and make up to five percent of the
company's shares available to investors.
The prospect of a partial floatation has triggered renewed
interest in Aramco's reserves since they could be an important
part of any valuation.
If Saudi Aramco was required to comply with the normal
listing rules it would have to make much more information
available about its reserves and how they are calculated.
But there are reasons to be cautious about expecting much
more transparency: it is far from clear that any share sale
would include ownership of the reserves in the ground.
In the meantime, no one really knows how much more oil can
be recovered from beneath the Saudi desert and adjoining areas
in the Gulf.
Rystad Energy, a respected consultancy, puts Saudi Arabia's
proved reserves at 70 billion barrels, and its proved and
probable reserves at 120 billion barrels.
If new field discoveries are included the reserve figure
could grow to somewhere between 168 billion and 212 billion
barrels ("United States now holds more oil reserves than Saudi
Arabia", Rystad, 2016).
All these figures are substantially below the official
numbers for proved reserves, though at the upper end the gap is
The implication is that Saudi Arabia is relying on reserve
growth from the reclassification of possible reserves and fresh
discoveries to maintain its proved reserves at the same level
since the 1980s.
(Editing by William Hardy)