Use it or lose it - this principle might apply to Saudi Arabia's oil production capacity that is now eyed by the Western world to fill the Russia-sized gap in supply left behind by embargoes. However, as Statista's Katharina Buchholz details below, Saudi Arabia in the past three years only approached its declared maximum production capacity of 12 million barrels per day in one month, casting doubts on the kingdom's ability to quickly up its production to stabilize world markets. According to Bloomberg, such predictions have come from UAE leadership, who together with the Saudis are the only OPEC members who have spare production capacity - at least on paper.
Joe Biden is traveling to Saudi Arabia this week and the increase of the global oil supply will be on the top of the agenda for the U.S. president. Up until now, the Gulf kingdom and its OPEC allies have been reluctant to make major changes as a result of the Russian invasion of Ukraine. OPEC stuck to its slow production increases that were scheduled to reverse Covid-era cuts between March and June, and only recently agreed to up production quotas faster in the coming months in the light of the dramatic world market developments. Saudi Arabia's OPEC production quota for August 2022 stands at 11 million barrels a day - more than it has been in a long time and still a whole million barrels a day below the country's elusive maximum quota.
Related: Solving The Energy Transition Conundrum
As seen in data by the organization, Saudi Arabia has remained below its production quota prior to the Covid-19 epidemic and only once approached its declared maximum production capacity in April 2020 amidst a row with Russia that saw production quotas go out the window. The following months, the kingdom stood down, accepting lower production quotas than its rival on a voluntary basis.
If the Saudis can in fact produce more, they might also not want to.
Driving oil production to the edge of what is possible globally holds an inherent risk should another disruption, like it happened recently in Libya due to political unrest, should occur. Since that disruption can then not be compensated at all, it could cause an even more drastic jump in oil prices.
By Zerohedge.com
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Furthermore, Saudi proven oil reserves which have given the Kingdom strategic, geopolitical and economic influence in both the global oil market and the global economy are estimated currently at 41.4 billion barrels (bb) according to my research and calculations and not 264 bb as the Saudis have been claiming for the last twenty years despite no new discoveries and despite sizeable production since 1938 when oil was discovered in the Kingdom.
I have been tracking Saudi oil reserves since 2005. In a research paper titled:”Saudi Arabia’s Proven Crude Oil Reserves & Production Capacity: The Myth & the Reality” I gave at the 28th Annual IAEE International Conference on June 3-6, 2005 in Taipei and also in my book titled:” Over a Barrel” published in the UK on June 2004, I calculated that Saudi reserves stood at no more than 181 bb based on the data available to me at the time.
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The second assessment was in a research paper titled: ”Saudi Crude Oi Reserves; The Myth & the Reality Revisited” I gave at the 10th IAEE European Conference, 7-10 September 2009, in Vienna, Austria in which I argued that far from having 264 bb of recoverable reserves, Saudi reserves actually range from 90 bb -125 bb.
The third evaluation was in January 9, 2019 in a rebuttal of claims that an independent audit has put Saudi Aramco’s oil reserves at $270 bb. My calculations of the Saudi remaining proven reserves came to no more than 70-74 bb.
The fourth assessment was in another research paper titled: ”Saudi Aramco: A Global Oil Giant with a Global Credibility Gap to Match” published by the ESCP Research Centre for Energy Management in London on 22 March 2020 in which I rebutted new claims made by Saudi Aramco in a new Prospectus issued in support of a major bond issuance. Sifting through figures in the prospectus, I reached the conclusion that Saudi actual reserves couldn’t have been more than 53 bb at the end April 2019.
By deducting 2.5 bb of oil produced between the first of May and the end of December 2019 (based on daily production of 10.145 mbd) and 3.5 bb produced in the whole of 2020 (based on a daily production of 9.5 mbd), I calculated that Saudi remaining reserves stood at 47 bb at the end of 2020.
Since January 2021 until the 13th of July 2022, Saudi produced 5.6 bn. Deducting this figure from 47 bb leaves reserves of only 41.4 bb.
And while the global oil market could be sitting on a ticking bomb by the circumstantial evidence that neither OPEC+ nor Saudi Arabia or UAE has any spare capacity, a real hydrogen bomb awaits both the oil market and the global economy if Saudi remaining reserves are proven to be no more than 41.4 bb as my research showed.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London