WikiLeaks documents suggest Saudi Arabia is running out of oil

Diplomat(s) expressed increasing concern that Saudi Arabia is no longer able to lift oil production at a rate fast enough to prevent oil prices from escalating.

<p>Diplomat(s) expressed increasing concern that Saudi Arabia is no longer able to lift oil production at a rate fast enough to prevent oil prices from escalating.  Looking back at historic data we see that Saudi oil exports peaked way back in 2005.</p>

Diplomat(s) expressed increasing concern that Saudi Arabia is no longer able to lift oil production at a rate fast enough to prevent oil prices from escalating.  Looking back at historic data we see that Saudi oil exports peaked way back in 2005.

in the News

State of Logistics 2016: Pursue mutual benefit
Truckers applaud move to revert to pre-2013 Hours of Service regulations
Kion CEO sees further potential for growth from the Dematic acquisition
LM Viewpoint 2017: Prepare to be quick and nimble
Infrastructure could be a key part of Trump’s plan
More News
By ·

On February 8, The Guardian published an article covering a series of diplomatic cables sent between 2007 and 2009 from the U.S. embassy in Riyadh, Saudi Arabia, to the White House. In these WikiLeaked communications, diplomat(s) expressed increasing concern that Saudi Arabia is no longer able to lift oil production at a rate fast enough to prevent oil prices from escalating.

These revelations came through private discussions with Sadad al-Husseini, former head of exploration and production at Saudi Aramco, the world’s largest oil producing company. Of Mr. al-Husseini one of the cables states: “While al-Husseini fundamentally contradicts the Aramco company line, he is no doomsday theorist. His pedigree, experience and outlook demand that his predictions be thoughtfully considered.”

For U.S. shippers, thoughtful consideration of the situation in Saudi Arabia is exactly what needs to be done.

At the end of last month, I participated in the Logistics Management Annual Rate Outlook webcast. In my presentation on the state of the world oil market, the most salient point that I hoped to make was that the Energy Information Administration (EIA) has placed far too much confidence in Saudi Arabia’s willingness and ability to lift production as oil markets continue to tighten through 2011.

imageAccording to the EIA’s Short Term Energy Outlook, global demand for liquid fuels will increase by 1.5 million barrels per day by the end of the year. Of this amount, OPEC is expected to supply 1.2 million barrels per day. The EIA data on surplus oil production capacity suggest that Saudi Arabia will be responsible for the vast majority of OPEC’s increase in production.

As I explained in the webcast, while production rates are important, an even more important metric is the amount of oil that Saudi Arabia exports. Looking back at historic data we see that Saudi oil exports peaked way back in 2005. And despite the fact that exports were lower in 2008 by roughly 671,000 barrels per day than they were at the peak, the Kingdom’s annual petro-income increased by more than $100 billion over this period of time.

Exports, of course, represent the difference between production and domestic consumption. Unlike the U.S. and other OECD economies, where oil is primarily consumed as transportation fuel, the Saudi Kingdom burns copious quantities of oil to generate electricity and desalinate water. Given that the population of Saudi Arabia is rapidly expanding and that prices, and therefore petro-income, have returned to Q1 2008 levels, it should come as no surprise that Saudi electricity demand is climbing rapidly and is expected to double by 2018.

The problem, then, is that oil production must increase at a rate that not only covers 80 percent of the projected increase in global liquid fuels demand, but at a rate that also covers the increase in Saudi Arabia’s domestic consumption…which, by the way, is highly subsidized.

Alternatively, the Kingdom could theoretically shift from oil-fired power plants to natural gas-fired power plants, but this would require the massive expansion of natural gas production. And it is here that the Kingdom faces more difficulties.

Back in September 2010, the Financial Times ran an article on the potential for the production of unconventional natural gas to free up much of the Kingdom’s oil for export. While the FT article paints a somewhat rosy picture of the Kingdom’s unconventional natural gas reserves, it also states that exploration efforts to discover conventional natural gas resources have produced “largely disappointing results.”

The most prescient problem, then, is that in order to bring unconventional reserves online Saudi Aramco must overcome a number of technical challenges. Consequently, it is unlikely that unconventional gas production will supplant much (if any) of the oil used to generate electricity by year’s end. And over the next few years, we should expect much of Saudi Aramco’s investments to shift from oil production to unconventional natural gas exploration and production.

Looking forward, these WikiLeaked documents do nothing to unseat my belief that oil prices will continue to rise and become more volatile in the coming months. And these documents do much to reinforce my unease with the EIA placing such confidence in Saudi Arabia’s willingness and ability to increase production for the good of the world economy. The Kingdom didn’t increase exports as the price climbed from $50 per barrel to nearly $150 per barrel in 2008, so what is so different today?

For more on fuel click here.

For the full text of the The Guardian article click here.


About the Author

Derik Andreoli
Derik Andreoli, Ph.D.c. is the Senior Analyst at Mercator International, LLC. He welcomes any comments or questions, and can be contacted at [email protected]

Subscribe to Logistics Management Magazine!

Subscribe today. It's FREE!
Get timely insider information that you can use to better manage your entire logistics operation.
Start your FREE subscription today!

Latest Whitepaper
Six Ways Cloud ERP Supports Rapid Innovation
Kenandy is a new approach to ERP that lets you and your team focus on driving innovation, creating new product lines, and expanding your customer base even as you improve your business operations.
Download Today!
From the November 2016 Issue
The third time is the charm for this U.S. manufacturer on the hunt for a third-party logistics (3PL) provider that could successfully combine transportation services and technology capabilities under one roof.
Warehouse & DC Operations Survey: Ready to confront complexity
2016 Quest for Quality Awards Dinner
View More From this Issue
Subscribe to Our Email Newsletter
Sign up today to receive our FREE, weekly email newsletter!
Latest Webcast
Best Practices: How to Efficiently Leverage APIs to Increase Your Net Income
Both legacy and modern technology leaders agree that leveraging API connectivity is critical in keeping up with the pace of a world that demands not only speed and agility, but also a deep level of visibility. During this session a panel of technology and industry experts discuss impact APIs can have on annual net income and market capitalization.
Register Today!
EDITORS' PICKS
Logistics Management’s Top Logistics News Stories 2016
From mergers and acquisitions to regulation changes, Logistics Management has compiled the most...
Making the TMS Decision: Ariens Finds Just the Right Fit
The third time is the charm for this U.S. manufacturer on the hunt for a third-party logistics (3PL)...

Motor Carrier Regulations Update: Caught in a Trap
The fed is hitting truckers with a barrage of costly regulations in an era of scant profits....
25th Annual Masters of Logistics
Indecision revolving around three complex supply chain elements—transportation, technology and...